The impact of board diversity on corporate governance in medium-sized private enterprises in Gauteng

Abstract

The South African economic landscape changed for ever after the first democratic election of 1994. The change heralded an era of inclusion, the economic landscape became open to people from all races, whereas before economic power was centralised in the hands of a minority group due to Apartheid legislation. Exploring the relationship of diversity of board members on the corporate governance of small, micro and medium enterprises (SMME’s) in South Africa has become imperative. Understanding the relationship, if any, which exists can aid SMME’s in board selection and corporate governance alike. Data for the study was collected through a self-enumerated questionnaire completed electronically and followed-up by interviews with heads of boards surveyed. Both the questionnaire and the interviews focussed on corporate governance, which included different components of governance such as the general principles of governance followed in the enterprise, the stakeholder focus exerted by the board of directors and the functioning of the board of directors. This resulted in a score for the enterprise which can be expressed as a percentage. This governance indicator was related to questions on the diversity of board members. The findings were in many cases contradictive when a single variable was observed against the score an enterprise achieved for governance. When taking a more holistic approach and evaluating multiple variables, it became evident that it is rather a combination of variables which displays some relationship with corporate governance. This study found that board diversity does have a relationship with corporate governance. The magnitude of this relationship could not be ascertained and warrants further research in a wider spectrum of the South African economy and also with a larger group of subjects.