This article has been written by Deeksha Rastogi, pursuing Diploma in Technology Law, Fintech Regulations and Technology Contracts ( JAN-01-2023 ) and has been edited by Oishika Banerji (Team Lawsikho).
This article has been published by Sneha Mahawar.
Table of Contents
The company’s board of directors is the main element for influencing corporate governance. Over the years the stakeholder’s trustworthiness and expectation has increased with the introduction of the concept of independent directors by the Companies Act, 2013. Apart from this, it has also added a female chair to the board. Women on boards is not about women’s rights, but the inclusion of people with different perspectives, diverse experience and the right combination of skills which result in better decision-making for the corporation. Women’s representation brings in a different perspective, intuitiveness, and a more collaborative style of leadership into corporate boardrooms. These factors, combined made it necessary for policymakers and women rights activists across the globe to either adopt mandatory legislation or voluntary persuasion for boosting women’s representation in key managerial positions of corporations. This article discussed the need for gender diversity on boards in India in current times, thereby covering all essential aspects included in the same.
Need for gender diversity in boards
Attitude matters more than the regulation
It is apparent that having a law requiring some mandatory minimum level of female board representation is effective in causing companies to fulfil at least the minimum criteria. There has been a debate among academicians on the relevance of mandatory provisions over moral persuasion.
Countries like Sweden, Finland, U.S. have no obligatory quotas for the inclusion of women on board but their willingness to comply with the soft laws has significantly improved their men-to-women ratio on board. Their attitude towards attaining gender-neutral boards has brought a remarkable change. They have adopted national campaigns and organisation-led awareness programmes which have accelerated the growth of women’s representation in corporations.
Then comes the countries that have a traditional viewpoint with respect to gender diversification. Countries like these have strict gender roles with respect to men and women. China, Japan, South Korea and Russia fit these criteria. They have fewer women directors on boards. Contrasting to this, countries like India, and Norway have made hard laws for the representation of women with penalties to maintain a minimum threshold of women directors on corporate boards, or a mandate to furnish justifications in case of non-compliance.
Legal framework in India promoting gender diversity in Boards
If the Indian Constitution is brought to view, Article 21 read with Articles 14 and 19 clarifies that women’s representation is equally significant as men’s in any workplace whatsoever. While Article 14 guarantees equal protection of the law and equality before law, Article 19 lists a set of freedoms that are applicable to individuals irrespective of their gender. Following this, Article 21 of the Indian Constitution deals with the right to a dignified life and personal liberty, which along with 14 and 19, forms the golden triangle of the Indian Constitution, thereby establishing the supremacy of law. Therefore, every legislation that comes into existence, has to abide by the fundamental principles laid down by the mother of all legislation, the Indian Constitution.
India in order to honour its commitment towards the United Nation’s 5th Sustainable Development Goal of Gender Equality has adopted a mandatory framework to increase participation of women in executive positions. The Companies Act, 2013 and the Securities Exchange Board of India (Listing Obligation Disclosure Requirements) Regulations, 2015 incorporate the rule for the appointment of a woman board member.
Section 149 (1) of the Companies Act, 2013 read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 states that every listed company and every public company either having paid up capital of Rs. 100 crore or more or a turnover of Rs. 300 crores or more should appoint at least one women director on its Board. This was further strengthened by introducing Regulation 17(1) of the Securities Exchange Board of India (Listing Obligation Disclosure Requirements) Regulations, 2015.
The regulation ensures the appointment of a women director. It states that the composition of the board of directors of listed entities shall have an optimum combination of executive and non-executive directors with at least one women director and not less than fifty percent of the board of directors shall comprise non-executive directors. It was further clarified that the Board of Directors of the top 500 and 1000 entities shall have at least one independent women director by April 1, 2019 and April 1, 2020 respectively. The top 500 and 1000 entities are determined on the basis of market capitalization at the end of the immediate previous year.
Directorship data of India and abroad
Traditionally, the only positions available to women on boards were leadership in the grievance and Corporate Social Responsibility committees. However, this has started to change and a legislative push seems to be working. Gender diversity on boards is increasing in Indian Incs. The report on ‘Diversity in the Boardroom: Progress and the way forward’ released by Ernst & Young on 17th October, 2022 validates the aforesaid progress. The high points of the reports are as follows:
- Significant increase in women representation on board in the year 2013-2022 from 6% to 18%. It has tripled in ten years.
