Women's representation on government company boards has been made mandatory during the recent Cabinet meeting chaired by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai. Although the details of the new policy are yet to emerge, Hawkamah, the corporate governance institute of which I am director, believes this is a positive and welcome step for the nation.
Beyond important issues such as fairness and equality, Hawkamah believes that gender diversity makes good business sense, both from the national perspective as well as the company perspective.
Countries across the globe are starting to debate the issue of women in boardrooms. Some markets have advanced coercive action and created quotas, such as Norway. Some have encouraged voluntary commitments (as in the United States and Canada), while others, such as the United Kingdom, have adopted a collaborative approach.
This is because it is now recognised that to remain competitive, economies cannot afford to ignore half of their labour pool.
The efficient use of human capital is the most important determinant of an economy's competitiveness, and women now constitute a substantial portion of highly talented labour. This is particularly important in a region where female graduates outnumber male graduates, as World Bank studies have shown.
Gender diversity makes good business sense for individual companies as well. Several studies have shown that gender equality in senior management and at the board level brings many tangible benefits. An August study by Credit Suisse's research institute looking at 2,360 global companies showed that companies with female board representation outperformed those with no women on the board in terms of share price.
Additionally, the study showed that stocks with greater gender diversity on their boards tended to perform better in falling markets and exhibited less volatility.
Hawkamah has been a long-time advocate for diversity, including gender diversity, in the region's boardrooms. For example, the Mudara Institute of Directors - the sister institute of Hawkamah - is leading the way with its Women in Boards Initiative.
The initiative focuses on capacity building and empowerment through a special director development programme with a coaching and mentoring component as well as board referral services.
Hawkamah has also conducted studies with our partners, both in the past and forthcoming, on women's representation in the boards of GCC-listed companies, and conducted workshops exploring barriers and identifying best practices in this important area.
These have shown us that gender diversity at the board level is an important element of good corporate governance as an overly homogeneous board can provide an insufficiently challenging environment for decision making.
A board has responsibility for oversight of the performance of a company's business and operations and it needs to constantly challenge itself to keep pace with the changing dynamics a company faces. Diversity means that a board is more capable of seeing and understanding risks and of conceiving robust solutions to address them.
Diversity should not sacrifice competence. The issue of diversity should also be accompanied with parallel discussions and review on competence, commitment, and character of potential board members.
The challenge now is to ensure that directors, whether women or men, are supported in fulfilling their roles. On the most basic level this means that boards have clear mandates with clear responsibilities and liabilities, but it should also provide tools for individual directors to fulfil their duties effectively.
As announced in the Conference Declaration of the 3rd Arab Women Leadership Forum - which was organised by the Dubai Women Establishment last month - there is a need for capacity building of female directors and leaders to be able to serve in regional boardrooms
Quotas are an easy target for criticism in any setting, but what is clear is that this new policy sends a strong political message of the Government's and society's vision for more diversity in leadership.
Government companies are setting an example for the private sector to follow. But it should not be forgotten that the new policy is a testament of the trailblazing role that current female leaders have taken on in order to open further opportunities for the next generation.
Nick Nadal is the head of the Hawkamah Institute for Corporate Governance and Mudara Institute of Directors.
