Boardroom Gender Diversity: Are Mandatory Quotas Effective In India?

[By Swetha Somu] 

 The author is a student at Gujarat National Law University. 

INTRODUCTION

“Women Hold Up Half the Sky.”- Mao Zedong

Analogous to this article is the proclamation made by Mao Zedongto bring out women from domestic work to the professional field.

Even today, if you walk inside a boardroom, it’s most likely that you’ll see more men like the Ambanis and Elon Musks than women like Kiran Mazumdar and Indra Nooyi. Through the lens of the law, the initial step was to empower women in corporate settings by imparting gender diversity in boardrooms.

This article dives deep into the present scenarios in Indian companies and analyses the drawbacks and deficiencies of the mandatory quotas by discussing various other mandatory quotas imposed by countries around the world. The article seeks to bridge the gap in law so that the intention of the legislators, which is- diversity and inclusivity, is truly achieved.

THE START: NORWEGIAN QUOTA

The first-ever mandatory quota (40% for women in all listed companies) was legislated by the Scandinavian country- Norway, way back in the year 2006. The percentages jumped from 6% in 2002 to 40% in 2008 after its implementation. Although the percentage change pronounces the success of the law, various researchers have recorded negative effects and adverse changes in companies that had to comply with the quota.

Shortly after the quota’s implementation, many companies had delisted from the stock exchange to avoid appointing a woman director. Some companies reduced their board size to easily comply with the quota and the women appointed were mostly for non-executive positions hence there was still no strong decision-making authority. Another research found that although the representation of women increased it didn’t mean many individual women in numbers rather the same woman being appointed in different boards. This is known as the “golden skirt” phenomenon. At the same time, researchers noted that more companies in Norway registered themselves in the UK and not their home country, hence pointing out that they were circumventing the regulations.

Countries like France, Italy, and Germany followed Norway’s footsteps in implementing gender quotas in the boardroom.

INDIA

Since the patriarchal notions in the society are also seen to prevail inside the four walls of Indian boardrooms, the need for breaking this glass ceiling was acknowledged. A hindrance to women’s advancement is the existing gender stereotypes which diminish the scope of taking up high-positions in their professional lives. Hence to tackle this, the government introduced the Companies Act, 2013 in which under Section 149(1)(b) of Chapter XI makes it mandatory for the companies (listed companies, public companies with a minimum paid-up share capital of Rs.100 crores or minimum turnover of 300 crores) to appoint at least one woman director in their boardroom which failing to do so will attract penalties. This is known as a ‘hard quota’ where not following the quota will attract strict punishments unlike ‘soft quota’ which merely is a recommendation which if not followed, the company will only face warnings and negative reports.

The second proviso to sub-section (1) Section 149 was inserted to increase the participation of women in key decision-making roles inching closer to the women empowerment goal that India wishes to achieve under the United Nation’s 5th Sustainable Development Goal of Gender equality by empowering women through strong enforcement of various policies and laws like this.

After the implementation of the Companies Act, 2013 many companies started to comply with the mandatory quota as per the law. Subsequently, in 2015, the Securities and Exchange Board of India (SEBI) made all its top-500 NSE-listed companies compulsorily appoint at least one independent woman to their board by the year 2019, and the same for the top 1000 NSE-listed companies by the year 2020.

According to the research article from the All India Management Association, out of the top NIFTY 500 companies in 2013, 303 of these firms did not have a single woman director on their board- which is roughly 60.6% of the companies that need to comply with the new quota immediately. Across these 303 firms, 82.8% had appointed one woman as one of their board of directors and 13.6% had appointed more than one woman in their boardroom going an extra mile! These huge percentages certainly seem to be promising and good going until we consider the scenario of efficiency after the appointment of the so-called women-in-power.

