India enacted a new Companies Act in 2013, which mandated that all listed companies and other public companies having either paid-up share capital of more than Rs 100 crore or turnover of more than Rs 300 crore should have at least one woman on its board from April 1, 2015, onwards. In March 2018, based on the recommendations of the Uday Kotak Committee, Sebi mandated that all top 500 companies by market capitalisation must have at least one Independent Woman Director on its board by April 1, 2019, and the top 1,000 companies should adhere to this by April 1, 2020.
As on December 31, 2019, 977 of the top 1,000 companies had a woman director, and 835 of them were Independent. Similarly, as of March 2020, Nifty 500 companies had 777 women directors of the total 4,657 directors. Of the 777 women directors, 548, ie, 71% were Independent. This indicates a significant under-representation of female directors at all levels in the industry despite evidence that women are getting more education and actively participating in the labour market than ever before.
The deadline of April 1, 2020, to appoint one Independent woman director in the top 1,000 companies has not been fulfilled. Of the 1,000 listed companies, as per reports, 125 firms are yet to appoint a woman director. Despite the regulatory push, non-extension of deadline and the possibility of filling up the position through a virtual meeting, this has not been complied with. So, India Inc has not even fully complied with the mandate of appointing just one Independent woman director to their board despite being given almost two years to do it. What then is the way forward now?
Why this sudden need in the first place to compulsorily appoint women to the board? Is quota the only solution? The votaries of the quota concede that this is the only way to correct the misrepresentation of women in boards. The move was mandated to promote inclusion and diversity and to ensure that capable and qualified women do not get left out. Lack of qualified women and the perceived ease of appointing men to the post were the standard reasons provided by companies for non-compliance. Since companies were not doing enough, the government took it upon itself to nudge Corporate India into action by imposing quotas to enable an effective allocation of power and resources.
Norway became the first country in the world to adopt this route when it introduced a 40% quota for female directors for listed companies in 2003. The law was mandated in 2006 after voluntary compliance failed. Gender quotas for boards have been imposed in Italy, Belgium, Iceland, Spain and the Netherlands, albeit with mixed results. In 2019, women held 27% of all S&P 500 board seats, a rise from 17% in 2012.
Enforcing quotas rather than relying on the system whereby meritorious women find their way up appears to be the only viable option, concede several experts. Quotas, though argued by some as undemocratic, appear to be the last attempt at correcting the gender imbalance in the board. The popular contention is that women will bring in sensitivity, vision, socially responsiveness and strategy and better inter-personal skills to the board.
According to a recent report by Catalyst, the financial performance in terms of return on equity, return on sales and return on invested capital in some of the Fortune 500 companies that boasted of the highest representation of female board directors was significantly higher on average, compared with those with the lowest.
Sense of Fairness
There is mixed evidence in research studies on the effect of women directors on performance. While Matsa and Miller (2013) and Yang et al (2019) reported a decline in performance due to gender-imposed quotas in Norway; Kirsch, 2018, and Terjesen & Sealy, 2016, reported that firms with more gender diversity performed better than less diversified firms. Apart from the financial metrics, the appointment of women directors also addresses the larger social issues of Corporate Social Responsibility. Ultimately, a system and sense of fairness need to prevail for gender diversity if not only for economic considerations.
Heterogeneity in the composition of the board is likely to bring in diverse views and opinions, which will prove beneficial in the long run. Whether the company appoints women for their expertise or just to comply with the rule will be a true test in the times to come. More awareness needs to be created and training sessions by reputed people need to be provided to make women ready to take on the mantle. The goal is to have qualified, experienced and skilled women directors with an above-average understanding of balance sheets, who can articulate and engage meaningfully in business discussions, contribute constructively, lead business strategies and initiatives.
As several women drop out due to family and other reasons, that leaves a relatively lesser number of women in the senior management level, although there are several qualified and experienced women at the middle management level who have proved their mettle and who could be considered for directorship. Several companies are seeking out women who have been in top management roles in organisations with established credentials which is myopic and further limits the chances of the available talent pool.
The clamour for established big names is a very narrow outlook adopted by several companies. Many companies prefer appointing ex-CEOs to the board and women CEOs are significantly fewer in number. Furthermore, there is a tendency among existing directors to recommend potential directors from their own network.
Companies need to be progressive in their approach in identifying women directors and not be patriarchal and patronising. They could help by allowing women professionals in day jobs to lend their services by becoming Independent directors in other companies. To curb incidents of women off-ramping, government intervention and support in terms of childcare and elderly care facilities, flexi-timing, etc, will ensure that more women continue working or return to work after a break. Institutional investors in certain developed countries have started to vote against an all-male board.
Women also need to build a strong profile, networks, participate in workshops and seminars and read extensively. They could make a start by accepting directorships in NGOs, not-for-profit outfits, etc, to gain the experience and build their repertoire. All qualified and eligible women need to sharpen their business acumen and get ready to take the challenge and make a perceptible change by being a board member. The logical pinnacle of career progression for corporate women is the boardroom and women should break this last male bastion in Corporate India. Companies need to embrace inclusion and diversity in its true spirit by appointing women directors and giving them an opportunity to participate, contribute and lead.
(The author is an Associate Vice-President, Murugappa Group)
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