Women on Boards: Why India Inc Needs the ‘Diversity Edge’

A lot has been said on the subject of inducting women in corporate boardrooms. As per SEBI’s directive, all listed companies were required to have at least one woman director on their boards from April 1, 2015 onwards; yet till a week before the deadline, several hundred listed companies including PSUs were found to be non-compliant. 

While some of the progressive companies had women board members prior to SEBI’s directive, there were many who hurriedly appointed women from the promoter’s family on the last day in a bid to avoid strict penalties for non-compliance. Data showed that nearly 57% of listed companies on the National Stock Exchange appointed wives, sisters, daughters etc. to their boards. Their hurried action has completely undermined the potential and value that competent women can bring to the board.

India is a laggard in terms of gender diversity in the boardroom, with women making up only 4.7% of India's corporate directors. We fare poorly when compared to countries like Norway, Finland, France and Sweden that have over 30% of women representation in corporate boards. Even among developing economies like China and Brazil, India is the worst off.

What many companies have failed to realise is that more female oversight in running companies results in better overall performance. A survey of Fortune 500 companies indicates that companies with higher female boardroom representation outperformed on various financial parameters like return on sales (ROS) and return on investment (ROI).

Unfortunately, many Indian enterprises seem to have undermined the importance of gender diversity, thus ignoring SEBI’s initial October 2014 timeline for inducting women on the Board. Even when the timeline was extended by six months, not many took it seriously. Eventually, just to be in compliance, most companies inducted women from their family, thus defeating the purpose of such a legislation.

Even the government has dragged its feet on this issue. As per media reports, 32 of the 180 NSE companies that haven’t complied with the SEBI order are PSUs. I believe it is a wake-up call for the government to 'practice what you preach.'

Recognising Talent

India has a huge pool of talented women professionals waiting to be identified and given an opportunity to bring value to the boardroom. 

Global studies have revealed that companies with greater gender diversity not only do well financially, but are also characterised by better leadership, accountability, innovation, operational efficiency and a motivational work culture. 

If India Inc. wants to give itself a competitive edge, it needs to invite skilled economists, social scientists, chartered accountants and women with diverse competencies to bring a fresh perspective to corporate decision-making.

A recent study of the top 100 Indian companies (BSE 100) by Randstad shows that companies with women on their boards performed better.

The study revealed that the board of a private sector company, run by a professional CEO with a mix of both men and women, helped Return on Equity (ROE) rise by 4.4% in 2014. In contrast, a similar company with a men-only board saw its ROE rise by a mere 1.8% in the same period.

Call for Action 

The undeniable body of evidence in favour of women’s empowerment presents a powerful case for building more diverse corporate leadership. Corporations and governments must capitalise on the contributions women can make. It’s a daunting task, and one at which many have failed in the past. But it is imperative today, to do whatever it takes — now. 

I believe gender diversity is of key importance at all company boards given that women are beginning to form a visible part of any organisation. Their participation introduces a balance of views and opinions that allow for more informed decision-making.

Ensuring gender balance in the board does not mean we compromise the quality of the board. The selection of women directors based on their professional capabilities, will enhance the quality of the boards, leading to much better outcomes. 

India Inc. needs to change its mindset and respect the spirit behind the SEBI directive. It needs to induct competent women to the board, thus leveraging their expertise for good governance and effective management of the company. In doing so, it will lay the foundation for the kind of transformational change that will lead to a greater economic value-addition to India.

The author is the Chairman and Managing Director of Biocon