Flaws and failures

Though it was an overall success, there were some unpredicted drawbacks to the mandatory quota that India saw. Firstly, the imposed quota prompted ‘tokenism’ where companies appoint a woman director from their own family for the sake of complying with the law and to avoid the penalties. The NSE reported that 1667 of 1723 listed companies had fulfilled the mandatory quota but 425 of the complying companies appointed a woman from their family or promoters’ group.

Illustration: Reliance Industries Limited has only one woman director (non-executive)- Mrs Nita Ambani, the CEO of the CEO, Mr Mukesh Ambani. Another company is JSW Steels, which has appointed Mrs Savitri Devi Jindal, the wife of the founder of Jindal Organization. The Raymond Group has appointed Mrs Nawaz Modi Singhania (non-executive director) who is the wife of the chairman.

Secondly, there is a lack of skilled women willing to take up challenging positions, such as board members, making it hard for the companies to appoint and retain women at that position. This resulted in India being at the bottom of the table according to Egon Zehnder’s 2020 Global Board Diversity Tracker. Only 17% of the women held senior positions in companies and only 11% in leadership roles.

Thirdly, the quota fails to meet what is known as the ‘critical mass’. With the minimum requirement of one woman on the board, the underrepresented gender does not have enough representation nor could make any substantial contribution to the boardroom discussions. A single woman on a boardroom meeting is likely to have a lower voice and is often neglected as it takes at least three women on the board to achieve the ‘critical mass’ and truly achieve gender diversity in the boardrooms.

RECOMMENDATION

To break free from the drawbacks and deficiencies of this mandatory quota, it should be elucidated that diversity and inclusivity are two different things. The quote by Kadia Tubman and Nielsen, “Diversity is having a seat at the table, inclusion is having a voice and having that voice be heard.”, sums up the distinction beautifully. Inclusivity is an extension of diversity. The law has certainly achieved the diversity part due to its stringent measures and authoritative power, but inclusivity is what is still lacking in the boardroom. Companies around the world fulfil the mandatory quota imposed on them but are there truly some authority or power given to the appointed women? Claudia Brind-Woody (VP and MD of IBM), once said: “inclusivity means not ‘just we’re allowed to be there, but we are valued.’”. This is the legal vacuum that needs attention. Only diversity has been addressed by the law but the intended inclusivity in the hearts of the legislators is not on the paper.

The quota was brought up by these countries to provide opportunities for deserving women to be in high-ranking positions and make decisions along with their male counterparts, however, it has become some kind of fulfilment that companies are grudgingly taking on. For the sake of filling the seats with women, many of them are appointing their family members while few women with high skill sets are sitting in more than one boardroom. The law has not taken care of these.

To increase the efficiency, the quota should mandate the companies to compulsorily restrict appointing female members from one’s own family or use something similar to Reserve Bank of India’s ‘Fit and Proper Criteria’ (applies to all banks in India) to appoint women board of directors so that they are genuinely valued for their talent and skill-set.

Considering the socio-legal aspect, the senior officials in the organization should sensitize their employees that both men and women are capable of taking a higher-ranking position. This is similar to the nudge theory in economics. To accomplish this, companies should regularly host workshops and conduct training programs to transform the mindsets of others as well as groom the women employees for the position. This way, the women are encouraged as well as accepted to participate in high-end discussions. The nudging will give more freedom to the organizations while also being inexpensive to change the mindest.

It’s a must that the quota must change from compulsorily appointing one woman director to achieving 30% or 40% of the boardroom like Norway, France, and Italy. This will increase the strength of woman directors and achieve the critical mass which then will be harder for voices to be stifled.

Lastly, there should be some incentives whether monetary or awards and ranks for businesses who fare well in maintaining the best gender diverse boardroom. This will influence the other businesses automatically.

To conclude, not only gender diversity but also gender inclusivity should be the crux of the law. Simple representation of women to showcase compliance to the law will not help in the progression of women in corporate boardrooms. For the quotas to be effective, inclusivity should be practised in companies because where there’s inclusivity, there’s better gender parity.

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