ROLE OF WOMEN DIRECTOR IN CORPORATE BOARD

ROLE OF WOMEN DIRECTOR IN CORPORATE BOARD

  • One of the most debated topics in India is the gender-diversity in the corporate boards. Previously women were always treated below men in all aspects but with changing time certain laws have been enacted by the Government so as to keep men and woman at par.
  • In the 20th century engagement of woman in the workplace has also been noticed. Very few women are engaged in high profile business, but the Government by the enactment of various laws has mandated the presence of at least 1 woman director on the Board, and its effect can be seen as the improvement in the financial performance of the Company.
  • This paper helps in analyzing the positive effect of Woman Directors and the need for Independent woman directors on the Board. According to the reports it has been proved that there is a direct relationship between Woman directors and the performance of the Company.

Research Question/Issue

This article examines how the corporate governance improves when it is influenced by gender diversity and its impact on the companies performance.

What are the objectives of the topic?

  1. To examine and identify the need for women director on the Board.
  2. To do a comparative analysis of India and Norway corporate governance norms.
  3. To answer the need for an independent woman director.
  4. Why there is a need for women Director?

Research proves that woman director on the boards helps in increasing production and sales and also enhances the companies corporate social responsibility. It has been proven that companies with a woman as directors have a greater return on equity i.e 4.4% while companies having only men on the board has a rise on ROE of 1.8% on an average per year. This also applies to the family-run companies as well as the private companies.[1]

Having woman director can help in many ways such as:-

  • better Financial results
  • better diligence in decision making and risk management
  • gender diversity act as a strategy
  • good governance
  • the maximization of company performance

After the Satyam and other scams similar to it, companies should look for a talented woman who can add value to the company and come up with new, innovative ideas and perspectives for the companies.

Companies such as Mahindra and Mahindra Ltd and the Essar Group have introduced woman directors from academic & research institutions so that they can add value to their companies and work diligently.

A comprehensive study was conducted by the catalyst in the year 2007 and it was concluded that top ranking companies which had more woman directors on the board were having higher financial performance and it can also improve the GDP of the country.

According to the reports of Harvard Business Review in 2011 women leaders were judged on different parameters and it was found that women directors are much better as compared to male directors because they have the quality to take initiative and perform well as well as build better relationships.[2]

  1. Comparative study of India and Norway Corporate Governance Norms
  • Section 149(1) of the Companies Act, 2013 talks about that every Corporation shall have at least one woman director on its board and the company can appoint more than 15 directors after passing a special resolution.
  • Many other countries like France, Spain have already implemented this framework.
  • In the year 2002 the Norwegian companies were warned by the Norwegian Trade Minister that they should change their policy of appointing male directors and if not then a quota rule will be introduced.
  • After 1 year, a law was introduced that 40-percent quota for women should be there on boards of public companies previously when this rule was introduced it was voluntary but later on since the compliance was low in 2006 it was held mandatory and the level of 40-percent female participation was to be reached by 2008.[3]
  • Non-Compliance of this would result in severe sanctions and dissolution of the company.[4]

It is to be understood that making this rule or implication could hamper the performance of the company, for being a member of the board one requires having talent which should add value to the company.

What is the position in India?

In India, after this rule was made mandate through section 149(1) of the Companies Act, 2013, Companies such as Reliance Industries, appointed Nita Ambani, wife of chairman Mukesh Ambani as a director in order to comply with this rule. Vijay Mallya also introduced his stepmother on the board. Companies such as Apollo Hospitals, Asian paints also have their family members on their board.

What is the position in Norway?

In case of Norway, it was seen that the companies who were having female members on their boards were not having any problem in complying with the announcement made in 2002. It was revealed by Ahern and Dittmar that the quota rule had a negative impact on the stock prices and the new female directors were less experienced than the directors whom they replaced, hence it was found that in order to comply with quota rule the companies introduced the female directors irrespective of talent and specialized skills.[5]

  1. What are the needs for Independent Woman Director on the Boards?

The Companies Act and SEBI prescribed and mandated that listed entities in India should have at least one woman on the board either independent or executive, and this was done as a representation of woman director on the board.[6]

Uday Kotak committee as setting up by SEBI consisting of 21 members[7] has recommended that half of the board of listed entity should constitute of independent directors and at least one should be a woman independent director.[8] 637 companies out of 1,670 companies listed on the National Stock Exchange (NSE), has to appoint a woman independent director as recommended by the Committee.[9] Companies such as Apollo, Asian Paints, Reliance industries have appointed a woman member from their families on the board to comply with the law so, in order to avoid this, the committee came up with the recommendation of woman independent director on the board.[10]

 

[1] Shubham Mukherjee & Namrata Singh, Companies with woman board members make more money, TOI, Oct 27, 2014.

[2] Mahalakshmi.V & Dr. P.Narayana Reddy, Corporate Governance and Presence of Women Director on Boards, Vol. 19 (IOSR-JBM), 59-64.

[3] Arundhati Ramanathan, Woman director support quotas for board diversity, LIVE MINT, April 26, 2016.

[4] Ten years on from Norway quota for women on corporate Boards, THE ECONOMIST, Feb. 17, 2018.

[5] Monika Leszczyńska, Mandatory quotas for women on board of directors in the European Union: Harmful to or good for company performance, Vol. 19 issue 1 SPRINGER LINK, Nov. 14, 2017.

[6] Samie Modak, Sebi bats for at least one woman director on the board, BS, July 7, 2017.

[7] Uday Kotak corporate panel suggests a greater role for independent directors, FINANCIAL  EXPRESS, Oct. 5, 2017.

[8] All you wanted to know about independent directors, THE HINDU, Oct. 16, 2017.

[9] No independent woman director at 38% of nse listed company, THE HINDU, Oct. 11, 2017.

[10] Anirvan Ghosh, Mandatory Rules To Appoint More Women Directors Not Working In India, HuffPost(March 30,2015,11.35Am)https://www.huffingtonpost.in/2015/03/30/where-are-the-women_0_n_6966632.html.

Author

Amit Kumar Singh ,School of law, KIIT University, Bhubaneshwar.

 Co-Author

Diksha Kumari Singh,School of law, KIIT University, Bhubaneshwar.

Editor

Paavni Thareja, Raffles University.

 

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