Human Capital of Company Directors: A Study of Malaysian Public Listed Companies

Abstract

Purpose: The purpose of this research is to explore directors’ characteristics (demographic backgrounds, personality characteristics and values, and competencies) and their effects of the effectiveness of the boards of directors. The characteristics discovered in this study are discussed from both, theoretical and empirical perspectives.

Design and findings: In a qualitative approach, thirty-three Malaysian PLCs’ directors and eight representatives of Malaysian corporate governance organizations were interviewed. The research resulted in identifying the rank order of five components of human capital that were found to be essential for achieving effective performance in Malaysian PLCs’ directors. These were experience in business and corporate management, financial or accounting knowledge, business knowledge, legal knowledge, and communication skill.

Theoretical and practical implications: In the present study, the two theories namely, resource dependency theory and human capital theory, were each supported, by the findings of this study. The findings add further to the view that no single theory explains the importance of human capital of company directors to firm performance.

Secondly, as much of the existing board effectiveness research reported in the literature has focused on developed countries’, this paper contributes to research by providing evidence human capital of company directors using primary data from Malaysia. In doing so, the results of this study add to the knowledge base for countries with developing economies.

From a practical perspective, this study provides some basis for the Malaysian corporate governance regulators and policy-makers (i.e. Bursa Malaysia, Securities Commission and MCCG) to be used in developing policies that support the importance of human capital in the selection of boards of directors members.

Originality/value: This study extends existing research by proposing ways to reduce the ambiguity of recent research results regarding the importance of human capital of company directors. It is based on an empirical research and offers theoretical and practical implications.

Keywords: Boards of Directors, Human Capital and Board Effectiveness

JEL Classification: G30