This article is written by Sanskriti Desai, a student of ILS Law College, Pune, Maharashtra. In this article, she discusses the diversity in terms of gender in the boardroom of a company.
Table of Contents
A SEBI Report reads, “Diversity, in all its elements, serves an important purpose for board effectiveness. It helps broaden perspectives at the time of decision-making, avoid similarity of attitude and help companies better understand and connect with their stakeholders”. There is a need for diversity in boardrooms in India, diversity in experience, skill, nationality but most importantly, there is a need for gender diversity.
Gender Diversity in the boardroom forms an essential aspect of decision making. The boardroom is where all the strategic decisions of the company are taken and thus, it is always important to have a group of individuals who provide a balanced mix of skills, experiences and backgrounds.
At the entry-level many multi-national companies have a considerable number of women and have diverse HR policies, however, the senior management positions continue to be skewed in favour of men. While the gap in education among males and females is being attempted to be reduced by way of several legislations and even though India has a large pool of qualified women professionals, they continue to wait to be identified and given an opportunity to bring a change in the boardroom.
Need for Diversity
In a report, published by McKinsey and Company in 2015, titled “Why Diversity Matters”, it has been stated that diversity has an impact on many key aspects of the organisation’s performance such as talent recruitment, customer orientation, employee satisfaction, etc. Women are key consumer decision makers; hence, a woman’s perspective may help the board strengthen its customer orientation. Also, diversity in a group fosters innovation and creativity through the different problem-solving approaches and perspectives that its members may possess. Thus, academic research shows that diverse groups tend to outperform their counterparts.
One of the main advantages of diversity in the boardroom is the need to get out of the cycle of groupthink. Groupthink refers to the practice of making decisions or thinking in a group, resulting in unchallenged and poor quality decisions. Various studies show that a diverse group may provide different perspectives to the same issue and thus, lead to a decision-making process which is more thorough and efficient. Also, a board room with members from diverse backgrounds may help improve the company’s CSR performance as they better understand the needs and issues of different stakeholder groups.
Companies having women on the Board have internal policies which are more gender diverse. The most diverse companies develop an organizational structure that provides equality of access and opportunity for promotion throughout the entire organisation. After all, gender diversity at the workplace must start in the boardroom.
As the general public becomes more aware of issues related with gender disparities and the need for gender equality in leadership positions, consumers may tend to prefer products of companies which have a diverse group of leaders in its boardroom. Thus, social responsibility is another reason to act against the gender bias amongst the board members or senior management of a company.
There are various studies claiming that appointing more women on the Board may improve the profits or returns for the companies, however, an important question that we must ask ourselves is whether similar kinds of studies are done for employment of men in these companies? How many studies have we read about, which determine how much men, as a gender, contribute to an organisation? When the only aspect that is considered when employing a man, on the Board of a company, is his qualification, why is the same not done for women? Why does the presence of a woman have to be anything more than the fact that she is qualified to be appointed at that position in the company? These studies, indirectly, represent the side of our corporate world where a man can be appointed simply because he is qualified for the job, irrespective of his gender being emphasised about, but when appointing a woman, other than being qualified for the job, the company needs her to bring something more to the organisation such as a clear increase in profits or returns or sales. However, when this is not being asked of the male candidates, why is this a requirement for a female candidate or the female gender as a whole?
Gender Diversity-Issues in India
In research published by Catalyst, it shows that the percentage of women directorships in 2019 has increased to 15.9%, as compared to 12.8% in 2016. However, 78.8% companies have only 1-2 women on board, while only 21.3% companies have 3 or more women on their Board. This shows that the appointment of women as directors has been done merely to comply with the legal requirement of having at least one woman director on the Board.
According to another study, titled ‘Women on Board 2020’ conducted by global recruitment tendering platform MyHiringClub.com, India has ranked 12th in the world with almost 55% of its listed companies having women directors. This is a positive change as compared to India being ranked 26th under the ‘Women on Board 2016’ study conducted by the same platform. However, the fact remains that most of these companies have 1 or 2 women on their Board merely to meet the compliance requirements under the Companies Act, 2013. If this is compared to the research published by Catalyst, as mentioned above, it proves that even though India’s rank has increased, primarily because of the change in legislation and the mandatory requirement for listed companies to have a woman director on its Board, but it has failed to inculcate the need for gender diversity among the members of these Boards and it does not meet the aim of inclusion and better participation of women in the boardroom.
A large number of companies also appointed close family members in order to meet the requirement of one woman director on the Board, thus, defeating the purpose. Also, there may be Boards which, being mostly male-dominated, are not comfortable with having a large number of women on Board. And this can be seen not only at the board-level but also at the level of the top management in many companies which remains to be dominated by the male population.
Low awareness about the importance of gender diversity on Boards is one of the primary issues, in this respect, especially among Micro, Small and Medium enterprises in India. At the same time, not much is being done by multi-national companies or the government to improve the situation. There is a need to create awareness among smaller businesses and industries to understand the importance of having a diverse board, which must be done not only by the government but also by multi-national organizations which have the resources to do so. Also, it must be made mandatory to make disclosures regarding the steps taken by companies to improve gender diversity all over its organisational structure. This may lead to companies taking further steps to improve female participation in the workplace rather than the current scenario where the only thing that it is required to do is appoint one female on its Board.
