The role of nomination committees in diversifying boards in an emerging market context

• DOI: https://doi.org/10.1108/CG-07-2018-0254
• Pages: 648-668
• Published date: 23 May 2019
• Date: 23 May 2019
• Author: Nadia Mans-Kemp,Suzette Viviers
• Subject Matter: Strategy

The role of nomination committees in

diversifying boards in an emerging

market context

Nadia Mans-Kemp and Suzette Viviers

Abstract

Purpose –Several mechanisms exist to address the low levels of gender and race diversity in

boardrooms, including mandatory quotas, voluntary targets and investor activism. Based on the

similarity-attractiontheory, the authors investigated whether nomination committees of companieslisted

on the Johannesburg Stock Exchange(JSE) could serve as an internal change mechanism to promote

board genderand race diversity.

Design/methodology/approach –Panel data on the gender and race diversity of the nomination

committees and boards of the 40 largest listed companies (the JSE Top 40) were analysed over the

period 2011-2016. Panel regressions were conductedto investigate four hypothesised associations.

Findings –More diverse boards hadsignificantly more diverse nomination committeesin terms of both

gender and race. Asignificant positive association was furthermorereported between the race diversity

of nomination committeesand the appointment of new directors of colour. The latterfinding could partly

be attributedto legislation to enhance black representationin all spheres of the South Africaneconomy.

Originality/value –South Africaoffers a unique socio-politicalsetting in which to conduct board diversity

research. In line withthe similarity-attraction theory, it is shownthat diverse nomination committees have

an essentialrole in setting and achieving board genderand race diversity targets.

Keywords Directors, Gender diversity, Board, Nomination committee, Race diversity,

Similarity-attraction theory

Paper type Research paper

Introduction

The discourse on board diversity is moving beyond questioning the rationale to diversify

boards and providing suggestions on how boards could best be diversified (Vinnicombe

et al.,2013

). Board diversity can be broadly defined as human groups that are based on,

inter alia, their gender, race, age and experience (Erhardt et al.,2003).There is growing

regulatory pressure on companies to address board diversity, ranging from mandated

board gender quotas to voluntary targets (Chapple and Humphrey, 2014). Considerable

attention has been given to women and directors from minority groups in board diversity

literature. These groups have been underrepresented on boards due to significant barriers

to entry (Terjesen et al., 2009;Fairfax,2012).

Low female board representation can be mainly ascribed to the experience- and gender-

based biases. According to the experience-based bias, men are favoured fortop positions,

the argument being that women often lack the qualifications and experience required for

these positions (Bilimoria and Piderit, 1994). Although fewer women than men obtained

tertiary qualifications in the previous century (Tharenou et al.,1994), the situation has

changed dramatically since the 1990s, especially in developed countries. Hillman et al.

(2002) reported that women appointedto the boards of Fortune 1000 companies were likely

Nadia Mans-Kemp and

Suzette Viviers are both

based at the Department of

Business Management,

Stellenbosch University,

Stellenbosch, South Africa.

Received 30 July 2018

Revised 6 December 2018

Accepted 30 January 2019

The authors would like to

extend their gratitude to Jana

Taljaard for her assistance with

the data collection and

Professor Martin Kidd for his

assistance with the statistical

analysis.

PAGE 648 jCORPORATE GOVERNANCE jVOL. 19 NO. 4 2019, pp. 648-668, ©Emerald Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-07-2018-0254

to have more qualifications than their male counterparts. Singh et al. (2008) also found that

female directors appointed by large companies in the UK were more likely to have

postgraduate qualifications and international experience than their male compatriots. It can

thus be argued that women gradually gained more public credentials by means of

education, thereby increasing their chances of being nominated for a board position

(Hillman et al.,2002).

The gender-based bias can, however,still pose a challenge to qualified women who aspire

to reach the highest corporate echelons. This bias refers to the unequal treatment of

individuals purely on account of their gender, irrespective of their qualifications and

experience (Bilimoria and Piderit, 1994). Potential board candidates (males and females)

can also encounter discrimination based on their race (Fairfax, 2012). Furthermore, as

women have not received the same development opportunities as men in the past, the

corporate pipeline in the 2000s mainlycomprised men (Oakley, 2000). The growing number

of female corporate role models can encourage more women to aim for top leadership

positions (Terjesen et al.,2009). However, not all women in these positions want other

women in the workplace to advance to their level. Successful business women who

undermine other female colleagues’ opportunities are aptly called “queen bees” (Johnson

and Mathur-Helm, 2011).

The lack of diversity at board level can furthermore be ascribed to the tendency of directors

to primarily identify and nominate candidates from their own ranks and existing networks.

Given that the discussed biases could have resulted in the exclusion of some women and

directors of colour, largely homogenous networks have been formed. In some instances,

board inefficiencies have been attributed to the so-called “old boys” clubs’ from whom

directors are sourced (Fairfax, 2012;Bernardi et al.,2005). The formulation of homogenous

networks is not a new phenomenon. The ancient Greeks already noted the tendency of

some individuals to associate with those who are similar to themselves in terms of age,

gender and social class. This phenomenonis known as homophily. As similarity is believed

to ease communication and foster trust, directors are likely to nominate homogenous

individuals to serve on their boards (Reeves,2010).

Board committees represent the innermost circles of co rporate decision-making and

power (Bilimoria and Piderit, 1994) and typically deal with the following matters:

accounting and auditing, nomination and remuneration of directors, risk, governance,

sustainability and technology. The nomination committee’s key role is to regularly

review the size and composition of the board and nominate suitable board candidates

for election and re-election (Institute of Directors in Southern Africa (IoDSA), 2009).

According to Byrne’s (1971) similarity-attraction theory, individuals who have comparable

backgrounds are likely to have the same values. Previous authors used this theory to

explain why directors favour new candidates with whom they share common characteristics

(Westpal and Zajac, 1995). Remuneration committees might, furthermore, extend more

favourable treatment to chief executive officers (CEOs) who are similar to themselves

(Young and Buchholtz, 2002). In the developed market context, Kaczmarek et al. (2012)

reported positive associations between board diversity (in terms of gender and nationality)

and nomination committee diversity of Financial Times Stock Exchange (FTSE) 350

companies.

Given South Africa’s socio-political history, the country provides a unique emerging market

setting in which to study mechanisms to enhance board gender and race diversity. The

Apartheid system denied individualsof colour the opportunity to become directors for more

than 60 years. When Nelson Mandela was elected to power in 1994, he vowed to change

the status quo. The Broad-Based Black Economic Empowerment (B-BBEE) Act (No. 53 of

2003) was subsequently promulgated to give economic privileges to previously

disadvantaged individuals of colour (Government Gazette, 2004). The B-BBEE Codes of

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