Getting women on board

The percentage of women directors in India is a strikingly low 4.8 per cent. The Companies Act, 2013 introduced a provision stating that companies of a certain size would be required to have at least one woman on their boards.

Further, the Securities Exchange Board of India (SEBI) has amended the listing agreement to make this requirement a pre-condition for listing on a stock exchange in India. Companies have to fulfil this requirement by October 1 to “encourage women’s participation in decision making at every level”. Beyond this, the benefits of this measure have not been analysed.

The gap in analysis has been filled by various media reports which detail similar measures in Norway, France and other European countries and a proposed measure in the European Union. The justification is two-fold. First, gender equality in decision-making bodies is seen as a pre-requisite of democracy. Second, the measure is seen as good for companies in the long run because it ensures that the female talent pool is harnessed. It is also argued that women bring diverse perspectives to the board.

In the US, a study conducted in 2006 by the Wellesley Centre for Women after the Enron debacle found that female directors expanded the content of board discussions and were more likely than male directors to raise issues concerning multiple stakeholders. Thus a gender diverse board would avoid ‘groupthink’ and help the board be more effective monitors of management. More recently, a study from the University of British Columbia’s business school found that companies with more women board members tend to pay less for acquisitions, thus indicating that women are less inclined to chase risky deals. This finding is important in light of the global financial crisis, which is said to have been precipitated by excessive risk-taking by company boards.

In order for companies to be able to benefit from this measure, however, it is important that the women so appointed are meritorious candidates. The law in India merely focuses on the end result of gender diversity with no guidelines about how this is to be achieved. The proposed EU directive on the other hand stresses on the importance of transparency in recruitment processes for board positions.

It requires board appointments to be made based on the “comparative analysis of the qualifications of each candidate, by applying pre-established, clear, neutrally formulated and unambiguous criteria”. Again it stresses that priority will be given to a woman candidate only when she is “equally qualified” as the male candidate and even this priority is not automatic. It also provides that exceptions can be made where “an objective assessment taking account of all criteria specific to the individual candidates tilts the balance in favour of the” male candidate.

However, to guard against boards using the exception to pass over qualified women candidates, the directive makes it obligatory for these companies to disclose, where an unsuccessful candidate requests it, the criteria of selection.

While the Indian law is lacking in these guidelines, it is up to companies to voluntarily internalise similar merit-based procedures to ensure that the requirement does not function as an anti-merit quota. Companies have to guard against appointing promoter family members. That will also send out a wrong signal to shareholders.

The current reality is that boards tend to recruit candidates they think are suitable and these candidates are usually picked from the networking circles to which the existing members belong. Women, who don’t usually network in the same way as men, are therefore overlooked. The quota law forces boards to look beyond the traditional networking circles.

This is why there is a sudden feeling in industry that there are not enough qualified women to fit the bill. The real problem is that there is no ready network they can draw from.

Norway addressed this issue by creating a database of qualified women for board positions. Malaysia, which introduced a target for listed companies to have at least 30 per cent women on their boards by 2015, has set up training programmes for potential candidates and also instituted a registry of qualified women that companies can draw from. It would be beneficial if either the ministry of corporate affairs or SEBI steps in to set up a registry of qualified women along with a training programme. This would also prevent companies from making token appointments.

The writer is a doctoral student at the University of Newcastle