Many small and medium capital based companies understand the importance of gender diversity at positions higher-up the ladder but, may not have the budget to hire firms which would find them candidates for these positions and their main source to recruit candidates is from their own circle of network. The primary issue is that when there is a need to make an addition to a group of individuals which discuss various issues and take decisions for the organization, they end up appointing people with similar experiences, skills and thought-processes. Thus, usually, when a group of men work together on a Board, they tend to look for other male candidates, thus leading to a self-perpetuating cycle.
Another major problem with women not being appointed at higher positions may be the difference in the thought-process of men and women. When given an opportunity for a promotion, it has been found in various studies, that men applied for promotions even when they weren’t eligible for it or even when they were much less qualified for the same. On the other hand, women applied for promotions only when they were sure that they were qualified, and most of them being over-qualified, for the job available.
One of the biggest issues that remains within the social structure of the country, and in various parts of the world, is that women face challenges with respect to maternity, child birth, relocation with spouse, etc. These remain to be major reasons due to which women are made to resign or may not be promoted to higher positions.
Also, many women end up leaving their jobs because of these reasons, mostly because they don’t have enough support from organisations to be able to maintain a work-life balance. Women tend to face more social pressure with respect to managing the personal end of their lives, their families and the children, especially in India. On the other hand, men hardly face such problems. How many men do you see leaving work for a child’s parent-teacher meeting or maybe simply because they have house work that they need to finish at the end of the day? I wouldn’t say that there are no men doing so, but compare it to the number of women you know, who do this, and that is exactly the gap that we need to cover in order to bring women to an equal level as men.
For organisations to make the workplace more inclusive for women is to be achieved by far more than just employing more women. It needs to be done by way of providing facilities which ensure that women can stay at work longer and work more efficiently, without having to worry about their personal lives being affected by it. Organisations can provide day-care facilities for the children of their employees and have working hours which are such that they ensure better work-life balance for employees. Another way that companies can help solve this social issue is by conducting programs and seminars, with its employees, to change the ideology that women must do most of the work at home or that its the woman’s job to take care of the house and the children, even if she works the same hours as the man does. Even though there may be more women who would benefit from such facilities, it would help many male employees as well, especially in this age where more men are trying to accept equal responsibilities, as their partners, in their personal lives.
Another significant barrier is the lack of women in senior leadership positions. Research has shown that companies with women in top leadership positions tend to appoint more women on the board. However, globally, women hold just 4.4% of CEO positions and just 12.7% of CFO roles. Since these roles are often what propel executives into board seats, increasing the number of women in the C-suite is vital to increasing the number of women on corporate boards.
Legal Framework for Gender Diversity
India, under its Companies Act, 2013, mandates, for a prescribed class of companies, the appointment of at least one woman director on its Board. These companies, according to Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, are:
- every listed company;
- every public company either having paid-up share capital of Rs. 100 Crore or more or a turnover of Rs. 300 Crore or more.
Also, Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) 2015 (Last amended on January 10, 2020) provides that the Board of every listed company shall have at least one woman director. Also, it requires that the board of directors of the top 500 and 1000 companies, determined on the basis of market capitalisation, shall be required to appoint at least one independent woman director.
The primary question that remains is whether requiring only one woman director on the Board of a certain class of companies is enough to bring about the required diversity and inclusion of the under-represented gender? Can the presence of one female director in the boardroom help bring about the changes which are the aim of this diversity and inclusion initiative?
While India requires only one woman director, many countries have gone a step ahead and set higher quotas for women in the boardroom. Norway requires 40% of the Board to be constituted by females whereas Italy and Belgium have this quota set at 30% and 33%, respectively.
Other than higher quotas for women at corporate leadership positions, one of the most effective measures in increasing gender diversity and inclusion is mandatory diversity disclosures required from companies. The UK Corporate Governance Code makes it mandatory on all premium listed companies to state, in its annual report, the policy on diversity and inclusion, its objectives and its link to the company strategy, how it has been implemented and progress on achieving these objectives. This approach would require companies to formulate policies to improve gender diversity and devise inclusion programs all over the organizational structure. Thus, ensuring diversity in the process of hiring and promotion at all levels. Disclosure on the part of the company is one of the most effective ways to create transparency and hold companies accountable to the public and all its stakeholders.
While public companies face pressure from shareholders and various proxy advisory firms, private companies tend to be skipped from these discussions and thus, a lot of them do not have any representation of females on their Board. Considering that private companies are much larger in number in India, as compared to public companies, in order to make a substantial change with respect to representation of females on corporate boards, it is important to make private companies aware of the need for gender diversity and inclusion of females in leadership roles.
Even though the corporate world may claim that there is no systematic exclusion of women and that the selection of directors is based on a gender-blind system of meritocracy, it can be clearly understood by way of various studies that it is implicit bias, the historical understanding of gender roles and the stereotypes associated with it, which blocks the professional advancement of women at higher positions of leadership.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: