Board diversity and company performance in South Africa during periodic market cycles

Abstract

The continued failure of companies points to poor corporate governance (Katmon, Zuriyati, Norlia, Norwani, & Farooque, 2019). The seminal research of Cadbury (2000) highlighted the need for constant development of corporate governance practices to adapt to changing director behaviour and to identify and close gaps identified through firm failure. Previous research has focused on demographic board diversity and board independence and their effects on company performance (Taljaard, 2013). The present study investigates the impact of market conditions, motivated by the seminal work of Kerr & Bettis (1987), who noted that up to 80 percent of a company’s performance is related to market conditions. The study employs quantitative methodology to analyse the effects of educational diversity and board independence on the performance of 48 JSE listed companies, during two cross-sectional periods selected to represent strong and weak market conditions. The results suggest that it is unlikely that a company will perform well relative to its intrinsic value if a board contains a high number of other directorships held by its members, or low educational diversity measured by both total qualifications and qualification family. The results indicate a negative relationship between the number of other directorships held by executive directors and company performance, regardless of market conditions. A critical number of other positions held by independent directors may exist and could potentially be influenced by market conditions.