Revising the King code: does it matter for board diversity and corporate performance?

Abstract

This study investigates whether heightened emphasis on board diversity in the 2016 revision to the Report on Corporate Governance for South Africa (King IV) led to changes in individual dimensions and a composite measure of board diversity, and whether these changes were associated with improved financial and sustainability performance. We analyse 111 companies listed on the Johannesburg Stock Exchange before and after the implementation of King IV. Gender, race, age and occupation diversity data were collected from company reports, while financial and sustainability performance data are collected from the IRESS database and LSEG Workspace. Drawing on resource dependence arguments, we investigate the relationship between board diversity and corporate performance. We find that gender and racial diversity increased after the implementation of King IV. Before King IV, board diversity was positively associated with market value (price-to-book ratio), although this association became negative once diversity expectations were codified. After King IV, board diversity was related positively to social performance but negatively to environmental performance. This study provides empirical evidence following the revision of a corporate governance code by focusing on various diversity dimensions and a composite measure of board diversity. Calls for greater board diversity often prompt more explicit composition requirements in corporate governance codes. However, our mixed findings suggest that such revisions may paradoxically reduce genuine engagement, as companies and stakeholders question the value of further reforms. Moreover, South African companies may not yet have realised the benefits of diverse boards, and we argue that effective diversity initiatives should go beyond target setting towards meaningful policies that foster inclusive and high-performing boards.