Board of Directors: Strategic Importance of Women Directors

The author in this article discusses the Board of Directors and the role of women as directors will help everyone explain that how and why a company can gain more benefits while another treads water, on the basis of performance

Introduction to the Board of Directors

Most of the people in the world have no idea of the structure of the Board in the companies they work for. Board of Directors make decisions that impact us, our community, and the country. The Board of a company represents the constituents of the company. The board of Directors being an important part of a company is the governing body and is responsible for the efficient and effective functioning of a company. It safeguards the interest of its stakeholders. Directors of a company are elected to decide on the major issues of the company and maintain corporate management. The directors’ act in accordance with the resolutions passed during the meetings of the board of directors and the powers and functioning mentioned in the article of association of the company. Let us discuss women directors on the board of directors.

The board of directors of Indian Company is one of the places of male dominance and is often believed to deferring the authority to a male. Even if the organization involves of female members they were often accepted to remain silent. This mind-set is however now changing with time. In the past few years, gender diversity in the world in general and within the organizations has gained reasonable importance and recognition of public at large. Unlike previous times, now women are engaged in more work and are given the authority they deserve. Government is enacting various laws which make it mandatory for the presence of at least 1 women director on the board and its effect is seen. The success rate of an organization is mostly dependent on the management and for a company it depends on the competence and integrity of the directors. Hence, the appointment of the directors is regulated by the Companies Act and now includes special provisions for prevention of any unwanted person or acts. This article helps in analyzing the strategic improvements for women directors in an organization and the direct relation to the growth of the company.

Statutory Requirement

The Companies Act, 2013 has laid emphasis on the inclusion of women directors on the Board of the company[1]. Women directors are like role models. Reports have stated that this initiative has not only increased the production and sales but also improved the corporate image of the company. According to one study, the returns on equity have been 4.4% as compared to 1.8% where the directors are men only[2]. It reflects gender diversity and is seen in both family-run companies as well as a private one. The Central Government has realized the importance of women directors in the Board or it will have serious repercussions on the economic progress of the companies. The dynamism will be accelerated by the progressive and educated women. As per the new Companies Rules of 2014, the following categories of companies are mandatorily compelled to appoint at least one woman director to their respective board of directors:

  1. Every listed Company
  2. Every Other Public Limited Company which has Paid-up Share Capital of One Hundred Crore Rupees or more; Or Turnover of Three Hundred Crore Rupees or more. According to the SEBI rules, every listed company must have at least one lady director on its Board.
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Along with Section 149(1) of the Act, Rule 3 of the Companies Rules, 2014 also deals with the appointment of women director on the board and suggests having at least one woman director on board. Any company incorporated with the amended Act is required to follow this amendment within six months of incorporation, whereas companies incorporated under the older Act are given a time span of one year to incorporate this change. The position of women director is always required to be filled as early as possible. It should either be filled within three months of the vacancy or at most by the next immediate board meeting scheduled, whichever happens to be later. In addition to these provisions, SEBI made certain amendments in the Listing Agreement under Clause 49 providing for increased women participation during board discussions and various other provisions related to corporate governance.

Regulatory push has although made it a compulsion for having at least one women director in the board but the concern lies in the fact that whether or not the companies will appoint an independent women director or it will be a person coming out of their family linkages. While a lot of top companies have complied with these changes, it is still far away from being inclusive overall.

Advantages

Diversity on the Board helps in sustaining performance. There is a tendency among the CEOs that director of diverse background and educational qualifications are appointed as directors. They used to underestimate the gender diversity. Experts believe that the Board comprising of women directors deal more effectively with risks. They tend to address the concerns of customers, employees, shareholders and also on long-term priorities. Women directors tend to concentrate on the women’s needs, thereby, increasing the quality of product and service. By diversifying your board, you increase the number of potential board members and thus increase the chances that you will end up with a board member who has the necessary skills, experience, and intelligence to make good decisions for your organization.

Diversity in the Board will invite diversity in thought.  It will have a competitive advantage in today’s changing world. They will have industry knowledge, operational experience, and functional expertise. Women have supported the men and the society in different fields like almost all fields of the broad economic sectors of business and commerce, professions, industries, and services, at the levels varying from lower to higher hierarchies. As India is one of the major and fast-growing economies of the world, this initiative for the empowerment of women in the giant and pivotal corporate world, is indeed, highly commendable.

Research have shown and proved that having women directors on the board not only enhances the sales and production of an organization but shows positive impacts on its corporate social responsibility as well. As discussed earlier a company having women directors have greater on equity as compared to having only men on the board. Thus it is clear that having a women director helps in not only financial results, good governance and better diligence in order to make a decision or tackle with risks involved, it results in the maximization of the performance encouraging gender diversity as a strategy act.

