Add women and stir: Why corporate governance in India must look beyond it

Will adding more women to the top management result in gender-balanced boards in India? History suggests not.

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30 years since its inception, the global trade body that represents the Indian IT industry, NASSCOM is set to have its first female chief. Former MD of Intel South Asia, Debjani Ghosh will take over as president of NASSCOM in April.

But things haven't been so rosy for many decades now. Major boardrooms across the country have had women just to fulfill regulations. And numbers back the fact.

A recent NASSCOM report states, nearly 60 percent of Indian IT firms have 20 percent of women at the C-Suite level. This is quite an uptick from 2012, when only 15 percent of the companies had over 20 percent women at the C-Suite level.

According to a KPMG report, over 50 percent of companies are hiring women directors primarily to comply. The need to comply seems stronger than the belief that diversity adds value.

The gears began to shift in 2013 when the revamped Companies Act mandated that all listed companies must have at least one woman on its board of directors.

SEBI tightens grip

Following the revamp, market regulator Securities and Exchange Board of India issued guidelines in Feb 2015 asking companies to follow the new mandate. Then again in 2017, SEBI announced that companies which fail to follow the regulation should be penalized.

Most listed companies followed the norm, with a twist. According to a report published in the Economic Times, of the 1,667 NSE-listed companies that have at least one woman on its board, as many as 425 companies have appointed women who have ties to the promoter group.

In October 2017, a SEBI committee led by banker Uday Kotak recommended changes in the corporate governance. One of the key recommendations is that at least 50 percent of every listed company’s board should consist of independent directors, including at least one woman director.   

Did the revamped Companies Act work?

From a mere 5 percent in 2012, women representation in the NIFTY 500 companies reached 13 percent in 2017. The telecom, IT, healthcare, utilities and industrial sectors have a higher average proportion of women directors, whereas the energy sector is the lowest at 8.9 percent.

Also watch: Debjani Ghosh, the first woman to head NASSCOM - In 90 seconds

According to the report, Corporate India: Women on Boards, only 21 percent of the NIFTY 500 boards have two or more women as compared to nearly 80 percent in other markets. “On average, India has 1.2 women directors on boards, which is significantly less than its European (2.8) and US (2.3) peers,” the report states.  

Looking beyond ‘add women and stir’

If the Uday Kotak-led committee's recommendations get approved, it’d be a major step towards gender-balanced boards in India. However, the companies which rushed to follow the mandate by appointing women with ties to the promoter group might have to appoint independent women directors. This would not be an easy task as most businesses in India are managed by promoter families.

According to a KPMG report, over 50 percent of companies are hiring women directors primarily to comply. The need to comply seems stronger than the belief that diversity adds value.

While a majority of respondents believe that the Companies Act 2013 opened up board level opportunities for women, which did not exist before. “On the flip side, 25 percent of the respondents indicate that it has only opened up opportunities for candidates in the promoter’s network,” the report mentions.

In the Indian context, there is a lot that needs to be done to improve diversity at the board level. And just adding more women is perhaps not the solution.