The composition of the board of directors : a study

Abstract

PURPOSE: The principal aim of this study was to ascertain and analyse aspects of the Board composition of Maltese listed companies, namely Board size, Board independence, Board expertise, gender diversity, and the chairperson/CEO links and how these may be improved. DESIGN: The study was designed around a qualitative mixed-method approach of data collection in order to ensure that the main objectives were achieved. Semistructured interviews were conducted with 17 participants, consisting of 14 company secretaries of MLCs, a representative of the MFSA, a corporate advisor and a corporate lawyer. FINDINGS: The findings indicate that, in Malta, the nomination and appointment process of directors relies mainly on networking, whereby there is a tendency to continuously appoint the same tried and tested network of directors. This has resulted in weaknesses in the composition of MLC Boards. First of all, this is a barrier to new talent being introduced into boardrooms and secondly, this restricts the number of independent Board members. Additionally, there seems to be a general disagreement as to what constitutes a truly independent Board member. Academic qualifications are not given much importance when nominating and appointing directors, and experience has been found to supplant qualifications. Moreover, female representation on the Boards of MLCs is, to date, still lacking, with too little importance being given to enhancing gender diversity. Additionally, notwithstanding the fact that the importance of having separate chairperson/CEO roles is acknowledged, there is likely to be strong resistance to any law rendering this mandatory. CONCLUSIONS: This study concludes that the Maltese regulatory framework with respect to Board composition is still lax and clearly needs to be tightened so as to spur more rigorous implementation on the part of those in charge of corporate governance. IMPLICATIONS: This study raises awareness on the need of improving corporate governance practices relating to Board composition among Maltese listed companies. It is hoped that the recommendations put forth allow companies to strengthen their Boards and encourage the competent authorities to provide further guidance in this respect.