Getting on Board – Gender Diversity in Company Board of Directors
[orc]Data from the Ministry of Corporate Affairs shows that many publicly listed companies did not comply with the provision of appointing a woman director to their boards.
Across the world, women are underrepresented in the highest positions of leadership in corporate world despite being a significant proportion of the corporate talent pool in the middle and lower rungs. The corporate world generally maintains that there is no systemic exclusion of women and that it is a gender-blind meritocracy with a pipeline problem (a situation where there are insufficient number of candidates in organisations to promote to higher positions). However empirical studies and testimonies shared by women in corporate world reveal that implicit bias, social favoritism, historical understandings of gender roles, stereotypes of gender, status group politics and unintended, subtle discriminatory policies impede the professional advancement of women in the highest positions of leadership.
Why Gender Diversity?
Since the issue of gender diversity in corporate world became mainstream, governments and consultancy groups have urged companies to diversify their boards. Gender diversification has been shown to increase profits, improve strategic organization, boost goodwill, reduce group think and increase innovation and creativity by exposing company boards to multiple worldviews and perspectives. The diversity in input thus created leads companies to produce diverse products that cater to a wider consumer base and thereby increase market share. However, an important aspect of gender diversification is missed in mainstream discussion. Gender diversification cannot be conflated with merely appointing women to company boards. Gender diversification includes the responsibility of dismantling unintended, subtle discriminatory practices and creating an environment for equal opportunity, participation and collaboration. Only then does gender diversification truly fulfil its purpose, enable companies to capture maximum benefits and utilize the capabilities of the population of States.
What does the law say?
In India, the number of women appointed to company boards remains abysmal. The 2016 World Economic Forum Global Gender Gap report indicates that the female-to-male ratio of boards of publicly traded companies is 0.11. To encourage gender diversification in the corporate sector in India, Section 149 of the Companies Act, 2013 mandates that every Listed Company and every other public company either having a paid up share capital of at least Rs 100 crores or having a turnover of at least Rs 300 crores must appoint at least one woman director. Companies incorporated under the Act are required to comply with the provision within six months of their incorporation whereas companies incorporated under Companies Act, 1956 were given a period of one year to comply with the provisions. The Act also provides for the imposition of fines when companies do not comply. Additionally, Clause 49 of the Listing Agreement was amended by SEBI to ensure that the board of directors of listed companies had at least one-woman director.
What do the numbers say?
While these legal reforms are an acknowledgement of the gender gap and manifest an intention to build gender parity and inclusiveness in corporate world, we must be sceptic of their efforts in ensuring gender diversification. Though Section 149 of the Companies Act, 2013 imposes a minimum mandatory quota on companies, the minimum quota is itself so small that it appears merely tokenistic. There is reasonable doubt over the difference one female director can make as compared with having at least three or more women directors on board. The Indian minimum mandatory quota of one female director also does not match up to global standards. (For instance, Norway, Finland, France and Spain require 40% whereas Belgium, Kenya and Italy require 33% women on boards.) At the least, the minimum mandatory quota must reflect the proportion of women working in the country’s corporate world. The reforms also have a superficial understanding of gender diversification, as they primarily suggest that gender diversity is merely about appointing women to company boards and do not extend thought on creating equal opportunities to work and advance in careers. To that extent, the legal provisions allow companies to indulge in diversity doublespeak. The instrumentalist approach that companies have taken in complying with the provisions also does not indicate gender diversification in company boards.
The Ministry of Corporate Affairs reported that notwithstanding the fact that it was September 2016, 169 National Stock Exchange listed companies, 15 Central Public Sector Enterprises and 1106 Bombay Stock Exchange listed companies had failed to comply with the provisions. News media has chronicled the shoddy, undesirable and last-minute manner in which hundreds of companies have appointed female directors with the sole purpose of technically complying with provisions. In many instances the female directors appointed are relatives of important office-holders in the corporations. Trophy women directors sit on multiple company boards simultaneously. This raises serious questions over the qualifications and independence of such female directors appointed and defeats the intended purpose of shattering the glass ceiling for experienced women candidates in the company’s talent pool who are excluded.
How can this change?
It is also important to reflect on the other mechanisms corporate governance could use to put an end to the systemic exclusion of women in the higher rungs of corporate ladders. Apart from mandatory quota laws, there exist multiple ways by which States around the world can urge companies to prioritise gender diversification.
- Voluntary Pledge programs – By this method, States urge companies to take voluntary pledges to address the issue of gender diversification and proportionate appointment of women to company boards. Typically, non-governmental organisations monitor the pledges made by companies. An attempt at instituting a voluntary pledge program was made by the EU whereby it requested large public companies to voluntarily pledge to achieve 30% representation of women on company boards by 2015. However, very few companies made pledges and the program was deemed a failure. The success of the Voluntary Pledge program entirely depends on the corporate world’s initiatives and is therefore unlikely to succeed in our country.
- Comply or Explain provisions – This is a soft law approach whereby States recommend that company boards achieve a minimum proportion of women directors on company boards. If companies fail to meet this recommendation, they are required by law to explain their failure. This approach creates some accountability with respect to company appointments and company culture but the lack of a penalty system may jeopardise the goal of achieving gender diversification. However, the implementation of this approach in the UK and Australia has resulted in positive progress towards achieving gender diversification.
- Mandatory Diversity Disclosure Reports – This approach would legally require companies to disclose gender diversity ratios in the organizational structure, the process and criteria of hiring and promotion, the attempts made by companies to create equal opportunity and inclusive practices and the long term strategy to realise gender diversification. This approach creates transparency, holds companies accountable to the public and encourages companies to reflect on their own internal practices to pave the way for equal opportunity.
It has also been suggested that the matter of gender diversification be allowed to be expressed by stakeholders in a non-binding vote.
The issue of gender diversification is one of fairness and equity for women in the corporate sector. It is imperative that the vestiges of possibly unintended and subtle yet structural discrimination be eradicated. Indian companies must comply with gender diversification provisions in the spirit of the law. However, to effectuate real change in the corporate culture a wide variety of measures need to be implemented – mentorship programs, annual diversity reports, expansion of the discourse on leadership qualities, diversity training programs, reconstruction of internal operations etc.
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