- Almost 95% of NIFTY500 companies have one female board member, up from 69% in 2017.
- With a 24% women representation on board, the life sciences has taken the lead, followed by the Media & Entertainment sector.
- The Technology (IT & ITeS) industry has one of the highest female representation at 34%. It has also increased from 1.19 to 1.75 in 2017- 2022.
- Growth in women’s representation remained stagnant at 15% in the Energy & Utilities sector (Oil & Gas and Power & Utilities) in the year 2017-2022.
- Historically, women on Indian boards were in the leadership in grievance and Corporate Social Responsibility committees. However, it has started to change.
- Women account for only 6% of executive positions in banking and capital market boards.
The Equilieap in its 6th Gender Equality Global Report disclosed that the UK-based drink supplier Diageo is the second highest-placed firm in a study of global gender equality which makes France to be the best country overall for gender equality. Australian property developer Mirvac tops the list with a 79% gender equality score. The progress was reckoned on the basis of 19 gender equality criteria such as the gender pay gap, gender balance from the board to the workforce, and policies related to sexual harassment and sexual leave, which remained uneven across the globe.
The report found that women in top leadership positions were still very rare. Only 6% of companies globally had a female Chief Executive Officer, 15% had a female Chief Financial Officer, and 8% had a female chair on the board. Women represented 28% of board members and 20% of executives but 38% of the total workforce. Only 18 companies globally achieved 40-60% of women at all levels (board, executive, management and workforce). The best markets for corporate gender equality were rated as France, Spain, Italy, Norway, the UK and Australia; in contrast, the US, Japan and Hong Kong had the lowest average score globally.
It has been observed that either through soft laws or awareness the policymakers have rolled the stones for appointment on board but the male members look out for their fellow male members at the time of promotion and the cycle continues leaving behind the competent female member. Now that the appointment of a women director has become mandatory, there is another practice of giving the chair to their immediate female relatives. Mainly for the sake of compliance, she is appointed as a symbolic director. This defeats the purpose of law.
Implementing gender diversity in workplaces
A booming economy and cultural change are bringing women to the workforce but women-oriented challenges such as childbirth, relocation with the spouse, maternity, etc. It would not be out of place to point out that there exists a separation of work for men and women, particularly in our Indian culture, which makes it difficult to make a balance between professional and personal life. It is the combined effort of all the people which makes a woman successful. So the biggest challenge vests with the organisation is to retain their employees by providing a congenial, progressive and supportive environment for them to flourish.
The organisations can strive to improve this discrimination in gender by providing women employees flexible working options in order to maintain their work-life balance. It should adopt full transparency and disclosure when it comes to appointment, promotion and remuneration. Corporations should appoint independent directors, free from any ties with any of the directors, thereby giving them all the authority to make bold and independent decisions. More women should be appointed at all levels in the corporation to have a balanced atmosphere within the organisation.
Their appointment in the major committees such as the remuneration and nomination committee, stakeholder relationship committee, audit committee not only portrays a positive message to the shareholder and investors but encourages other female employees at the workplace.
The government, organisations, NGOs should organise programmes educating women about their role as a director. One such program has been initiated by Mr. Arun Duggal and Ms. Anjali Bansal in association with the Federation of Indian Chambers of Commerce and Industry in 2013. They have sketched ‘Women on Corporate Board Mentorship Program’ to educate women members about the nitty gritty of boardrooms. The program upskills women members from various fields to take up board positions. It is designed in a way to educate them about the screening process, board meetings and their role, responsibilities and liabilities as a director, prepare them for board meetings, and tutor some soft skills required to succeed as a board member. The corporation should also look beyond conventional talents while making appointments and promotions.
Even though a country like India has adopted a legal route to regulate diversity in its boardroom, the corporation and the members holding executive positions should abstain from practising favouritism and biases. Appointing immediate female relatives to the position serves their twofold purposes – act as a puppet of the rest of the members and fulfills the legal requirement. The law should be accepted and applied in its spirit. The essence of the law is to cut the first turf by mandating the appointment of at least one woman member to the board. The corporation should strive to give importance to talent over gender. There is no “one size fits all” solution to increase gender diversity, each region has different levels of societal acceptance for gender equality, and regulation would have different impacts in each region. The time has come that women should not be treated as another gender but should be recognized from their skill and competency keeping aside the gender.
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