Empowering Change: Unraveling the Impact and Navigating Challenges of Women Directors in Corporate Governance
Within the tapestry of the Indian constitution’s commitment to equality and its resolute stance against societal inequalities, a spotlight is cast on addressing gender disparities. The historical shadows of practices like Sati, child marriage, and female infanticide have given way to a legislative landscape that actively promotes gender equality across various domains, notably in the workplace. A pivotal milestone in this journey is the Companies Act of 2013, which serves as a beacon for encouraging increased participation of women on corporate boards. Beyond being a legal imperative, this initiative reflects a recognition of the substantial positive impact that women bring to professional settings. It is not merely about ticking boxes but acknowledging the unique contributions that women make in fostering a dynamic and inclusive work environment. Delving into the psychological realm, it is contended that the presence of women in corporate echelons infuses a distinct positive energy. This infusion manifests in heightened focus, diversified perspectives, and an overall atmosphere conducive to exploration and increased productivity.
The assertion is not unfounded; numerous Fortune 500 companies stand testament to the tangible benefits of embracing gender diversity, experiencing not only increased profits but also expanded business operations. Zooming out to a global perspective, countries such as Norway, Belgium, France, Iceland, Italy, the European Union, Germany, Spain, Malaysia, the United Arab Emirates, the Netherlands, Austria, Israel, and Finland illuminate the positive effects of having women actively participate in corporate boards. This participation, far from being tokenistic, has been a driving force behind the augmented incomes of companies on an international scale. In acknowledging the global recognition of the invaluable role played by women in the workforce, it becomes apparent that fostering gender equality in employment opportunities is not merely a moral obligation but a strategic imperative. As we explore the transformative power of women directors, this narrative unravels the interconnected threads of legal mandates, psychological dynamics, and international precedents that converge in the push for a more inclusive corporate landscape.
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Regulatory Mandates and Penalties for Women Director Appointments on Corporate Boards
The necessity for the inclusion of women directors on corporate boards was widely recognized, prompting regulatory bodies such as the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI) to enforce provisions mandating the appointment of women directors in certain categories of companies. As outlined in the second proviso to Section 149(1) of the Act and Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following types of companies are obligated to have at least one woman director: Every listed company. Every public company with a paid-up share capital of INR 100 crore or more. Every public company with a turnover of INR 300 crore or more.
Women directors can be appointed either at the time of a company’s incorporation or within six months from its incorporation date. Non-compliance with these provisions incurs penalties for defaulting companies and their officers. Penalties for companies in default include: A penalty of INR 50,000, with an additional INR 500 for each day of continued default, up to a maximum of INR 3,00,000. Penalties for officers in default include: A penalty of INR 50,000, with an additional INR 500 for each day of continued default, up to a maximum of INR 1,00,000. In addition, SEBI’s Listing Obligations and Disclosure Requirements Regulations (2015) stipulate that listed entities’ boards must include at least one woman director. The regulation also set deadlines for the appointment of independent woman directors for the top 500 and top 1000 listed entities by April 1, 2019, and April 1, 2020, respectively. Women directors are subject to the same general directorial provisions, covering aspects such as appointment, removal, resignation, retirement by rotation, and remuneration. Instances of companies failing to comply with the regulatory requirement of appointing at least one woman director on their board have led to penalties imposed by Registrars of Companies in several recent cases.
Companies in India are subject to specific mandates regarding the inclusion of women directors on their boards, as outlined in Section 149(1) of the Companies Act, 2013 and further detailed in Rule 3 of the Rules. The following categories of companies are obligated to appoint at least one woman director: Listed Companies: Every company listed on the stock exchange. Other Public Companies: Every other public company meeting one of the following criteria: Paid-up share capital of INR 1 billion (approx. US$12 million) or more. Turnover of INR 3 billion (approx. US$36.02 million) or more. Once a company falls under one of these categories, it must appoint a woman director to its board within six months from the date of fulfilling these criteria. The determination of paid-up share capital or turnover is based on the figures from the last date of the latest audited financial statements. In the case of any intermittent vacancy of a woman director, the Board is required to promptly fill the vacancy, either at the immediate next Board meeting or within three months from the date of the vacancy, whichever occurs later. Furthermore, Regulation 17(1) of the Securities and Exchange Board of India (Listing Obligation Disclosure Requirements), Regulations 2015, mandates that the board of directors of a listed entity must maintain an optimal blend of executive and non-executive directors, including at least one woman director. Additionally, not less than 50 per cent of the board of directors should consist of non-executive directors. According to the SEBI LODR regulations, for the top 500 listed entities, it has been obligatory to have at least one independent woman director since April 1, 2019, and for the top 1000 listed entities, this requirement extends to at least one independent woman director since April 1, 2020. The determination of the top 500 and 1000 entities is based on market capitalization at the end of the immediate previous financial year. These regulations aim to foster gender diversity and enhance corporate governance within India’s corporate landscape.
Study Reveals 18% of Women Directors in Top 500 NSE-Listed Companies
Gender diversity in the boardrooms of India’s top 500 NSE-listed companies has made progress but at a slower pace, with women now holding nearly 18% of directorships, according to a study by Institutional Investor Advisory Services (IiAS). The findings indicate an increase from 6% in 2014 and 14% five years ago. However, the study highlights a deceleration in the rate of new appointments, with just a 1% aggregate increase over the last three years. At the current pace, it is estimated that India will achieve 30% gender diversity on boards by 2058. The study underscores the positive trend that 48.6% of Nifty-500 companies had two or more women directors by March 2022, up from 45% in the previous year.
