Impact of board composition on performance in the South African platinum mining industry

Abstract

Corporate governance debates and reforms have been advocating for majority inclusion of independent non-executive directors on the board of directors. There is spreading belief that independently structured boards is associated with the effectiveness of the board and therefore translate into high value company performance. Although studies on board composition in South Africa have been conducted, most studies paid special attention to board diversity such as gender and race but very little attention to the expertise of an independent director. The aim of this study is to examine the causal relationship between a board composition and financial performanceThe research was conducted using listed South African platinum mining companies in Johannesburg Stock Exchange (JSE). Quantitative research methodology was chosen for the study. The proxies for a board composition were the size of the board, independent non-executive director and non-executive director with industry expertise. The Proxies for company performance are ROA, ROE, Tobin‟s q and EVA. Three hypotheses about the size of the board, proportion of independent non-executive director and non-executive directors with industry expertise were proposed and tested.The research result on the first hypothesis suggested that a small size of the board of directors has statistical significant positive relationship with EVA as compared the larger size of the board. The second hypothesis result suggested there is statistically positive relationship between the independent non-executive director and EVA. The third hypothesis result on inclusion of non-executive with industry expertise was not conclusive.