Recently, tucked away in a single column in some newspapers was the news item, “BSE penalises 370 firms for not getting women on board”. The number of non-compliant companies at NSE, out of the total of 1509, is 68. These numbers relate to only the listed companies; there is no data in the public domain of unlisted companies which are non-compliant and no one is aware what action, if any, has been taken by the ministry of corporate affairs against them for this non-compliance.
While India Inc has been infamous for not conforming to laws on many fronts, this non-compliance is beyond any comprehension. Is this because companies are just not able to find even one woman to induct on their boards or does this clearly show a blatant disregard for law?
Such non-compliance is even more puzzling as there is neither any eligibility criteria for women directors (like for any other director) nor is there a requirement that such women should be independent.
Let us review the compliance history of this regulation. Sebi had prescribed this requirement way back in February 2014. Companies were required to appoint a woman director to their boards by September 30, 2014. In the case of NSE, there were already 54 companies which had a woman on their boards before the Sebi guideline was announced.
Compliance was poor. Companies were hopeful that there would be definitely be an extension of the deadline as there had been no warnings from Sebi. And they were right. Faced with a very large number of representations from companies who had not met this condition (nearly half of NSE-listed companies), and believing that there were genuine difficulties, Sebi liberally extended this deadline to March 31, 2015.
The next 4 months (October to January) saw only 114 more companies become compliant. There was some rush in February with as many as 59 more companies joining in. But when Sebi’s stern warning came at this time, the number shot up to 221 in March, comprising of 64 appointments between March 1 and 22, and a whopping 157 appointments between and March 23 and 31, of which 41 were on March 30 and 62 on March 31. Imagine, 103 board meetings in just last 2 days for this purpose! On 1st April, 2015, there were still 180 non-compliant companies at NSE.
In April 2015, Sebi announced a four-stage penalty structure, wherein the fines would increase with the passage of time. Companies complying between 1st April and 30th June 2015 would have to pay Rs 50,000. Those complying between July 1 and September 30 would need to pay Rs 50,000 and an additional Rs 1000/day of non-compliance, while those complying after September 30 will have to pay Rs 1.42 lakh (Rs 50,000 plus Rs 1000/day X 92 days) plus Rs 5,000 per day till the date of compliance and there could be further action against promoters and directors of such companies.
In the 6-month period till September 30, 2015, 106 NSE-listed companies have complied, leaving a balance of 74 non-compliant companies. This number had gone down to 68 as on October 18.
Of these 68 non-compliant companies, there are as many as many as 22 Public Sector Undertakings/Banks. This includes high market cap companies like NTPC, PFC, CCIL, REC, SJVN, Indian Bank, Syndicate Bank, UCO Bank, BEML and Allahabad Bank.
With the penalty notices issued, it would be interesting to see how many of the non-compliant companies actually pay up the amounts and in case not, what action would be forthcoming from the regulators, especially against the directors and promoters. It would be even more interesting to see what the hapless PSUs do, as the appointment is not in the realm of the boards but is in the respective ministries.
It is another matter that in 610 of the total 1,412 compliant NSE-listed companies, the women directors are non-independent, with promoters yet again making a mockery of law by bringing wives, daughters and other female relatives to the boards. Typically, most of such women have the same voice as the promoter, defeating the very purpose of genuine (independent) gender diversity. There is an argument that there is nothing wrong in appointing relatives on the board (after all, male relatives have occupied board positions for years) in case they are competent, but such women should have been on the boards irrespective of the Sebi guideline. Even in the remaining cases, most women would be either distant relatives or are the kin of dear friends of the promoters, etc. Most of India Inc still believes that compliance is enough in letter, not in spirit.
For the still non-compliant companies, to get out from paying fines, what prevents them to begin with to get the promoter’s mother, wife, sister or daughter on the board, and get them just to mark their attendance? If the promoter has none or he does not wish to share corporate goings-on with them, he can surely get a woman from his neighbourhood, or from his friend’s home?
On another front, any kind of reservation on the boards makes little sense. Only merit should count for the boards to deliver excellence. However, on practical grounds, I strongly advocate inclusion of women on the boards. They not only provide diverse views, they are more values-driven, bring decorum and discipline in the meetings but most importantly, bring the perspective of the consumers; women account for more than half of the purchasing action.
Going forward, in order to achieve diversity, the mandate should at least require that the mandated woman director is independent. There is no shortage of competent women in the country. There are literally thousands of them in the financial, legal, HR and FMCG sectors; plus thousands in other useful sectors like research and academics.
The author is the managing director of Prime Database Group