3 days Ago
The provision of having one woman independent director (WID) on a corporate board has worked well over the last ten years. It should now be increased to a requirement of minimum of two WIDs. The Companies Act of 2013 had a unique provision related to board of directors.
It mandated that the board of directors of a large company must have a woman director. Initially, in family-owned companies this requirement was met by inducting a woman family member on the board. This provision was then amended that boards must have a WID.
This provision has been in force for ten years. So, it would be timely to review how well this provision has worked, the lessons learnt and the way forward. To explore this, we interviewed over 40 directors, both men and women.
Most of the men directors had served on boards without any women directors before 2014 and observed the impact of having WIDs. The statistical results of this provision are encouraging. The women on corporate boards has increased from 4.
5% in 2014 to nearly 20% in 2024. Some companies already have two, three or more WIDs. But most companies have interpreted this provision of requiring a minimum of one WID to having a maximum of one WID and are stuck at one WID on their board.
In our interviews with board members, we posed the following questions: Let’s say there are two boards: Company A and Company B. All board members in both companies are experienced and capable professionals with backgrounds in business, law, accounting, technology, banking and government. However, Company A has all men directors and Company B has seven men and three WIDs.
The question is: Is Company A or Company B more likely to serve its shareholders, customers, employees and society better in the long-term. All interviewees emphatically said company B. Why? Because women bring a slightly different perspective to discussions in the boardroom because of their own life experiences and instinct.
They are not always kinder and gentler but often present a different point of view. Even men directors feel that this gender diversity avoids group think and results in better board decisions. Has provision of having a WID improved corporate governance? Most felt that many provisions of the 2013 Act have significantly improved corporate governance.
Having a WID is one of those provisions, but there are other important provisions, such as role of independent directors, which have helped upgrade corporate governance. Most women board members, we interviewed, felt that journey of WIDs on boards has had its challenges. Accepting WIDs as equal colleagues by some men board members took time.
More significantly, many WIDs themselves started with self-doubt and internal challenge. Do I deserve to be here or is it only because of the regulation, they wondered? Most women in professional careers, in the past, have had to act like their male colleagues to compete and succeed. But in boards, their instincts and points of view women are valuable and valued.
So, this transition to naturally expressing themselves as women in a board setting took time and adjustment. WIDs change their minds when provided with additional information. Their men colleagues at times are slow to do so.
WIDs have better insights in consumer products, health care, retail financial services, education, customer care, and women employees’ issues. Already WIDs are playing a very significant role in in nomination and remuneration committees (NRCs) corporate social responsibility committees. WIDs generally are more risk averse in mergers and acquisitions, excessive loans, and rapid overseas expansion.
An important question which was raised was that of should the ratio of WIDs be increased to 33% and should women be in more important positions such as board chairs and chairs of audit committees and NRCs. Most felt it should be done voluntarily and gradually. However, all felt that regulation should now be amended to require two WIDs.
Gender balance in senior management is a serious problem. Despite board having 20% WIDs, the number of women at senior and middle management companies is very low, around 5%. The fact is that the culture in many companies, particularly at middle and lower levels, is unequal towards women largely reflecting attitudes with in our society.
At junior or factory level, in some cases women don’t enjoy equal opportunities and pay, dignity, respect and at times safe work environment. Should WIDs do more and devote more time on these issues than their men colleagues on the boards. Should WIDs be visible to companies’ women managers and employees as beacons, as lifting up glass elevators and as role models.
Should they work with management to improve the gender balance? Should they act as mentors to develop women in senior and top management? Should they visit factories more often to better understand women’s working conditions and review all POSH investigation results. For these additional responsibilities, should they be paid more than their male colleagues? Most interviewees felt that WIDs should do some or all of these additional activities. Some felt that board chairman and other men directors should also get more involved in these responsibilities.
However, interestingly, most felt that WIDs should not be paid more than their men colleagues for these additional responsibilities. Over all, it appears Companies Act 2014 provision of mandating one WID has achieved its objective. But more needs to be done.
This article is authored by Arun Duggal, independent director, ITC and Roli Singh, former Tata group executive and currently PhD scholar, IIT Bombay..
