Board diversity in selected large Maltese family-controlled companies and its corporate governance implications

Abstract

PURPOSE: The objectives of this study are twofold. First, to establish the extent of Board diversity in both its major surface-level (i.e. age, gender, nationality and tenure diversity) and deep-level aspects (i.e. industry-specific, financial, legal and IT expertise) in selected Maltese LFBs, and to establish whether any inherent characteristics of such entities are perceived as influencing the extent of such diversity. Secondly, to assess the influences of such diversity aspects on the major CG factors. This also involves ascertaining the extent to which such influences, if existent, are perceived as advantageous or disadvantageous, as well as exploring any further considerations of diversity in the LFB boardroom. DESIGN: A mixed-methods research approach was adopted. Semi-structured interviews were carried out with twenty-six interviewees, consisting of eleven directors, three company secretaries, a CEO, four CFOs, an Institute of Directors representative, four advisory partners, an audit manager and an audit director. FINDINGS: LFB Boards are mostly composed of family members, are mostly long-tenured and have a lack of diversity of expertise. Moreover, the LFB inherent characteristics, particularly strong emotional ties, may reduce the likelihood of a LFB Board being diverse. Furthermore, tenure and age diversity are the diversity aspects most influential on CG, particularly on attaining effective succession planning. In addition, although the eight diversity aspects do not influence the CG factors pari passu, they generally influence various CG factors advantageously. In addition, Board diversity most influences the CG factors of quality of decision-making and conduct of the advisory function. Finally, there seems to be a controversy on how Board diversity should be promoted, although it is clear that setting regulatory quotas would in itself fail to solve the issue. CONCLUSIONS: The study concludes that LFBs should consider Board participation rather than Board membership for most family members in order to allow enough space for the involvement of externals as Board members. Moreover, LFBs should set up a plan to manage the negative influences of their inherent characteristics on Board diversity. LFBs should also opt for various aspects of Board diversity, yet prioritise tenure and age diversity. In this regard, the introduction of fiscal incentives by public authorities may be an appropriate step in this direction. IMPLICATIONS: This study attempts to raise more awareness on the relevance and implications of Board diversity in LFBs. The proposed recommendations may therefore guide such businesses to further improve their CG, and possibly encourage the competent authorities to provide more guidance in this regard.