Knowledge Center: Publication
Boards & Governance
Board Monitor Hong Kong 202010/26/2020 Heidrick & Struggles
Modern boards are expected to possess significant expertise in areas as specialized and diverse as digital transformation, corporate reputation management, and sustainability, to name just a few, and also include diversity in terms of gender, racial and ethnic background, age, and national origin, among other characteristics. This is all to improve decision making by combining board members with specific expertise with the benefits of diverse teams, which are widely seen to make better decisions.
Most boards in the 15 countries we study1 made some progress in adding new members with diverse backgrounds and skills. In 2019, Hong Kong’s boards filled only 51% of their seats with people who had previously served on a board, down from 78% in 2018, perhaps indicating a greater interest in fresh perspectives. That idea is also supported by the fact that only 45% of seats on Hong Kong’s boards were filled by people with prior C-suite experience, notably lower than the 55% in Singapore and 52% in the United Kingdom. However, only 6% of director seats in Hong Kong were filled by women—no real change from 5% in 2018, and the lowest share in any country we study.
Among the characteristics of new directors we have been tracking, we note a few trends among new directors globally, which are somewhat at odds with each other.
Some progress on diversity
- Women continue to make significant gains among newly added directors compared to previous years in most countries.
- Progress on racial or ethnic, nationality, and age diversity has been disappointing, with little progress to report anywhere in the world.
- The range of functional experience on boards has increased, with a corresponding decrease in CEO experience. Digital expertise, now essentially a given on boards, trended highest. With sustainability and cybersecurity rising as central concerns for companies, boards also focused on adding experience in these areas.
A continuing preference for traditional experience
- First-time directors are still not as common as experienced ones, despite boards’ stated focus on adding new perspectives.
- Financial expertise and experience in financial services sectors remained highly sought-after backgrounds.
- Though the proportion of directors with CEO experience has continued to decline annually, it remains the most common type of prior expertise, followed by CFO experience.
As the world transitions at pace, one Hong Kong independent non-executive director we interviewed explained, “Experienced guidance on how to deal with difficult issues can be very valuable to a corporate leader facing a tough situation—more valuable than some of the more routine skills often found around a board table.”
As companies reshape themselves in the new environment 2020 has presented, there will be many additional opportunities for those who want to be best positioned to accelerate performance. This may involve greater focus on directors with digital experience and financial risk or compliance experience; in 2019, none of Hong Kong’s new directors had either background, while boards added both areas of expertise in 2018. A Hong Kong CEO and board member said that it’s important “to ensure there is adequate diversity present during board discussions with respect to age and the operational understanding of the business. I believe I have this in my operating committee—the board is another matter.” Another director added that “experience in navigating a business through disruption and the strategic and organizational changes required to effectively respond” will be crucial. A third noted, “Boards are not put in place to ensure risks are avoided but that they are recognized and mitigated. Running a business—making decisions, making calls—all constitute risks.”
Our data continue to show that board culture is an increasingly complex issue; simply ensuring a board has an appropriate mix of perspectives is just the start. To be highly effective, a board must be clear on its purpose: what it stands for as an entity and whom it represents in a global society. Boards must also align on how they will serve as an underpinning for a purpose-driven, socially responsible organization that delivers value to a wide range of stakeholders. And boards must have a culture and processes that ensure their directors can work well together. As a board member who has been a CEO explained, “My own experience of having run companies gives me a sense of what is practical and implementable. I do not think that you need to have a similar cultural fit, as that will encourage groupthink. Instead, skills such as good listening and being self-aware are more important personal traits.” Others offered additional considerations, including that “there needs to be a good fit from a culture and values standpoint,” and the cautionary note that “one size does not fit all; one answer cannot address all scenarios.”
In 2020, with the added pressure from economic and societal volatility, fractured or dysfunctional boards present more risk than ever before. The solution is inclusion broadly defined. Many boards think of inclusion particularly in relation to their significant efforts to add diversity, but, as they seek to oversee recovery from a deep economic and social crisis, boards will benefit most from ensuring that every member is able to contribute fully, regardless of the board’s traditional norms or habits, varying personalities, inherent biases, or for any other reason. Fundamentally, the role of the board is getting more onerous and complex. (For more on Heidrick & Struggles’ thinking on board dynamics, see Future-Proofing Your Board.)
A longtime Hong Kong director summed it up: “The prime characteristics of the best directors I have known are the ability to listen; to question fearlessly what they are told by management; to be prepared to do their own research into the subject under discussion; to never worry about appearing ignorant; to have taken the time to get to know the company's business by visiting the company facilities and discussing the business with all levels of staff; to be able to mold their (extensive) business [experience] to the matter under discussion; and to know instinctively where to draw the line between being a director and becoming management, while protecting the interests of the company. I doubt a director who does not have a harmonious relationship with the others will be effective.”
Time management becomes more important as the role gets more complex, added another director. “The critical behavior for an independent non-executive director is to constructively challenge management. For director effectiveness, having sufficient time to devote to the company is very important, particularly as time demands always seem to increase.”
In this report, you’ll find the data and our observations on the 2019 class of directors for the top 50 companies on the Hang Seng Index and some expectations for 2020.
To read the full report, flip through the interactive version above or click the download button for the PDF.
Thanks to the following Heidrick & Struggles colleagues for their contributions to this report: David Hui and Rodney Ng.
1 Australia, Belgium, Brazil, Canada, France, Germany, Hong Kong, Ireland, Netherlands, New Zealand, Portugal, Singapore, Spain, United Kingdom, and United States are included in our studies of boards.