Company boards have come a long way from the days when they were regarded as something quite mysterious and comprised of industrialists, often retired, who were regularly drawn from the establishment networks. And that usually meant older white men of Anglo backgrounds. Shareholders and regulators have demanded more from the company directors that sit on the boards of organisations. Change has been driven by necessity, and boards that have responded well to the market demands for better board governance and strategic planning, have derived the benefits.
Diversity has been a large part of the discussion for many years now. This has been a discussion, generally speaking, about gender diversity. And, in spite of perhaps two decades of concerted effort, there still remains to be much more to be achieved with regard to gender diversity on the boards of corporations around the world. Some countries have successfully driven this through quotas and in other countries it has been a market driven push.
There are many studies that demonstrate the success of diverse boards. Success that has been measured in company performance over the years. It seems so obvious, it is difficult to understand what has been the anchor that has dragged this diversity.
Yet, gender does appear to be the dominant flag behind which the diversity cause marches. In the increasingly global market, companies are open to explore markets far and wide which are remarkable, not only for their growth potential, but also for their diversity.
There are many companies that have shied away from a market entry into China through fear of the unknown. Analyst reports and commentary in the international media are often negatively presented in order to create a narrative, and the reporting regularly does not reflect the real situation on the ground in China. As a result, the fear factor is fed by this commentary and strategic decisions regarding the China market are made, or delayed, by boards based on information that is not always well-informed.
Business sentiment surveys conducted by the major Chambers of Commerce in China have been reporting very positive outlooks, year on year. These surveys, be they be from the American, British or Australian Chambers, seem to be consistently more upbeat about the business outlook in China than the commentators who are based in their home countries.
It has been observed by Carrington Day that companies in the major economies are not bringing much serious China expertise to their boardrooms. Could this be the reason that Australian companies, for example, have such a low representation in the China market?
In that country, surveys by the National Australia Bank and PwC have pointed to an astonishingly low interest in developing a China market presence. Diversity of board membership to include directors with on-the-ground China experience would bring a level of that positive business outlook to the strategic discussions.
Diversity in this regard could mean experienced directors who are of Chinese heritage, but it could also include those Australians, Canadians, Brits who are long serving executives in the China market. There are many of these experienced and China savvy international business people who are not being tapped for their knowledge by international boards.
Regrettably, many companies are missing the opportunities that are being presented by such trade deals as the recent China Australia Free Trade agreement (ChAFTA). These deals have broken many of the barriers to entry to the most amazing China market that has the potential to transform a company’s results.
Of course, on the other hand books have been written about the pitfalls of doing business in China. Companies can be blindsided by the opportunities presented by such a large market. This in itself is a huge risk, and all the more the reason to have current and deep experience in the boardroom when the China discussions are taking place.
It seems a simple step to take, including a China savvy NED to the board, but it is a sensible first step. Wise heads are well informed and it makes good sense to have this China diversity factor considered when a board’s membership skills balance is being considered.
Carrington Day will be pleased to discuss this with companies that are engaged in China or considering a market entry.