The Chartered Accountant Journal • Corporate Governance • December 2020

Corporate Boards in India and Gender Diversity

Dr. Gunjan Khanna
The author is Assistant Professor, University of Delhi. She can be reached at gunjank_cs@yahoo.com and eboard@icai.in.
Citation: (2020) 69 CAJ 698–702
Pages 38–42 • Journal Page Nos. 698–702
“Women on Boards Not Just the Right Thing … But the Bright Thing” – Brown et al. (2002)

Executive Perspective

Reports and various codes proposed across the world endorse research on the impact of board gender diversity on performance and governance of corporate sector. Urge for promoting women on corporate boards are based on the principles of fairness and equality as women comprise of half the population and workforce. Further heterogeneity at board level in terms of gender leads to unique and valuable contribution to the board dynamics empirically proven by the studies conducted across the globe. Therefore there is a need to have gender diversity of corporate boards in spirit. India still needs to follow a combination of measures at government as well as corporate leaders level as no “one size fits all” is an enduring solution. Read on…

1. Introduction & The Indian Statutory Reality

Forward looking companies may be putting policies and practices in place to promote women on corporate boards but there’s still a long way to go. Legal mandate has been imposed on certain specified corporate boards in India to appoint at least one woman with effect from 1st April, 2015. India pioneered in the category of developing nations to introduce mandatory provision for having gender diverse boards.

In spite of almost five years have been completed since the legitimate necessity was instituted, still its implementation has been found wanting. As per the data available on the website of Indian Boards Database:

15.97%
Directorships held by women across 1,792 companies listed on the NSE.
61.89%
Proportion of women directors who are classified as independent directors.

In case of mandatory provision of Section 149 of The Companies Act, 2013 for having at least one woman on corporate boards of certain class of companies with effect from April 1, 2015 leads to a fiasco that many companies have appointed one woman who are directly or indirectly related to promoter group to comply the letters of law and not in spirit.

The Securities Exchange Board of India (SEBI) had brought certain amendments in its Listing Obligations and Disclosure Requirements (LODR) based on the Report of the committee on corporate governance under the chairmanship of Mr. Uday Kotak. According to 1st proviso to Regulation 17(1)(a) of LODR amendment regulation, the board shall consist of at least 1 woman independent director:

  • Top 500 listed entities on the basis of market capitalisation (as at the end of the immediate previous financial year): Must comply w.e.f. 1st April, 2019.
  • Top 1000 listed entities on the basis of market capitalisation (as at the end of the immediate previous financial year): Must comply w.e.f. 1st April, 2020.

This stringent regulation making it mandatory for companies to appoint an independent person as woman director as it is not enough to appoint symbolic representatives of women in order to marginalize their views. Qualified and competent women should be appointed so that they can actively contribute towards the board effectiveness.

2. Initiatives to Place Women on Corporate Boards in India (Legislative Timeline)

The evolutionary trajectory of statutory reforms mandating women representation on corporate boards of directors in India is tabulated below:

Year Statutory Instrument / Policy Specific Regulatory Provision
2009 Companies Bill, 2009 Clause 132 proposed appointment of at least one woman director in prescribed class of companies.
2011 Companies Bill, 2011 Section 149(1) 2nd proviso proposed appointment of at least one woman director in prescribed class of companies.
2012 Companies Bill, 2012 Proposed appointment of at least one woman director in prescribed class of companies.
2013 The Companies Act, 2013 Section 149 (1) enacted: Certain specified companies must appoint at least one woman director.
2014 Companies (Appointment and Qualification of Directors) Rules, 2014 2nd Proviso to Section 149(1) read with Rule 3 (Chapter 11) mandates that every listed company and every other public company having (a) paid up share capital ≥ Rs. 100 crore; or (b) turnover ≥ Rs. 300 crore shall appoint at least one woman director.
2015 Listing Agreement Clause 49 The provision related to appointment of women director as provided in Clause 49 (II) (A) (1) of the listing agreement became applicable with effect from April 01, 2015.
2018 SEBI (LODR) Amendment Regulations, 2018 SEBI amended LODR based on recommendations of Uday Kotak committee on corporate governance: 1st proviso to Regulation 17 (1) (a) mandates board shall consist of at least 1 woman independent director: top 500 listed entities to comply w.e.f. 1st April 2019 and top 1000 listed entities to comply w.e.f. 1st April 2020.

