HK old boys club living on ‘borrowed time’

Hong Kong’s cozy all-male boards have been put on notice. Rules that could become effective within months will force them to appoint at least one woman director. It’s an overdue change that may go some way to bolstering the city’s dented status as an international financial centre.
The territory is an embarrassing laggard in the worldwide trend toward greater gender diversity. The proportion of female directors in Hong Kong companies that are constituents of MSCI’s flagship global equity index grew marginally to 12.7% last year from 12.4% in 2019. Granted, that’s far from the worst in Asia. But the city trails well behind London and New York, the global financial hubs to which it aspires to benchmark itself — and the gap is widening. Last year, 34.3% of directors of UK companies on the MSCI ACWI were women; the ratio for the US was 28.2%.
Blame Hong Kong’s clubby world of family-controlled and male-dominated businesses. Close to a third of the city’s 2,500-odd listed companies had no women on the board as of the end of 2020. Many directors hold multiple board seats across different businesses, creating a semi-closed and self-perpetuating world driven by relationships.
Resistance to change is finally meeting the greatest of market incentives: money. Environmental, social and governance issues are becoming increasingly important for global institutions with trillions to deploy, and they have elevated board diversity to a key investment consideration. Hong Kong can no longer ignore the ESG train.
Hong Kong Exchanges & Clearing Ltd plans to bar single-male boards while giving companies a three-year transition period to comply; a market consultation on the proposed rules is scheduled to end in mid-June. More gentle efforts at persuading companies to look beyond the usual suspects have plainly failed. “Clearly, it’s not enough, but it’s a baby step forward,” Teresa Ko, China chairman at law firm Freshfields Bruckhaus Deringer and a former chair of the Hong Kong stock exchange listing committee, said in an interview. “Hopefully it’s a tipping point, and change will accelerate from here.” Ko has advocated for a 40% quota to be implemented within six years.
Quotas are a sensitive subject. Some see them as an infringement of property rights; shareholders own the company, and should have the power to appoint whomever they see as best qualified to direct the business, in this view. The exchange avoids use of the word in its consultation paper, though in effect its proposal amounts to a one-woman quota (the requirement is gender-neutral, meaning that an all-female board would also be deemed unacceptable — though, needless to say, there aren’t any in Hong Kong).
Ko herself says she used to be against quotas before the slow pace of progress changed her mind. A February report by the Hong Kong Institute of Chartered Secretaries, or HKICS, fairly oozed with frustration, describing the situation as “lamentable,” “extremely poor,” “unjust and unjustifiable,” and “snail-paced” in the speed of change.
A secondary objection to quotas
is that companies may say they struggle to find enough suitably qualified candidates. To quote a recently elected male political leader: C’mon man.

—Bloomberg