Additionally, the study provides a global context, revealing that Europe and North America surpass the global average in women’s representation on boards, with France leading globally with 44.5%. While women’s average age on boards has slightly decreased to 58.7 years, male colleagues have an average age of 62.3 years, indicating a narrowing age gap. The study also highlights that public sector undertakings (PSUs) continue to lag in gender diversity, often failing to meet regulatory norms for board composition. In light of these findings, IiAS Managing Director Amit Tandon emphasizes the need for corporate India to view gender diversity beyond regulatory compliance, setting a target of at least 30% women on boards during the upcoming 2024 board refresh.
The endeavour to achieve gender diversity in corporate boardrooms encounters several formidable challenges, each contributing to the complexity of this pursuit. Central to these obstacles is the concept of the glass ceiling, an intangible but pervasive set of barriers thwarting the ascent of women and minorities to higher organizational positions. Demand-related issues further impede progress, marked by a lack of awareness among company boards regarding the crucial business case for gender diversity, compounded by a prevalent expectation for candidates to possess prior board experience. In the context of India, concerns arise regarding the independence of women directors appointed through compliance-driven programs. Critics argue that ties to controlling promoters’ families may compromise the intended benefits of enhanced gender diversity. Supply-related issues compound the challenge, with a perceived shortage of qualified independent directors, especially among women. Capable women may abstain from board service due to a mix of reasons, including family responsibilities and uncertainty about the alignment of their skill sets with board needs. The importance of achieving a critical mass of women directors becomes evident in discussions on gender diversity.
Research indicates that companies with three or more women directors tend to outperform their counterparts with fewer women, although beyond a certain point, the positive impact may begin to diminish. Additionally, women directors’ perceptions of their roles and influence present a nuanced challenge. Despite being well-heard, there is a prevailing concern among women directors that their voices might not carry the weight they deserve. Notably, female directors holding executive positions, such as chief executives or executive chairpersons, are exceptions and are more likely to be taken seriously, possibly due to the executive authority they wield. In navigating these intricate challenges, a comprehensive approach that addresses demand, supply, independence, critical mass, and directors’ perceptions is imperative. This holistic perspective is essential for creating an inclusive and effective gender-diverse corporate environment that harnesses the full spectrum of talent and perspectives.
Need for Independent Women Directors
The need for independent women directors on corporate boards is underscored by several key factors. Firstly, the inherent qualities that women bring to the table, such as inclusiveness, attention to detail, patience, and prudence, significantly alter board dynamics. Their strong communication skills further enhance the collaborative nature of board discussions. Additionally, women directors approach decision-making with a holistic perspective, demonstrating a broader awareness of environmental and social concerns. Their inquisitive nature makes them approachable, facilitating open communication and a culture of thorough crosschecks and consultations that contribute to operational perfection. Moreover, women directors exhibit better judgment, particularly in areas such as human resources policies, corporate social responsibility, marketing strategies, and compliance-related issues. Their careful and conscientious supervision enhances governance and ensures ethical decision-making.
In terms of coordination, women’s inclusivity enables them to voice concerns about the implications of company strategies on employees, consumers, and other stakeholders. This contrasts with the perception that men may prioritize independent company strategy and performance over broader societal considerations. Furthermore, women directors serve as cultural change agents and role models for other women stakeholders. Their presence is perceived as empowering, encouraging women at all levels to challenge the status quo and pursue growth in their respective fields. Importantly, highly educated and experienced women directors are instrumental in grooming future leaders within the organization. Beyond their individual contributions, the cumulative impact of women directors extends to fostering a more diverse, innovative, and socially responsible corporate environment. Women directors often bring diverse perspectives and creative thinking to board discussions, leading to innovative solutions. Their presence enhances risk management practices, fosters customer-centric decision-making, provides a global outlook crucial in today’s interconnected business environment, and champions corporate social responsibility initiatives. In essence, the inclusion of independent women directors on boards not only aligns with principles of equity but also brings tangible benefits to corporate governance and organizational success.
Conclusion
In conclusion, the journey towards achieving gender diversity on corporate boards within the framework of the Indian constitution’s commitment to equality is marked by significant strides and persistent challenges. The Companies Act of 2013 stands as a pivotal milestone, mandating the appointment of women directors and reflecting a broader acknowledgement of the positive impact women bring to professional settings. The legal imperatives, however, are not mere checkboxes but a recognition of the unique contributions women make in fostering dynamic and inclusive work environments. Delving into the psychological realm, the presence of women in corporate echelons is argued to infuse positive energy, leading to heightened focus, diversified perspectives, and an overall atmosphere conducive to exploration and increased productivity. Globally, numerous examples, from Fortune 500 companies to countries like France and Norway, highlight the tangible benefits of embracing gender diversity, not only in increased profits but also in expanded business operations.
Despite these advancements, challenges persist. Regulatory mandates have been instrumental in increasing women directorships, but issues such as the glass ceiling, demand-related concerns, and supply-related shortages underscore the complexity of achieving gender parity. A critical mass of women directors is deemed essential for reaping the full benefits of diversity, and perceptions regarding the weight of women directors’ voices remain nuanced. To navigate these challenges, a comprehensive approach is imperative. Beyond regulatory compliance, the corporate sector must view gender diversity as a strategic imperative, recognizing the transformative power of women directors in fostering inclusive and effective corporate landscapes. The ongoing efforts to address these challenges are crucial for realizing the vision of a corporate environment that truly harnesses the diverse talents and perspectives of women, contributing to both organizational success and societal progress.
This article is written by Mr Aayush Akar & Mr Dhruv Kalia, students of the National Law University Odisha & National Law University of Advanced Legal Studies respectively.
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