Board of director diversity and its implications on equity-listed companies' corporate governance : a Maltese perspective

Abstract

PURPOSE: The objectives of this study are (i) to assess the significance as well as the positive and negative implications of the major readily detectable (i.e. age, nationality, gender and tenure) and underlying aspects (i.e. legal, HR, accounting and finance and industry-specific competencies) of diversity on the CG of MLCs, and (ii) to ultimately recommend how such aspects may make a more positive contribution. DESIGN: To achieve the objectives of this study, a mixed-methods research approach was adopted. Semi-structured interviews were conducted with twenty-three participants. These consisted of eight directors, ten company secretaries, one CEO, one corporate lawyer, one Institute of Directors representative and two corporate advisors. FINDINGS: The findings indicate that, in Malta, tenure diversity is the most influential readily detectable aspect, whilst industry-specific competency is the most influential underlying aspect of diversity for CG. Moreover, each aspect of diversity is influential advantageously on numerous factors of CG, with any adverse influences being weak. On the one hand, the eight aspects of diversity were generally considered to be most influential advantageously on Board decision-making and problem-solving. On the other hand, such aspects were generally considered to be least influential advantageously on director complacency, acceptance and communication. Furthermore, underlying aspects are more influential than the readily detectable aspects of diversity. There seems to be controversy about whether there are sufficient eligible but diverse individuals to serve as directors of MLCs. However, a general agreement seems to prevail that a diversity index would be beneficial. Finally, there seem to be doubts in practice as to the extent to which nomination committees give significance to the diversity aspects which prospective directors have. CONCLUSIONS: This study concludes that, since the significance and implications of each aspect of diversity on each CG factor are generally not pari passu, it would be more beneficial in Malta to opt for various aspects of diversity, yet prioritising what is truly of most concern to good CG in the boardroom. In this connection, more needs to be done by MLCs, particularly in discussions in the corporate arena, with a diversity index being a step in this direction. IMPLICATIONS: This study hopes to raise more awareness on Board diversity in MLCs, together with the significance and implications of the different aspects of such diversity. The proposed recommendations may thus help companies further improve their CG and possibly encourage the competent authorities to contribute more guidance in this regard.