Corporate Board Gender Diversity in the Shadow of the Controlling Shareholder

[By Dr. Akshaya Kamalnath]

The author completed her graduation from NALSAR University of Law, Hyderabad, and her post-graduation from New York University (NYU). The author is currently a lecturer at Auckland University of Technology, Law School, New Zealand. Dr. Kamalnath runs a blog named The Hitchhiker’s Guide to Corporate Governance which can be accessed here.

In an article co-authored with Professor Annick Masselot, I examined corporate board diversity in the Indian context. In this blog post, I will introduce some of the arguments in the article and build on them with ideas from other articles.

India introduced a mandatory quota that requires companies to have at least one woman director on their board of directors in 2013. Since then, India’s market regulator, Securities Exchange Board of India (SEBI) has required listed companies to have at least one woman director who is also an independent director. In terms of numbers, the percentage of women on boards rose from 5.5% in 2010 to 12. 7% in 2017. But do these numbers have the potential to improve corporate governance?

Corporate board gender diversity has been canvassed for two reasons – business benefits and gender equality. The most convincing reason for board gender diversity to yield better results seems to be that diverse boards are more effective monitors of management. In other words, the corporate governance case is the most convincing aspect of the business case. Drawing from the analogy of independent directors who are meant to improve corporate governance, we focused (in the article) on the effectiveness of board gender diversity as a corporate governance measure in India.

Since controlling shareholders influence board nominations, independent directors in India are not likely to be effective monitors. Some reputed directors have also pointed out that even where independent directors take their monitoring role seriously, the problem is that management does not share adequate information with them. While this is also a problem in countries like the US, the concentrated ownership model makes information flow even more challenging. Could gender diversity be one way in which the structure of the independent director institution is enhanced? Studies in various countries have shown that gender diversity does indeed enhance board functioning in terms of board processes.

There could be gains even beyond just enhanced board processes. A recent news article reported Biocon’s Biocon, Kiran Mazumdar-Shaw recounting her experience on a company board which was dealing with a sexual harassment complaint lodged by an employee: “The men on the board, she says, described the complaint as “silly”, “rubbish” or “an exaggeration”. Mazumdar-Shaw says it took her, a woman director, to object to this “flippant” approach, put her foot (down)”.

Despite Mazumdar-Shaw’s story having a happy ending, it is not easy for a single board member to change the board culture or even quality of decisions. We have to rein in our expectations in terms of what can be achieved by one woman director on the board. The controller dominated firm structures means that we cannot expect too much from independent directors, let alone a single women director. Further, the mandatory law means that in many cases, companies are merely appointing women directors to comply with the law rather than to enhance board processes and governance. Such a lack of genuine motivation to improve governance would impose a burden on the incoming women directors in terms of having to deal with an unwelcoming board. Ultimately, solutions to improve corporate governance, including board culture, should go beyond a requirement for companies to appoint one woman independent director.

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Contact Us

Kerwa Dam Road., 
National Law Institute University, Bhopal
Madhya Pradesh, India. 462044​.

write to us at – cbcl@nliu.ac.in