By Dr Ashraf Gamal El Din, Chief Executive Officer – Hawkamah, The Institute for Corporate Governance
Corporate governance was first introduced in the Middle East and North Africa by Oman, when it introduced a code of corporate governance in 2002, followed by Egypt, which developed a national governance code in 2005.
These codes were based on the OECD Principles of Corporate Governance. Since then, national regulations have introduced 11 corporate governance codes from 2005 to 2009. Some states formalised them, while other states integrated corporate governance articles into their company law.
Most codes provide best-practice recommendations based on international standards. Hence, almost all jurisdictions in the Gulf Cooperation Council (GCC) have corporate governance codes. Nevertheless, corporate governance in the region is considered to be in the development phase. Various gaps are visible in the implementation. One of the areas that requires more attention is boardroom diversity.
Board size and composition
Companies in the GCC adopt the single board structure following the Anglo-Saxon model. On average, boards have seven members or less. There are some exceptional cases where boards may have 12 or more members. Boards of the region usually have executive, non-executive and independent directors. Corporate governance codes by GCC capital market regulators addressed the board composition by laying out a definition of independent directors and prescribing that there should be at least one-third of independent directors on each board.
Hawkamah recently highlighted in one of its reports that there are only 11 women directors in the UAE serving on boards of publicly listed companies. Only one listed company has two women directors serving on its board. Hawkamah also found out that the average percentage of women on boards of the GCC listed companies is 1.5 per cent.
Thus, still today it is not uncommon to come across GCC boards that do not have a single female director. According to EY’s report Women On US Boards: What Are We Seeing? the percentage of women on boards increased to about 15 per cent of S&P 1500. However, 51 per cent of these companies increased the percentage of women on boards not by changing the board members but by increasing the board size. Women’s representation on the boards of US Fortune 500 companies, meanwhile, had already reached 16.9 per cent. Given that in Fortune 500 companies, 45 per cent of board seats are held for 10 years or more¹, this could be a faster and easier way to increase the quota of women on boards.
In Europe, on the other hand, the representation of women on boards has reached an average of 17 per cent. Unfortunately, the improvement is not always attributed to voluntary changes, but rather to government-mandated quotas, as stated in the annual study of 2014 by the Corporate Women Directors International. Countries, such as Spain, Italy and the Netherlands, implemented a mandatory gender quota for woman on boards which is effective. Other countries, such as Australia, Germany, Sweden and UK, implemente¹d the principle of ‘comply or explain’.
Many practitioners at the GCC attribute the low gender diversity to the culture – women are perceived to be family caretakers rather than career women. That said, the McKinsey & Company research Women in the Workplace 2015 found that 15 per cent of mothers are more interested in being a top executive than women without children.
Importance of gender diversity in the boardroom
Is gender diversity just a social cause or a call for equality? Did governments mandate quotas just for the sake of a social cause? The answer is no. Empirical research shows that a diverse board leads to an effective board as manifested both in board dynamics and discipline as well as in company performance.
A report by Credit Suisse’s Research Institute highlighted that boards with gender diversity outperformed those with no women on the board in terms of share price performance. This can be based on the different perspectives women add to solving problems as well as on the different concepts of board meetings, as these seem to be more formal in gender diversity boards. Given the fact, that the main aim for boards is to reach their goals by utilising all sources of expertise and insights, the disparity of women and men on boards seems contradictory.
“Is gender diversity just a social cause or a call for equality? Did governments mandate quotas just for the sake of a social cause? The answer is no. Empirical research shows that a diverse board leads to an effective board as manifested both in board dynamics and discipline as well as in company performance”
The McKinsey Women Matter 2014 report also highlighted the fact that a diverse board will lead to a higher organisational effectiveness. Its Report of Organisational Health Index database showed that companies with just three or more women in senior management functions outperform significantly on all nine dimensions of organisational effectiveness. The nine dimensions of organisational effectiveness included direction, leadership, culture and climate, accountability, coordination and control, capability, motivation, external orientation as well as innovation and learning.
The idea of appointing more women to boards is not a new one in the GCC, but given its importance and the outcomes that can be achieved, progress is slow.
The McKinsey Women Matter 2014 report found 65 per cent of organisations have board gender diversity on their strategic agenda – up from 24 per cent 10 years ago. So, the question should not be if or why we need women on boards, but how can we speed up the process?
Gender diversity was picked up by the UAE very quickly. As a result, The Dubai Women Establishment was formed in 2006 under law number 24 by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Ruler of Dubai, Vice President and Prime Minister of the UAE. As a statutory body of Dubai Government, and as per its founding decree, the Establishment aims to encourage and facilitate the participation of Emirati women in the workforce and society. As a main topic this decree shall mandate initiatives towards women’s further development opportunities.
Moreover, in 2012, a cabinet decree at the UAE mandated all government boards and state-owned organisations to have at least one woman director. This was the first mandate in direct relation to women on boards, not only in the GCC but in the Arab world.
In May 2015, His Excellency the Minister of Economy issued a new listing requirement that every company must have at least one female candidate for board membership. The resolution is comply or explain based, companies need to explain why they had no women candidates for board seats. Moreover, companies must disclose annually the number of women they have on their boards.
As a governance institute, Hawkamah, the Institute of Corporate Governance in the UAE, welcomes the UAE government’s initiatives to boost gender diversity in the boardroom, and hopes that other countries in the region will follow. The question remains though: do we have enough qualified women in the pipeline? And the answer is not really. Despite women in the region being highly educated, most of them lack the level of experience, exposure and training needed to serve effectively in the board room.
Therefore, and in response to UAE women-empowerment resolutions, Hawkamah launched a Women Directors’ Programme in 2015. The programme is designed to give already well-educated women the kind of training, experience and exposure they may need to become good directors. So the programme includes training by current directors and governance experts, followed by a study tour to meet with male and female directors as well as regulators from well-developed markets. The programme then ends with a project in which participants demonstrate their good understanding of the principles of corporate governance and their ability to implement them as well. We are also one of the key supporters of the GCC chapter of the UK-based 30% Club, aiming to make sure that 30 per cent of boards and top executive positions are held by women. The GCC chapter was launched in November 2015.
I hope that there will be more of such initiatives in the region to support gender diversity in boardrooms and top executive positions as well as to create the pipeline of women directors and leaders who can serve as ambassadors and mentors for more women to follow.
About the Author:
Dr. Ashraf Gamal El Din is the Chief Executive Officer of Hawkamah, the Institute for Corporate Governance. Prior to joining Hawkamah, Dr. Ashraf was the Executive Chairman of Egypt Post. Before that, he was the Deputy Executive Director of the Egyptian Banking Institute, the training arm of the Central Bank of Egypt. He was also the founder and Project Manager of the Egyptian Corporate Responsibility Center working on promoting the concepts and application of CSR in Egypt. Furthermore, he was the Executive Director of the Egyptian Institute of Directors (EIoD), the Institute of Corporate Governance in Egypt and the Arab Region Dr Ashraf served as a board member and head of the Audit Committee in a number of listed, non-listed, State Owned and family owned companies. He also served a member of the General Assembly of the Holding Company for Transportation.
¹Committee for Economic Development: Every Other One: More Women On Corporate Boards