The board diversity and sustainability reporting in Malaysia

Abstract

In October 2015, Bursa Malaysia (BM) launched its Sustainability Framework comprising amendment to the Listing Requirements and the issuance of a Sustainability Reporting Guide (SRG) and Toolkits. This effort provides guidance to Malaysian listed companies in enhancing their corporate transparency on economic, environmental, social and corporate governance-related issues. Thus, it is expected that the new Sustainability Reporting (SR) framework would encourage companies to disclose more extensive and high-quality information. The first objective of the study is to examine the extent and quality of SR. In addition, the study examines the readability (the ease of reading) of SR since a good report should also be easy-to-read by readers of the report. Secondly, the study examines the board diversity (age, ethnicity, gender and director resource diversity) as influential factors on SR since the Malaysian Code on Corporate Governance (MCCG) 2012 emphasizes on the importance of boardroom diversity. The third and last objectives are related to the findings of the interviews. The interviews are conducted with the preparers and users of the SR in order to gain insights into their perceptions on factors influencing SR and issues related to SR. The results of the study indicate that the extent, quality and readability of SR are still low. This implies that, even with the provision of the SRG, SR in Malaysian listed companies is still lacking in term of information coverage and quantitative information. Furthermore, the SR is very difficult to read and comprehend by average readers. In addition, it needs a person who has at least a post graduate degree to easily read and comprehend the reports. The multiple regression analysis shows that only two of the independent variables which are the ethnic diversity (and individual groups of Indian and foreign) and gender show significant impact on SR. From the interview findings, the study found that most of the respondents agree that gender diversity does contribute towards better company SR, but ethnic diversity has mixed responses. Additionally, the findings show challenges that might become potential influential factors faced by companies in preparing SR. The study contributes to the literature on corporate governance–sustainability in a number of ways. Firstly, it applies the Resource Dependency Theory (RDT) in explaining the relationship between board diversity and SR. The theory highlights the role of board members as resource providers and its influence on the SR. Secondly, the study focuses specifically on the impact of board diversity on SR. The board of directors through board diversity and in discharging their monitoring and resource provide roles are expected to assist companies in enhancing corporate sustainability practices. Thirdly, the study applies readability (ease of reading), which has yet to be used in the sustainability or corporate governance areas, as a new proxy to represent the reporting (SR). The SR should not only be extensive, and of high-quality information, it should be easy-to-read by average readers as well. Fourthly, unlike previous studies which mostly used a quantitative approach, this study applies a mixed method whereby both quantitative and qualitative analysis are performed. Lastly, this study will benefit companies and policymakers as the findings suggest the need to consider the importance of board diversity in augmenting the extent, quality, and readability of SR.