Mandatory Appointment of Woman Directors Under Companies Act, 2013

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The Companies Act, 2013 is a milestone legislation in India which revamped the laws governing a company from its birth to dissolution. The legislation attempted to do away with all the provisions that were obsolete and inconsistent with growing business trends.

Keeping in mind the scant representation of women in business in India, Section 149(1) of the Act provides for compulsory appointment of one woman director in certain classes of companies. While this provision prima facie may seem to be an efficient step towards achieving gender equality, the compliance by companies reveals otherwise.

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The first section of this article analyses the efficacy of the law in question based on the compliance by companies and the latter part addresses the problem of gender equality based on various social factors that impede the growth and development of women in the corporate boardrooms.

MANDATORY APPOINTMENT OF WOMEN DIRECTORS UNDER THE STATUTES

Section 149(1) read with clause 49 of the SEBI Listing Agreement and Rule 3 of The Companies (Appointment and Qualification of Directors) Rules, 2014 provide that every listed company or public company with paid up share capital of 100 crore rupees or turnover of 300 crore rupees or more shall appoint at least one woman director.

As on March 8 2015, around 180 out of 1456 National Stock Exchange Companies had not appointed a woman director on board. According to the 2014 Catalyst census, women’s share of board seats in India was a meagre 9.5% for BSE 200 companies.

While non-compliance by numerous companies including few Public Sector units is a matter of concern, attention has to be paid to companies that have complied as well of the companies that made the appointments in accordance with the rule, 278 companies made the appointment in March 2014, which evidently shows that appointments were made solely for the purpose of compliance.

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More than half of these women (612) were holding non-independent directorships. Among these, around 82 directorship positions are held by women who belong to the promoter group (family members) including companies like Reliance Industries, Videocon Industries, JK Tire and Industries, Bajaj Corp and TVS Motor Corp, Godfrey Phillips India etc.

The companies that failed to appoint at least one woman on the board had stated that it was difficult to find qualified women with suitable experience for the position. However, the reason can be attributed to the manner in which the whole process of appointing women directors takes place.

The nomination committees do not take affirmative action in mentoring the women or maintaining a database for the same. India’s lowest national female labor force of 29% in 2011 and 113th rank out of 135 countries on the Global Gender Gap index is a direct consequence of social inequity and inequality.

Rather than just stopping at ensuring quantitative changes, focus should be on regulating the structuring and functioning of nominations committee and ensure that the process of recruitment is diversity driven, where women are given adequate opportunities to receive the required training.

Unless there is affirmative action at all levels to help women enter the long male dominated arena, a vague legislative mandate and the consequent poor compliance by the companies might not solve the problem of gender inequality in the boardrooms of companies, let alone those that do not come under the purview of Section 149(1).

THE DEMERITS OF “CHECK THE BOX” ATTITUDE

The appalling numbers of women directors in boardrooms results in women generally forming an outgroup of the Board. Between 2002-2012, Listed companies at NSE had a meagre 8% of the women at top executive positions and only 4.79% held significant positions including executive, non-executive or independent directorship.

The theory of social identity expounds that individuals who are a part of the outgroup may be influenced or dominated by the ingroup (majority) which in this case, constitutes men. Research suggests that having a minimum of three women on the board composes a “critical mass” which would help them voice their opinions and contribute the most.

Being the only woman on the board becomes disadvantageous and women are not in a conducive environment to give their best. The lack of specificity in the provisions including want of strict action in the event of default, not requiring that women be appointed as independent directors and restricting the mandate only to a certain class of companies give scope for companies to make token or namesake appointments, thereby defeating the legislative purpose.

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Therefore, measures should be taken to appoint more women and promote them to higher executive levels; mandating just one appointment cannot solve the problem of gender inequality since there are a lot of factors which are unfavorable when women enter the boardrooms as a minority.

REPUDIATING THE BUSINESS CASE OF GENDER DIVERSITY

India has been ranked 120 out of 131 countries for female labor participation by The International Labor Organization in 2013. A lot of research recommending better representation of women in the company boards argue for the same based on statistics and data showing improved firm performance, good corporate governance, higher return on investments and many other promising results when more women are appointed.

These arguments are a square business case to incentivize companies to appoint more women. It is even considered as a tactic move to boost the “demographic” diversity, thereby promoting the organization’s reputation and performance.

However, such reasons are principally flawed because they devastatingly boil down the deep routed problem of inequality to mere numbers and added benefits. Additionally, there are studies which reveal otherwise, by establishing no or negative relationship between gender diversity and improved financial performance.

Relying on this argument would prove futile since such statistics and data are hugely dependent on uncertain factors like boardroom dynamics and culture, which again vary with the type of corporation, region, government policies etc. An unfavourable or non-conducive environment will hinder women’s performance and contribution which would consequently weaken the business case.

AFFIRMATIVE ACTION OR PREFERENTIAL TREATMENT

A legal mandate to appoint women by companies has been questioned as an unnecessary regulation. To answer this, it is pertinent to understand how patriarchy pervades both the public and private spheres of life.

The Law is known for distancing itself from regulating the private spheres of people, which unfortunately is the prime area where women are oppressed due to the ills of patriarchy. Public sphere on the other hand, essentially constitutes men controlling other men and women by making laws with absolutely no participation from women.

Perceiving this in the given context leads to a logical inference i.e., structural oppression faced by women in the private sphere, rips them of the autonomy to make the choice to get educated, enter into the corporate world and take up senior positions by disassociating themselves from the typical gender roles.

For this reason, the law is obligated to undo the social inequities and provide opportunities through regulation in the public sphere. The legal requirement is only to be considered as a nudge to inculcate the notion of gender diversity.

It is upon the companies and the society as a whole to make way so that more and qualified women reach higher positions. If this could be achieved, there will no longer be a need for token appointments, want of qualified women or a “business case” to ensure equal representation of women on the board.

CONCLUSION

Section 149(1) is perhaps the first step towards achieving gender equality in the Indian corporate scenario. However, there is an urgent need for reconsideration based on the changing circumstances and continued non-compliance by companies.

Increasing the number from one appointment, requiring appointments to be made to independent directorship, including more categories of companies etc. are possible and effective amendments that can be brought forth.

For women to be able to perform at their best, simple and unspecific legislative changes alone cannot achieve the cause. Women need to gain equal power in social life, to be able to decide and choose for themselves. There should not be any socio-cultural barriers and particularly stereotypical presumptions about their capabilities and choices by the corporations or the law itself.

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To put it simply, no business case or increased benefits should be required or even used to battle for equal representation of women in the boardrooms; they should be able to freely participate and be facilitated to do so, simply because they have the “right” to it.


Author: Tushar Ranjan from NUSRL, Ranchi.

Editor: Astha Garg, Junior Editor, LexLife India.


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