LAW YOG

Concept of Women Directors – India and Worldwide Scenario

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Gender Equality has been enshrined in the Indian Constitution in its Preamble, fundamental rights, fundamental duties and directive principles of State Policy, but despite such unambiguous equal rights given to both men and women Indian society is always male-dominated. The workplace is a setting where gender inequalities are easily noticed. For years women have been fighting for equal representation and although today we stand in a better position there is a long way to go. Just like our constitution, numerous legislations have been responsible for the change in the situation, one such legislation has been the Companies act of 2013 which has introduced the mandate of at least one woman director to a corporate board.

Gender diversity on boards continues to be a hotly debated topic across the world. It was popularly debated by the supporters of gender diversity that female representation brings in a different perspective, intuitiveness, and a more collaborative style of leadership into corporate boardrooms. Numerous researches have shown evidence linking gender diversity and financial performance.

Consequently, multiple jurisdictions across the world have adopted legislation to promote diversity at the leadership level. The European markets have taken the lead in this initiative with Norway, Germany, France, Belgium, and Italy, all having enacted mandatory quotas for female representation on the board. Other countries, including Austria, Sweden, and the UK, have adopted voluntary targets. In the UK, the 30% Club launched in 2010 has set a goal to achieve a minimum of 30% women on the FTSE-100 boards – currently, that figure stands at 27%, up from 12.5%. The 30% Club has now extended its original target – it has set a goal of 30% women on FTSE-350 boards by 2020 (currently at 23.2%) [i]

But not everyone subscribes to this view. Critics of enforced diversity lament the lack of experienced and professional women candidates to be promoted or appointed. Others oppose such quotas on the grounds of meritocracy – they believe that it may denigrate the board nomination process and lead to the selection of unqualified directors.

While there may be genuine concerns at an individual level, empirical evidence suggests that such fears are unwarranted. A recent IMF study[ii] has found that firms with a larger share of women in senior positions have a significantly higher return on assets (ROAs). The study further goes on to state that replacing one man by a woman in senior management or on the corporate board is associated with 8–13 basis points higher ROAs.

India is one of the first developing countries to have enforced a quota – the legal framework [iii] now mandates listed companies [iv]to have at least one women director on the board. While this is less stringent than some of the thresholds prevalent in global markets, it is a welcome step in changing the extant market dynamic. The push seems to have worked – at least for now.

Section 149(1) of Companies Act, 2013 contains the provisions regarding this mandate. It states that every company shall have a board of directors who are individuals with

  • Minimum number of three directors in case of a public company
  • and two directors in case of a private company
  • and one in the case of One Person Company.
  • A maximum of fifteen directors.

Further, it is also stated that such class or classes of companies as mentioned above shall have at least one women director.

Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 deals with women directors on the board. According to section 149, every listed company and every other public company having either a Paid-up share capital of one hundred crore rupees or more or, a Turnover of three hundred crore rupees or more must have at least one-woman director

The paid-up share capital or turnover as stated above shall be the one which is mentioned in the latest audited financial statement. Moreover, any company which is incorporated under the new Companies Act shall comply with the above conditions within six months from the date of incorporation. However, any company which has been incorporated under the old companies Act shall comply with such conditions within one year from the date of incorporation.

In case if there exists a vacancy in the post of the women director, such vacancy has to be filled as early as possible and it should not be later than the next immediate board meeting or after three months from the date of the post being vacant, i.e. whichever is later.

Currently, companies have woken up from their inertia and are more mindful of the need to have women directors at the board level. Female representation in the NIFTY 500, which was at 5% as on 31 March 2012, has increased to 13% as on 31 March 2017. A large proportion of women directors (60%) are independent – which is contrary to the popular notion that women directors are only getting appointed from the promoter family to comply with the regulations. But clearly more needs to be done. At 13%, women are still underrepresented in stewardship roles despite constituting a significant portion of the talent pool in corporate India. This is much lower than countries like Norway (39%), France (34%), the UK (23%), and USA (21%). Only 26 boards in the NIFTY 500 had three or more women directors on 31 March 2017. 15 companies had no female representation on the boards, as compared to only six companies in the S&P 500 on 31 March 2017. By having only one woman director, companies may not be able to fully realize the potential of gender diversity as an actual driver of change and efficiency. There is a need to increase gender diversity on boards. This could be approached in two ways:

  1. Ensure that boards have at least one woman independent director in the next 18 months[v]
  2.  Have a target to achieve 20% for female representation by 2020.

Companies, on their part, need to embrace the diversity and put in place systems and processes which will end discriminatory practices and create an environment which allows for equal opportunity and collaboration. Increased visibility of women at the senior leadership will send a clear message that companies value the diversity of thought and expertise – this sets the tone for advancing their overall governance agenda. But for this, there needs to be a market-wide effort to support the initiative to better gender diversity. To that extent, it will take corporates, industry bodies, regulators, and investors to push for the agenda.

Endnotes

[i] https://30percentclub.org/about/chapters/united-kingdom

[ii] https://www.imf.org/external/pubs/ft/wp/2016/wp1650.pdf

[iii] Companies Act 2013 and SEBI (Listing Obligations and Disclosure Requirements), 2015

[iv] Also, applicable to companies with a paid-up share capital of at least Rs.100 crore or turnover of at least Rs.300 crore

[v] On 31 March 2017, 60% of all women directors are currently independent: companies can strive to increase the participation of women as independent directors on their boards

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Rachita Yedhula

Student, Symbiosis Law School Pune

Rachita is Student at Symbiosis Law School, Pune. She is originally from Chennai and has completed secondary and higher secondary education at Indian High School, Dubai. She is an aspiring lawyer with an avid interest in Intellectual Property Law. For any clarifications, suggestions and feedback kindly find her at 18010126180@symlaw.ac.in

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