3. Empirical Research on Women Directors and Corporate Performance in India

Academic and empirical investigations within the Indian corporate ecosystem provide compelling evidence regarding the substantive benefits of gender diversity at the board level:

  • Sen and Mukherjee (2019): Explored the linkage between gender diversity of the corporate board and its performance. They considered a sample of 139 non-financial companies listed on NSE over a period of five years (2011-12 to 2015-16). Applying a Random-Effect GLS Regression Model, the authors uncovered a positive relationship between the proportion of independent women directors on the board and the firm’s performance measured by Market Value Added to Net Worth (MVANW), after controlling for factors such as board size, firm size, and leverage (Debt-Equity Ratio – DER).
  • Das (2019): Investigated the relationship between participation of women on boards with corporate financial performance. The study revealed a positive and statistically significant impact of women directors on financial performance measured by Return on Capital Employed (ROCE) of Indian listed companies. Empirically, it was inferred that women affect financial viability and social outreach, which directly assists the company in its sustainable development.
  • Sikand et al. (2013) & Jonge (2014): Demonstrated that women representation on corporate boards in India varies significantly according to specific company characteristics and industry sectors.
  • Kanojia and Khanna (2019): Revealed that in the context of India, overall participation of women on boards is negligible. Their findings highlighted that the mandatory statutory provisions under the Companies Act, 2013 are absolutely necessary to dismantle homogeneous board composition. Furthermore, the study underscored that women in India face a substantial number of hindrances while climbing the corporate ladder. Empirically, women exhibit diverse leadership styles, their presence brings qualitative advancement, they remain vigilant about all stakeholders’ interests, and they are prudent and risk-averse.
  • Mahalakshmi and Reddy (2017): Proved that boards with women members demonstrate superior competence and governance discipline.
  • Kaur and Singh (2017): Highlighted that the presence of a woman director on the board is perceived by the external market as a positive quality signal, significantly augmenting overall corporate reputation.

4. Measures to Increase Professional Women Representation on Corporate Boards

To move beyond tokenism and achieve genuine diversity in spirit, a cohesive, multi-pronged strategy must be executed across corporate leadership, nomination committees, and public policy:

A. Setting Internal Quotas and Tracking Workforce Metrics

Set internal quotas for women in workforce not only at higher echelon of the company but also at all the levels within the company. The only way to increase women representation on corporate boards is to track it like any other performance and governance parameter. Quota for women on corporate boards can be perceived as a means for empowerment of women and better functioning of the board, which further leads to better efficiency of the company. On the other side, reservation of women ipso facto is debated; however, the foundational reason for introducing quotas was primarily the better representation of women in the corporate sector along with their social upliftment.

B. Personal Liability of Promoters and Access to Capital Markets

Responsibility of making appointment of one woman director is of the promoters and directors, so they must be held personally liable for all penalties so that they realize the need to comply with the provision. In addition to financial penalties, there is an urgent need to restrain companies that fail to appoint at least one professional woman director from entering into new commercial ventures and accessing the capital markets.

C. Constructive Leadership and Key Result Areas (KRAs)

Rather than adopting negative measures alone, government must declare board diversity to be a necessary component of good governance. Successful implementation of gender diversity programmes requires a combination of constructive leadership and innovative practices from the government and corporate leaders. It is also necessary to establish Key Result Areas (KRAs) for all corporate leaders to attain designated male-to-female employee ratios across middle management, senior executive tiers, and board levels.

D. Public Policy Frameworks and Paid Maternity Benefits Economics

Public Policy frameworks that support labour market participation of women are important for the success of gender diversity strategies. A productive discourse among all stakeholders is a prerequisite. Companies must extend diversity initiatives to society and not confine them solely within organizational walls, as external initiatives benefit potential employees, consumers, and investors.

The Economic Case for Paid Maternity Leave: Despite the Maternity Benefit Act, 1961 originally stipulating 12 weeks of paid maternity leave, leading organizations allow benefits far beyond statutory minimums (e.g., Accenture India provides 22 weeks with an additional 4 weeks in case of pregnancy-related illness). According to empirical research, companies can save up to US$ 19 billion annually through the provision of 16 weeks of fully paid maternity leave, because the recruitment and training cost to replace women post-delivery reaches US$ 47 billion globally each year, whereas offering 16 weeks of paid leave costs only US$ 28 billion.

E. Corporate Diversity Councils and Transparent Reporting

Corporate commitment to workforce diversity is measured by the extent to which a company endorses diversity at all levels. A Diversity Council is a vital vehicle through which companies convey their commitment, advising top management on practices, policies, and strategic roadmaps. Furthermore, public disclosure of comprehensive diversity practices and operational implementation challenges must be actively encouraged, reflecting transparent and ethical corporate culture.

F. Overcoming Tokenism: The Need for a “Critical Mass of Three or More”

Women today face severe work-life balance challenges due to expectations of being present anytime and anywhere; corporate cultures must accommodate flexible schedules. Boards with negligible women directors—often appointed from promoter families (wives, daughters, sisters)—remain male-dominated. Solitary professional women directors feel marginalized and are perceived merely as symbolic tokens.

