Since the global financial meltdown, we have seen that the boards of quite a few financial institutions did not meet a sufficiently high standard of either experience or competence.

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This has raised a new topic of debate for stakeholders: board composition and whether it comprised of people with the optimal mix of experience, given the risks and business nature of the company in question.

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Currently, the right of shareholders to present candidates for election to boards differs significantly across markets. In Asia, the lack of any real involvement of institutional shareholders is a significant problem.

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Unfortunately, we do not appear to be moving towards greater transparency regarding the nomination of directors. In general, a certain shareholding is required to present a candidate against the will of the incumbent board. Otherwise, smaller shareholders have to put in an enormous effort to garner the required support from other shareholders.

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An approach boards could consider is the model involving a nomination committee which consists mainly of independent directors.

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A code should set out a clear and transparent procedure regarding the nomination for appointments to the board. The main principle is that there should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.

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Through “comply or explain”, investors can enter into a dialogue with the board with respect to the nomination procedure to ensure that best practice is adhered to.

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This is an important tool for investors to ensure that the dialogue about the nomination procedure is taken seriously by boards.

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The nominating committee should rigorously review the composition of the board. The right mix of competencies will change over time as the company evolves and care needs to be taken to avoid a mindset of permanent tenure for directors.

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A board should use an evaluation process (term/age limits) to refresh itself periodically. It is not enough to pull together a distinguished group of individuals who do not have the expertise necessary to understand the fundamentals of the company’s operations as the business changes over time.

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Given the emphasis on independent directors, boards need to take special care to ensure that persons on the board have industry-specific expertise and distinct sources of information about the intricacies of business and related risks.

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For the companies that we invest in, and if we are not happy with the candidates proposed by the board, we communicate this ahead of the general meeting at which the nominees are to be elected and use our voting rights accordingly.

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We generally also write a letter to the chair afterwards to reiterate our concerns. While it is rare that nominees are not elected, a strong vote against and, more importantly, communication of concerns can send a strong signal to a board/nomination committee and, in our experience, are likely to have an effect when candidates are selected the next time around.

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More recently, companies have sought (and we have offered) our views with regard to the criteria that candidates should fulfil.

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To add more depth to this issue, boards should consider gender diversity. A prominent management consultant did a study of the Fortune 500 companies which showed that the greatest outperformers are companies with three or more women on the board.

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The study showed higher return on equity, higher return on sales and higher return on capital.

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Currently, women occupy only 11.6% of FTSE 100 non-executive directorships in Britain, for example, which is significantly lower than in Norway. (Norway is the only country with enforced quotas, hence, women occupy 40% of directorships in that country). The figure in Britain drops to a mere 6.6% of non-executive directors across all British companies. One can only assume that the figure is even lower in Asian markets.

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On our company visit rounds, we often hear the comment that companies can’t find suitable independent directors. One of the criticisms by companies is that there isn’t a pool of skilled professionals to choose from, so they end up keeping the people they know.

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Interestingly, women are never thought of to be a potential talent pool. In Britian, Roger Carr, chairman of Cadbury commented that “boards devoid of talented women are missing out, and having a mixed gender board is invariably better than a single gender board”.

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He went on further to comment, “that if half the people you are serving are women and you have no women on the board to offer a view, that’s a very distorted picture you risk creating.”

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In an attempt to redress the gender imbalance in boardrooms, there is a scheme in Britain – the FTSE 100 Cross-Company Mentoring Programme – in which chairmen mentor senior women in other companies.

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Regrettably, many chairmen and nomination committees feel more comfortable if board members come from similar backgrounds. They don’t see the importance of having different people on boards who will ask questions from different angles.

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Perhaps the regulators here should start a similar mentoring programme which will help redress the gender imbalance in boardrooms. Perhaps they could consider Norwegian-style quotas for large, listed companies.

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Any moves in this direction would push Malaysia to the forefront of regional markets and might just, if the research is to be believed, create both greater value for shareholders, Malaysian companies and the country itself.