Corporate Governance Diversity

Introduction

What is diversity?

Diversity can mean many things and the definition itself is a form of diversity. In general, the concept of diversity encompasses acceptance and respect. In other word, it means the understanding of each individual is unique by recognizing individual differences and value people’s differences. Diversity broadly refers to many demographic variables. The well-known areas of diversity include nationality, age, race, religion, gender, and education as well as skills.

Board of Director in Malaysia

Despite the major roles carried out by the management level, the board of directors also have the obligation in maximizing the shareholder’s wealth. The board should exercise their primary duty and responsibilities towards the company. In Malaysia, company shall have at least two directors, who each has his principal or only place of residence within Malaysia (Section 122 Companies Act 1965) A director is defined based on what they do rather than their actual job title. There are different types of director in Malaysia. Executive director, non-executive director and independent director are the three most common types of director found in public listed-company. Executive directors perform operational and strategic business functions such as managing people in the company and looking after the company’s assets. Non-executive directors use their experience and expertise to provide independent advice and have a role in monitoring executive management. The difference between executive and non-executive directors are non-executive directors do not get involved in the daily operation of the company. Independent director is a director who does not have material or pecuniary relationship with the company or related person and therefore is not involved in the management of the company. A listed company must ensure that at least 2 directors or 1/3 of the board of directors, whichever is the higher, are independent directors.

Overview of board diversity in today’s business environment

As the business environment becomes more complex, the risks that companies face are multiplying. Therefore, the strategies, ideas, plans and risk management skills proposed by the board are important in order to helps the company to continue to be the survivor in today’s business environment. Having people who were reliable, like-minded and known entities was the most logical strategy to build a board. In addition to that, best boards are also the most diverse boards. Company with diverse boards are able to provide a depth and breadth of insight, perspective as well as experience to the Chief Executive Director (CEO) that a company without diverse boards cannot do. Board diversity are not focusing on age, ethnicity, nationality and gender only, but also educational level, skills, competencies, philosophies and real life working experiences. The increasing in globalization of the world economy has allowed companies greater access to wider consumer markets and distribution networks and this indirectly increase the need of board diversity in term of nationality in order to have better communication and effective decision making.