Another advantage of gender diversification in organizations involves customer’s satisfaction. It has been observed that customers are focused towards companies maintaining ethical and responsible environment and accountability. A shift in consumer’s demand forces the companies to analyze and strategies accordingly to maintain the position in the market. Various companies like Amazon, Nike, IBM etc., have adapted these changes in their boardrooms, hiring process and talent recruitments and have seen positive impacts in their profits. Certain other examples

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Without the inclusion of gender diversity, the companies will struggle to maintain a competitive strategy in the global economy. As it is known as a major source in the nation’s economy is the business sector’s fiscal production and GDP contribution. As and how gender equality increases the long-term positive impact on the nation’s economy increases. It is therefore important to calculate and understand the dependency of the economic growth on the productivity and efficiency of the organization. By excluding women, an organization will be said to not have been able to indulge in most sustainable operations to capitalize on the company’s returns.

World Scenario

As slowly women are gaining a position in company board, the target level that once seemed difficult to achieve is now being implemented in reality. Targets that are set by numerous groups range between 20 to 40 percent and these are being achieved in various countries.[3] Different countries have set different mandatory percentages to be maintained for female participation on the boards like in Iceland it is 40%, Israel and India have at least 1 person on board, Italy has 33% and Norway is with 40% or higher depending on the size of the board. These percentages were fully phased by several countries like France, Germany, and Malaysia by the end of 2016.[4] The only question that lies is how well can follow these percentages and will they result in positive change or not. The percentage of women on board in the United States has hardly shown any improvement for over a decade now. It varies between 11-12%. For health-related companies, the numbers of women on boards vary greatly, from 9.7 for biotech companies with under 1,000 employees to 27% on hospital boards. Generally, at Fortune 500 healthcare companies, 21 percent of board members are women, despite the fact that women make up half the workforce of these companies. In the year 2002 Norway was advised to change the policy of appointing only males as the directors or else a quota system will be imposed. Within a time span of one year, a law stating 40% of the board members to be women as the limit for public companies was introduced and non-compliance of the same would result in the dissolution of the company.[5] Based on GMI data it is interpreted that Europe has shown the most modest improvements with respect to the representation of women on the board of directors. India on the other hand has seen an increase of 1.3% in the level of women directors since 2011, a better rate in comparison to other countries. This shifted from 1.3% to 6.5% in the following years, clearly depicting the need for women directors in India.

Diversity is not just about numbers. While quotas can be useful, having women or minorities on your board but ignoring their contributions and opinions doesn’t add value to your organization. It might take an effort to change people’s mindsets, but listening to and including the viewpoints of your diverse board in a real way can bring a new perspective and new ideas to help your organization succeed. Catalyst President Sheila Wellington noted that “the profile of the typical woman director has evolved as women’s operational and managerial experience pushes them into the senior executive ranks. If a board wants to add a woman now, the pool of qualified candidates is there.” However, Ms. Wellington expressed concern at the diminishing rate of increase in women directors. “It’s clear which companies are committed to women’s advancement. They’ve added two, three, four women to their boards.”[6]

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Conclusion

Around twenty years ago a very small percentage of females were accepted and allowed to be working in Indian families. This fact still remains the same in a lot of areas even today. The initiative taken by the Government will play a significant role in the economic scenario of the country. Indian society has become advanced now. Earlier, the thinking was that only the male members can function as the directors on the Board of the companies. Even now there are various companies who just for the sake of meeting the requirement of the provisions have appointed their family members/relatives as the directors. Companies like Reliance Industries, Apollo, Asian Paints, have appointed their family members for the post of women director. In order to avoid such a situation, the law came up with the recommendation of independent women directors.[7]

Taking a clue from the western nations like the United Kingdom, United States etc.,and the Ministry of the Corporate Affairs has taken this step. According to the author, there are still companies where women are not inducted as directors in the Board. The psychology of the management of the companies still remains the same. The diversity in the Board would lead to diversity in thoughts as well. While the 2013 amendment of the Act has paved a way for this change of gender diversity and equal participation of women in the workspace, India is still a long way to go. The role of women as directors will help everyone explain that how and why a company can gain more benefits while another treads water, on the basis of performance. All the big companies have already inducted women directors on their Boards but the concern is the small companies like unlisted ones etc. There are workshops conducted by various institutions regarding the importance of women directors in companies. Until that number rises, the firms shall make better use of their director’s skills and resources present with respect to the female directors. Along with that they should find ways on implementing diversity in the management.

Also read M/S Innoventive Industries Ltd. v. ICICI Bank & Anr


[1] Section 149(1) of the Companies Act, 2013

[2]Shubham Mukherjee &Namrata Singh, Companies with woman board members make more money, TOI, Oct 27, 2014.

[3] See, e.g., EU Justice Commissioner Viviane Reding, “Women on the Board Pledge for Europe”, Memo/11/124,March 1, 2011, available at http://europa.eu/rapid/press-release_MEMO-11-124_en.htm

[4] See Linda-Eling Lee et al., “Women on Boards: Global Trends in Gender Diversity on Corporate Boards,” MSCI,

[5] Ten years on from Norway quota for women on corporate Boards, THE ECONOMIST.

[6] https://www.mckinsey.com/featured-insights/gender-equality/women-in-the-workplace-2019

[7]Anirvan Ghosh, Mandatory Rules to Appoint More Women Directors Not Working in India, HuffPosthttps://www.huffingtonpost.in/2015/03/30/where-are-the-women_0_n_6966632.html.