Opinion

Bring more women on board

Updated on: Apr 21, 2011
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BL22VIJAYA-EDIT

BL22VIJAYA-EDIT

The proposed law to have at least one woman on a company's board is welcome. Such representation is not just politically correct, but will also help more equitable decision-making.

Advocates of female representation argue that gender disparity is a global problem, encompassing both the so-called developed Western world as well as developing and emerging economies.

Women's space in corporate governance has been the focus of many research studies and a crucial agenda for many activist groups. For instance, the European Women's Professional Network, a non-profit organisation founded in 2002 with over 3,500 corporate members and entrepreneurs, commissions a bi-annual study on gender diversity known as Board Women Monitor.

Further, in the wake of the worldwide financial crisis the board's accountability has become a subject of public scrutiny.

There is a compelling necessity to demonstrate that captains of industry are taking the right decisions to create sustainable business success and that the stakeholders' interests are well protected. The linkage between composition of the board and good performance is also stressed.

IMPACT ON PERFORMANCE

Why are board structure and functioning so important? The answer lies in findings of research studies which empirically prove the linkage between governance and performance. In 1994 Magginson et al found that the involvement of private investors in a firm's ownership structure critically impacted a firm's operating and financial performance.

In 1997, the Conference Board of Canada demonstrated a strong relationship between high governance index scores and revenue growth and recognition as leader in the sector. Governance indices include board's activism, independence and style of functioning. In 1998 Millstein and Mac Avoy established a statistically significant correlation between an active, independent board and superior corporate performance.

Various research findings, notable among them being the reports of McKinsey and the conference Board of Canada, emphasise that inclusion of women in the Board is not just the right thing, but the ‘bright' thing.

The study organised by the California Public Employee Retirement System, concluded that companies with a high ratio of diverse board seats exceeded the average returns to the Dow Jones and NASDAQ indices over a five-year period. A general consensus which emerges from reams of research papers on the subject is that companies can ignore the importance of gender diversity only at their peril.

It is accepted that diversity does change the functioning and deliberative style of the board in clear and consistent ways. Let us not confuse this with rather frivolous comments such as ‘the presence of women makes men behave in a more decorous and focused manner'. The stress is on perceptions and depth of analysis. Further, diversity is an enabling factor for board unity.

The research findings indicate that organisations whose boards had two or more women had a better score in regard to accountability practices and review of non-financial performance measures.

The outcome was improved sales growth, long-run profitability and leading position in the industry.

REPRESENTATION IN INDIA

With gender diversity in board claiming accolades, one would expect a reasonable level of representation for the fair sex. But the reality is otherwise. Women hold only about 15 per cent of Fortune 500 board seats. European Professional Women's Network's Board Monitor for 2010 has found that of a total of 4,875 board seats women occupied only 571, which works out to 11.7 per cent.

There is, however, a 21 per cent jump from the figure of 2008.

Asian women contribute only 1.8 per cent of board seats, though the figure for China is around 5 per cent. In Australia women directors fill about 9 per cent of the board seats. In Britain where women's share is 12.5 per cent, there are 18 companies among the top 100 with no female directors.

A review of the Indian scenario would be useful. The total number of board seats in the 3,197 companies listed at the national level stock exchanges and 432 companies listed at regional level is 21,550.

Since multiple directorship for the same individual is allowed, 16,001 individuals occupy these posts .Of these, only 850 are women, say 5.3 per cent, filling up 1,025 directorships.

There are 2,830 listed companies with no women directors and 799 companies have at least one woman director.

Out of 30 Sensex companies, women constitute only 4.8 per cent. In terms of actual number there are only 16 women directors out of a total strength of 335. However it is gratifying to note that half the Sensex companies had at least one woman director.

Further, representation of women in, BSE-100 and BSE -500 companies is more or less similar to the general pattern with a figure of 5.4 per cent and 5.2 per cent, respectively. Boards of public sector undertakings have a slightly higher representation with a figure of 6.2 per cent.

There are 7,588 independent directors, of whom only 237 are women, which works out to 3.1 per cent only.

Against this backdrop, the recent announcement by the Ministry of Corporate Affairs to introduce a legislation to have at least one woman on the board, where the board consists of five or more directors, is a welcome move.

Countries like Norway, Spain and Netherlands already have quota legislation. France is closer to enacting such a law.

In the UK, though no law is contemplated, government's acceptance of the recommendations of a commission headed by Lord Mervyn Davies, a former trade minister, implies that women may make up at least 25 per cent of boards of bigger companies by 2015.

A proactive government, willing to accept the beneficial impact of gender diversity and bold enough to enact an appropriate legislation, is the need of the hour.

But, as Lord Davies observes, this requires a radical change in mindset.

If those at the helm of affairs realise that this is not about promoting equal opportunities, but ushering in improved business performance and boosting revenues and profits, then there can be no second choice! Will that happen?

(The author is former Financial Commissioner, Railways. blfeedback@thehindu.co.in )

Published on April 28, 2011

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