Women directors: Companies not complying with Sebi rules is a worrying sign

The average number of women independent directors in Nifty 50 companies is 1.28. In several countries in Europe the percentage is above 30. It is above 25 in the US

The diversification of the board of directors of companies is positive for their performance. While such diversification could be in terms of academic qualification, skillset and expertise, gender diversification has emerged as an important factor in enhancing a company’s performance. A number of studies corroborate this, namely the ICAI Handbook on Role of Women Directors; and The Glass Ceiling-Research Report on Leadership Gender Balance in NSE-200 Companies, 2022, IIMA. Several jurisdictions in the world have adopted a legally binding or at least a nudging approach towards having women directors on the boards of public/listed companies.

The Kotak committee, in its report in October 2017 recommended a host of measures to improve corporate governance in listed companies. The most important set of recommendations related to the need for revamping the board structure. The Securities and Exchange Board of India (Sebi) adopted several of these recommendations through the Listing Obligations and Disclosure Regulations (LODR), 2018. A provision of having at least one woman independent director (WID) in a listed company having a woman director (WD) under the Companies Act, 2013, was mandated. To start with, the top 500 companies were mandated by Sebi to have at least one WID by April 1, 2019, and the top 1,000 companies by 2020.

As of March 31 this year, 201 of the top 1,000 listed companies in terms of market capitalisation and 96 of the top 500 companies did not have a WID. Of the top 30 listed public-sector units or PSUs, nine were without a WID on board. Even two of the Nifty 50 companies — both PSUs, with one of them having as many as 13 men on its board— did not have a WID.

Not complying with the regulatory mandate is a worrying sign. The role of independent directors (IDs) including WIDs in protecting minority shareholders’ interests and providing an independent, unbiased and gender-sensitive perspective on various issues at board meetings assumes greater importance considering the significantly increased retail participation in the Indian securities market recently. The fact that, on an average, promoters still hold more than 50 per cent share in most of the top listed companies and are therefore in a position to push their own agenda, which at times may not align with the interests of minority shareholders, adds to IDs’ challenges.

A closer look at Nifty 50 companies indicates that the canvas of WIDs is rather concentrated. For instance, three WIDs hold seven board positions in listed companies, which is the maximum number permitted under the LODR (maximum number of board positions suggested by proxy advisors for IDs is five) and 10 of them hold three to four board positions. Four WIDs hold three or more board positions in Nifty 50 entities alone. This points to the formation of a closed club of favoured women, which is not the desirable objective.

In terms of qualifications and experience, the Nifty 50 WIDs are well-qualified. For instance, out of the 54 WIDs available to the 48 Nifty 50 companies, 47 are postgraduates or professionals, with 21 MBAs or equivalent and eight PhDs. Only seven are just graduates. The average number of WIDs in Nifty 50 companies is 1.28 and that of WDs 1.97, indicating that even non-independent WDs are limited. These averages, with an average board size of 11.13 in these companies, constitute 11.5 per cent WIDs and 17.7 per cent WDs for all Nifty 50 companies combined. In several countries in Europe the percentage of women on the companies’ boards is above 30. In the US it is above 25.  

Naturally, we have a long way to go. One of the reasons put forward by listed companies for having limited presence of WIDs is the non-availability of eligible and qualified women. However, this argument is specious — assuming a board membership in three to four companies for each WID, the top 1,000 listed companies need only 250/334 eligible women to meet the regulatory requirement to have at least one WID. Even if the mandate of having a WID was to be extended to all listed companies, 1,250 to 1,600 eligible women would suffice taking the active listed companies number to be around 5,000. It is an affront to the vast army of educated Indian women to even suggest that India does not have 1,250-1,600 women qualified to function as WIDs. Flimsy excuses as explanations tell us why even a box-ticking approach to regulation is not followed at times.

The promoter-driven culture of Indian companies is a serious impediment in getting “truly independent” IDs on their boards. Ironically, for that very reason, the Indian companies need credible IDs with impeccable record. The situation with regard to WIDs gets even worse considering male dominance of the boards and cosy men clubs.

As for PSUs, the system of government appointing IDs leads to undue delays. It is high time that this practice is given up and the IDs in PSUs are appointed through the nomination remuneration and compensation committees of such companies, in line with the prescribed procedure for listed companies.

Sebi should closely monitor regulatory requirements relating to IDs and WIDs. Appropriate penal action should follow promptly for defaulting companies. Nifty 50 and Sensex 30 index compositions are revised by the stock exchanges every six months. Any listed company not meeting the regulatory requirements relating to IDs or WIDs for a continuous period of three months should be considered ineligible for inclusion in the next six-month cycle of index composition. Ditto while deciding composition of all sectoral indices.

The writers are, respectively, former IAS officer & former chairman of Sebi, and director of NISM & ex-member SAT