Sunday, November 17, 2013

Companies Act 2013: Woman Director

The Companies Act 2013 and Draft Rules mandate that every listed company shall have at least one woman director in the Board within one year from the commencement of the relevant provision of the Companies Act 2013 [section 149 (1)]. Every other company, including a private company, having paid up capital of Rs 100 crores (about US $ 16 million) shall have at least one woman director in the Board within three years from the commencement of relevant provision.
When I conduct training programmes for directors often two issues come up for discussion. First, why this quota? Second, whether companies will be able to comply with this provision within the short period allowed for compliance?
First, 'quota' is not mandated as  an  affirmative action to benefit a under-privileged or under-represented groups, although in Indian sciety  women form an under-provileged group. This quota will not touch those women who suffer due to inequality in the social status and privileges between men and women. The aim of the the mandatory provision in the Companies Act 2013 does not aim to benefit women, as a group. The aim is to bring gender diversity in the Board. It is believed that gender-diversity adds to the effectiveness of the Board. It is generally believed that women have more empathy and interpersonal skills than men. Most issues that are placed before Boards have peole and relationships dimensions in them. Therefore, a woman director is expected to bring different perspectives on critical issues that Boards are required to address. In addition, in order to break the glass ceiling, women have to pass through more and tougher hurdles compared to their male counter parts. Therefore, women who reach top positions in corporates and other professions develop better skills in handling difficult situations. Therefore, they are likely to take tough decisions while being sensitive to human issues. However, the proposition that gender-diversity will improve the Board effectiveness is still at the hypothesis stage. A hypothesis is an educated prediction. The hypothesis is not yet tested to come to a definitive conclusion. We should not expect that companies, except enlightened companies, will bring gender-diversity in the Board voluntarily as they do not see the benefits. Mandatory inclusion of at least one director in the Board of listed and large companies might provide enough data to researchers to test the hypothesis in future.
BSE has 5,281 listed companies as at November 14, 2013.  If we take this number as an estimate of listed companies, within one year  5,300 women, who qualify (in terms of technical and soft skills) for induction in the Boards, are to be identified.  Will it be difficult to search those 5,300 women?  I do not think that it will be difficult provided there is a will to comply with the provision in spirit, without compromising on the 'fit and proper' criteria. There are large number of women who occupy senior positions in companies or are doing well in different professions, although the number is low as a percentage of total female population in India. Companies may appoint executive search firms to identify potential candidates. The law does not stipulate that the woman director should be an independent director. Therefore, may companies may find it easier to to induct a female as an executive director or a non-executive (not independent) director, may be from acquaintances and top executives within the company. The danger is that some companies may  appoint some one who does not qualify to be appointed as a director just to comply with the provision. I am hopeful the number of such companies will be small.
The number of unlisted companies with paid up capital of Rs 100 crores is not significant. They should not find it difficulet to comply with the provision within three years.
In this context I like to draw attention to the HBR (June 2013) article entitled 'Diversification in the Board Room' authored by Groysberg and Bell. The article describes the US experience and provides interesting insights on gender diversity in Boards. It is a good reading. 

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