1. The rationale for gender diversity

The rationale for gender diversity

Gender diversity in the boardroom is fundamental business sense. A boardroom is where strategic decisions are made, governance is applied and risk is overseen.

Published: May 8, 2017 2:49 AM
Globally, the call for gender diversity on corporate boards is gaining momentum.

Tarun Kher

“When women are at the table, the discussion is richer, the decision-making process is better, management is more innovative and collaborative, and the organisation is stronger.”
—Joseph Keefe, president & CEO, Pax World Funds

Gender diversity in the boardroom is fundamental business sense. A boardroom is where strategic decisions are made, governance is applied and risk is overseen. So, it’s imperative that boards are made up of competent, high-calibre individuals who offer a mix of skills, experiences and backgrounds.

Globally, the call for gender diversity on corporate boards is gaining momentum. Some countries have taken legislative action and imposed quotas, others have used measures like moral persuasion and voluntary schemes to enhance women representation.

According to the study “Women On Board 2016” by a global recruitment tendering platform, the presence of women members on boards of Indian companies is lower than the average for developing countries. India secured 26th rank globally in terms of presence of women members on board—just a 7% score. Norway tops the chart and is the first country that enacted legislation to increase the percentage of female board members in 2003, requiring 40% female board members by 2008—it has achieved the goal. Other countries have followed suit in passing legislation mandating gender diversity on public company boards, including Belgium, Finland, France, India, Italy, the Netherlands and Spain. Germany also passed a law requiring 30% of board seats to be filled by women by 2016.

According to a 2015 CWDI Report (Corporate Women Directors International), women board directors among APEC (Asia-Pacific Economic Cooperation) economies, Australia and Malaysia have a high rate of increase in appointing women on board seats. Malaysia is the only APEC economy with a government-driven quota, or target of 30%, for women board directors.

Gender diversity in India

India has adopted the mandatory approach to gender diversity. Section 149(1) of the Companies Act, 2013, provides that certain classes of companies must have at least one woman director. Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, specifies the following classes of companies:

*every listed company;
*other public companies having a paid-up share capital of Rs 100 crore or more or turnover of Rs 300 crore or more.

Sebi had mandated that the appointment of women directors to the board must happen no later than April 1, 2015. According to Prime Database press release of April 2015, of the 1,456 listed companies, 180, or 12%, did not have any woman on their board as on April 1, 2015. In 2014-15, 832 women were appointed to 912 directorship positions in 872 companies. While some progressive companies had women board members prior to the Sebi directive, data showed that 57% listed companies on the NSE appointed wives, sisters, daughters to the board to avoid strict penalties for non-compliance.

From drawing-room to boardroom

Women directors tend to be more protective about the company’s money, employees and reputation. Being an extreme minority, women directors generally ensure greater scrutiny of board considerations and decisions. Typically, new women directors begin by listening and learning; soon they start asking questions and contributing ideas.

Companies with diverse executive boards outperform peers that are run by all-male boards, according to a 2015 research by a leading independent consulting firm. The study, which covers listed companies in India, the UK and the US, estimated the opportunity cost for companies with male-only executive boards at a staggering $655 billion (Rs 4.5 lakh crore) in 2014-15.

Barriers to gender diversity

Despite improvements, women are under-represented at every level in the corporate pipeline—especially senior levels. India has a huge pool of talented women professionals waiting to be identified. Boards, including in India, are composed primarily of men, who tend to hire people like themselves—other men. This creates a self-perpetuating cycle in which women are not able to join the board.

There are necessary steps in the path to successful board diversity. An open organisational culture that supports gender diversity is a precursor for improving gender diversity of boardroom executives. Supporting work-life balance for all, including flexible working, universal childcare and family disability support, unbiased HR policies and practices that are monitored and reviewed are factors for improving gender diversity.

Ultimately, it is the business value created by women that will determine their presence and role on boards in India. Women are here to stay and gender will no longer be a consideration for their seat on a board, but their contribution to the board certainly will.

The author is executive director, Mazars, the audit, accountancy, tax, legal and advisory services firm. Views are personal

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