Relationship Between Board Diversity and Firm Value

BOARD OF DIVERSITY AND THE MALAYSIAN PROPERTY INDUSTRY

CHEW LAI PING

STUDENT OF TUNKU ABDUL RAHMAN UNIVERSITY COLLEGE

ABSTRACT

This study examines the relationship between board diversity and firm value. This research is important because it presents whether board diversity is applied to every companies. This purpose of this paper is to assess the application of diversity practice by property industry in Malaysia. We also find that the proportion of women and minorities on boards increase. Content analysis will be used and this involves reviewing property companies website, annual report and diversity policy.

Keywords: diversity, inclusivity, board of directors, property developer, Malaysia

INTRODUCTION

Internationally, diversity in the boardroom has gained attention as an important element of a well-functioning organization. This has also been a priority in Malaysia as seen in the announcement by Prime Minister on 27 June 2011 on the Government’s policy approved by the Cabinet that women must comprise at least 30% of those in decision making position in the corporate sector within 5 years. The announcement, differences initiatives have been undertaken to in collate diversity at the boardroom and workplace which summarizes not only gender, however also age and ethnicity.

Dato' Sri Haji Mohammad Najib bin Tun Haji Abdul Razak, the Sixth Prime Minister of Malaysia had, in his speech at the Sustainability and Diversity Roundtable Session organized by the Economic Planning Unit and the Securities Commission on 9 April 2014, spoken about the need for listed issuers to establish and disclose their diversity policies, covering gender, ethnicity and age for board and management. This is in view that diversity, if well achieved, can push performance and increase improve governance. Hence, in the Malaysian context of a multi-ethnic and multi-cultural society, diversity can be a source of strength as well as a market differentiator.

Accordingly, Bursa Malaysia Berhad had its letter dated 22 July 2014 ("Letter") clarified that a listed issuer is required to disclose in the annual reports issued on or after 2 January 2015, its diversity policy for its Board of Directors and workforce in terms of gender, age and ethnicity as part of the enhanced disclosure requirements to Paragraph 15.08A of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad as clarified in the Letter. This serves to complement the various initiatives launched to inculcate diversity in the boardroom and workplace.

Recommendation 2.2 of the Malaysian Code on Corporate Governance 2012 recommends that the board should establish a policy formalizing its approach to boardroom diversity. This entails the board through its nominating committee to take the necessary steps to ensure that women candidates are sought as part of its recruitment exercise. The board should explicitly disclose in the annual report its gender diversity policies and targets and the measures taken to meet those targets. (IHH Healthcare Berhad)

DIVERSITY INCLUVINESS

The definition of diversity in broad terms, diversity describes the extent to which an organization has people from diverse backgrounds and communities working as board members, staff, or volunteers. Diversity is any dimension that can be used to differentiate groups and people from one another. It means respect for and appreciation of differences in ethnicity, gender, age, national origin, disability, sexual orientation, education, and religion. But it’s more than this. It will bring with us diverse perspectives, work experiences, life styles and cultures. As a source and driver of innovation, diversity is a “big idea” in business and in society.

The definition of inclusion is a state of being valued, respected and supported. It’s about focusing on the needs of every individual and ensuring the right conditions are in place for each person to achieve his or her full potential. Inclusion should be reflected in an organization’s culture, practices and relationships that are in place to support a diverse workforce.

In simple terms, diversity is the mix; inclusion is getting the mix to work well together. (Rbc)

Other than that, inclusion is a state of being valued, respected and supported. It’s about focusing on the needs of every individual and ensuring the right conditions are in place for each person to achieve his or her full potential. Inclusion should be reflected in an organization’s culture, practices and relationships that are in place to support a diverse workforce.

RESEARCH

Diversity can divide to four main groups (Table 1). Most of the Malaysian property developers practice well in this four group.

Table 1: Diversity group

Content analysis was used to analyst of ten property developers. This involved reviewing property companies’ website, annual reports, diversity policy. All reports examined were based on year 2014, and all company websites. The ten property companies listed in Table 2 below are this report study. The Table 3 below is the ranking list of property developers The Edge Top Property Excellence Awards 2014. The ranking of the Malaysian property industry based on qualitative and quantitative criteria determined the ranking of these companies. The qualitative elements include the quality of their product, innovation and creativity, value creation for buyers, image and expertise. The quantitative criteria of the companies include, shareholders funds, revenue, net gearing for the year ended 2013 (The Edge, 2014).

Table 2: Ten Property Developers in this report

Table 3: The Ranking of Edge Top Property Excellence Awards 2014

ANALYSIS AND DISCUSSION

The analysis and discussion will be presented in this section based on companies’ board of diversity in their annual reports and website.

 Table 4: Disclosure of information by Malaysian property developers