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In the age of Environmental, Social and Governance (ESG) issues, boards of directors are steering companies toward an ESG-compliant future. Diversity and inclusion within the board of a company have become emblematic of good corporate governance and are illustrative of the “G” in ESG which considers such factors as how a company is managed by its board of directors and executives, the composition of the board, as well as the quality of decision making.
Kenya’s development blueprint, Kenya Vision 2030 (Vision 2030), provides that there shall be equality across race, ethnicity, religion, gender and socio-economic status. The equality and diversity agenda entrenched in Vision 2030 has had a ripple effect across society. On a global level, in the wake of #MeToo, the She Matters Movement and the Black Lives Matter (BLM) movement, there has been an increased focus on gender and racial diversity in the workplace and at the board and senior management levels.
Board diversity in Kenya has come along in leaps and bounds over the last decade, although there is still progress to be made. The Kenya Institute of Management Board Diversity and Inclusion Report 2021 (the KIM Report) indicates that gender diversity in the boardroom now stands at 36%. In comparison, the global average of women holding board positions stands at 23.3%. Notable Kenyan Companies that have prioritised gender diversity within their boards in 2021 include: (i) East Africa Breweries Limited whose board constitutes 36% of female directors Standard Chartered Bank Kenya Limited whose board is made up of 45% of female directors and Equity Group Holdings Limited whose board constitutes 38% of female directors.
Moreover, the KIM Report reveals that the average age of Kenyan board members is 47.6 years. One of the KIM Report’s key findings is that “gender and age are critical components in driving organisational performance, decision-making, and productivity”. Although companies have aggressively pursued their quest for diversity, it is important to remember that diversity is not just limited to age, gender and demographics – but also educational and professional diversity.
As companies gear up towards making further strides in achieving board diversity, it is critical to understand the full breadth of what diversity entails; and why it is worth striving towards.
What is Board Diversity?
While there is no universally agreed-upon definition, board diversity may be broadly defined as the array of characteristics and qualities within the board to promote heterogeneity. The King IV Report on Corporate Governance for South Africa, 2016 (the King IV Report) defines diversity as ‘the varied perspectives and approaches offered by members of different identity groups’.
The diversity between directors of the board may be hinged on several factors including those listed in the King IV Report: gender, culture, age, experience, fields of knowledge, and skills. While boards are usually cognisant of traditional skillsets such as management skills, written and verbal communication skills and analytical skills; the non-traditional skillsets are often bypassed. Skillsets such as corporate social responsibility, risk management as well as human resources are not pervasive within boards, despite their nexus with ESG. Nonetheless, the non-traditional skillsets should not replace the traditional skillsets as both are crucial in ensuring a more holistic range of skills within the board.
Kenya’s Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 (the Code) further provides that diversity amongst directors of the board encompasses the following factors: academic qualifications, technical expertise, relevant industry knowledge, nationality, and race. The Code additionally provides that the board must implement a policy to ensure board diversity.
Notably, the United Kingdom’s Corporate Governance Code, 2018 also includes cognitive diversity as an element of board diversity. Cognitive diversity is the varied ways in which persons perceive, think about, engage with and process information and situations.
The Guidance on Good Practices in Corporate Governance Disclosure, 2006— which was published by the United Nations Conference on Trade and Development — further provides that board diversity also encompasses differences within the board in core competencies and personal characteristics.
What are the Benefits of Board Diversity?
Additionally, a diverse board would entail greater representation of different backgrounds, meaning that even the same priority for a company would be tackled in a more diverse way. Furthermore, diversity on the board is likely to set an example for the company, with the possibility of having a trickle-down effect in the company.
Impediments to Effective Board Diversity
Although board diversity remains a rising trend, Kenyan companies still have a lot more progress to make. Only 21% of women were appointed as board chairpersons in listed and non-listed companies in Kenya by 2021, and as at June 2021, only 5% of boards of directors of listed companies were chaired by women.
In conclusion the benefits of board diversity cannot be emphasised enough. More so in the fast paced ever changing world that we are living in where agility, innovation and out of the box thinking has become essential to not only thrive but even at times simply to survive.
Should you have any questions regarding the information in this article, please do not hesitate to contact Rosa Nduati-Mutero.
Charlotte Patrick-Patel, Senior Associate
Mariah M. Kirubi, Principal Associate
Jade Makory, Associate
Wabia Nganatha Karugu, Trainee Lawyer
 The ESG Disclosure Guidance Manual provides that according to a survey carried out by the IHS Markit, 6 of the top ESH metrics were the following: ‘Presence of an overarching ESG Policy; Assignment of ESG management responsibility; Corporate code of ethics; Presence of litigation; People diversity; Net employee composition; Environmental policy; Estimation of carbon Footprint; Data and cybersecurity incidents; Health and safety events’. [Emphasis added].