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Companies with a diverse boardroom in gender, age and ethnicity have a better chance of being successful than those without these diversity indicators, a new Singapore-based study has found.
In fact, companies that prove they are diverse across all three indicators see almost five times higher Return on Assets (ROA) as compared to a company with a uniform boardroom.
The study, by the National University of Singapore (NUS) Business School’s Centre for Governance, Institutions and Organisations (CGIO) and BoardAgender, found companies with both genders present, at least two ethnic groups and two generations represented in their boardrooms enjoy average returns of 5.1%, as compared to a 1.1% gain without.
The findings for the Singapore Board Diversity Report is based on the annual reports of 676 companies listed on the Singapore Exchange.
It also found that among the largely uniform boards, more than 50% were all male and from the same ethnicity as well as generation. Only a small 7.7% of all boards displayed diversity in all three categories mentioned.
Another interesting finding was that the 43.8% of firms with at least one female director in the boardroom enjoyed an average ROA of 3.3%, performing better than firms with all-male boards with an average ROA of 0.3%. It is also noted that there were no all-female boards.
While there was a marginal increase in the number of women in boardrooms listed by SGX, Singapore continues to lag behind countries in the region with only 8.3% of all directors being women in 2014, increasing slightly from 7.9% last year.
Meanwhile, the representation of women among independent directors showed an insignificant increase of 0.9% from last year’s 4.7%.
As for age diversity in the boardroom, age gaps between the oldest and youngest member in the board were used to gauge the number of generations present in the board. An age gap of 20-years would mean a single-generation board, an age gap of 20 to 39 years would mean a double-generation board and an age gap of more than 40 years would mean that the board has three generations.
Almost half of the SGX-listed boards were considered single-generation while another 45.8% of boards are double-generation and only 2.1% of all boards had three generations.
The study found that companies with multiple generations on their boards benefitted with an average ROA of 3.3% as compared to 0.6% ROA of companies with single-generation boards.
Ethnic diversity was gauged by relying on the names of directors disclosed in the annual reports. It was found that 59% of boards only consist of one ethnic group, 30.8% had two ethnic groups and only 10.2% had three ethnic groups.
Ethnic Chinese, Malay and Indian communities made up 85.7%, 3.5% and 2.8% of board seats respectively. The significance was that an average of 2.9% ROA was recorded in companies with at least two ethnicities in their boardrooms while those without only had a 0.8% average ROA.
“The message is loud and clear: companies should tap, and benefit from, the rich, diverse pool of talented professionals within Singapore society,” said Associate Professor Marleen Dieleman, co-author and associate director of CGIO, NUS Business School.