The Critical Mass Imperative: To dismantle the tokenism effect, corporations must advance towards a “critical mass of three or more women directors”. Reaching this threshold fundamentally transforms boardroom dynamics, fostering open, collaborative deliberations and delivering tangible value to corporate governance.

G. Nomination Committees and Unbiased Candidate Slates

To improve board governance, boards should actively seek qualified women board members and refuse to settle for token appointments. Nomination Committees must eliminate gender bias and mandate recruitment agencies to present slates of interview candidates that consistently include qualified women. Since corporations frequently champion “outside the box” thinking, they must look outside traditional executive networks to recruit women who bring diverse perspectives and elevate board deliberations.

H. Closing the Gender Pay Gap through Annual Audits and Certifications

Pay equity is another critical area for internal corporate regulation. In May 2016 reports, the gender pay gap in India stood at 27%: men earned a median gross hourly salary of ₹ 288.68, while women received only ₹ 207.85 per hour. Contributing factors include systemic preference for male workers in supervisory promotions, career breaks for parenthood, and socio-cultural barriers.

Corporates should undergo third-party assessments for equal pay certifications (as required by governments like Switzerland for procurement contractors) and subscribe to initiatives like the “Talent to the Top” pledge. Companies must conduct annual salary audits to ensure equal pay for equal work and rectify gender-based wage disparities.

I. Independent Diversity Benchmarking and Societal Re-Education

Independent recognition systems boost corporate adoption. For example, US-based consultancy DiversityInc has surveyed companies since 2001 across four benchmark pillars: CEO Commitment, Human Capital, Corporate Communications, and Supplier Diversity.

Finally, systemic education reform is imperative to eliminate cultural gender biases that restrict women to domestic roles while men shoulder commercial leadership. Government and civil society must maintain a constant vigil to eradicate deep-rooted gender stereotypes.

5. Conclusion & Future Governance Outlook

Though most companies have development programmes for women, women representation on corporate boards remains poor because accountability towards diversity is deficient across the corporate sector. Contemporary dialogues on corporate governance have placed board gender diversity at the forefront, recognizing that boardrooms continue to be monopolized by men.

While natural trends indicate positive augmentation, progress without strenuous, concerted efforts will be painfully slow. Both the government and corporate enterprises must take vigorous, proactive measures.

Strategic Governance Imperative:

At the outset, there is a need to raise consciousness of gender diversity at board level as a business issue and encourage business leaders to think about the compositions of their boards so that they may more precisely reflect the marketplaces and stakeholders that they serve. Further, as in other areas of corporate governance, the government should take more steps to find enduring solutions to the problem of imbalance representation of professional women on corporate boards.

References:

  1. Brown, D. A. D., Brown, D. L., & Anastasopoulos, V. (2002), “Women on Boards Not Just the Right Thing … But the ‘Bright’ Thing”, The Conference Board of Canada. Retrieved from http://www.europeanpwn.net/files/women_on_boards_canada.pdf
  2. Das, P. K. (2019), “Impact of Women Directors on Corporate Financial Performance - Indian Context”, American Journal of Humanities and Social Sciences Research (AJHSSR), Vol. 3, Issue 2, pp. 29–36.
  3. Indian Boards Database, Retrieved on February 24, 2019 from http://www.indianboards.com/pages/index.aspx
  4. Jonge, A. de (2014), “The Glass Ceiling That Refuses To Break: Women Directors on the Boards of Listed Firms in China and India”, Women’s Studies International Forum, Elsevier Ltd, doi:10.1016/j.wsif.2014.01.008
  5. Kanojia, S. and Khanna, G. (2019), “Women Directors on Corporate Boards: Evidence for Good Governance”, Corporate Governance Insight, Global Research Foundation for Corporate Governance, Vol. 1, No. 1, May 2019, pp. 26–52.
  6. Kaur, A. and Singh, B. (2017), “Construing Reputation from Gender Diversity on Boards: Indian Evidence”, Paradigm, 21(2), pp. 111–125, doi:10.1177/0971890717736195
  7. Mahalakshmi, V. and Reddy, P. N. (2017), “Corporate Governance and Presence of Women Director on Boards”, IOSR Journal of Business and Management, Vol. 19, Issue 1, Ver. III, pp. 59–64.
  8. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, Retrieved on February 26, 2019 from sebi.gov.in
  9. Sen, S. S. and Mukherjee, T. (2019), “Board Gender Diversity and Firm’s Performance: An Evidence from India”, Journal of Commerce & Accounting Research, Vol. 8, Issue 1, pp. 35–45.
  10. Sikand, P., Dhami, J. and Batra, G. S. (2013), “Gender Diversity on Corporate Boards: A Case of India”, International Journal of Management, Vol. 4, Issue 2, pp. 292–305.