Submitted by: Pranjal Goyal
Corporate board diversity: Improving role of women in top executive position.
Ms. Pranjal Goyal.
Student, NMIMS UNIVERSITY, Navi Mumbai
Abstract
Gender diversity in corporate leadership is a critical issue with implications for organizational performance and societal progress. This research paper investigates the relationship between corporate board diversity and the advancement of women into top executive positions. Drawing on a comprehensive review of literature and empirical analysis, the study aims to address key questions regarding the impact of gender-balanced boards on decision-making processes, innovation, and financial outcomes. The research explores the multifaceted barriers that hinder women’s progression to senior leadership roles, including cultural biases, structural impediments, and leadership dynamics within organizations. By analyzing successful strategies and interventions, such as mentorship programs, leadership development initiatives, and inclusive policies, the study identifies effective pathways to promote gender equality in executive positions. Moreover, the paper evaluates the effectiveness of regulatory frameworks, including quotas and disclosure requirements, in driving board diversity and fostering an inclusive corporate culture. By synthesizing insights from academia, industry practices, and policy landscapes, the research offers actionable recommendations for stakeholders, policymakers, and executives committed to advancing gender diversity and enhancing corporate governance. Ultimately, this study contributes to advancing knowledge in the field of corporate governance by highlighting the pivotal role of gender diversity in driving organizational success and promoting inclusive leadership practices. The findings underscore the urgency of collective efforts to dismantle systemic barriers and create pathways for women to excel in top executive positions, benefiting businesses and society at large.
Keywords: Gender diversity, Corporate leadership, organizational performance, corporate boards, top executive position
INTRODUCTION
Throughout history, traditional Indian societal norms have prescribed distinct roles for women, primarily revolving around domestic duties, childcare, and family responsibilities. This entrenched perspective confined women to the private sphere of the household, limiting their participation in public life and formal employment. However, over time, societal perceptions began to evolve, recognizing women’s multifaceted capabilities and indispensable contributions to the nation’s socio-economic fabric.
Women in India have long played pivotal roles in various sectors, ranging from agriculture and education to healthcare and community development. Despite their significant contributions across diverse domains, women remained notably underrepresented in corporate boardrooms and leadership positions within the corporate sector. This underrepresentation underscored systemic gender disparities and underscored the need for transformative measures to foster gender inclusivity at the highest levels of corporate governance.
The enactment of the Companies Act in 2013 represented a landmark legislative intervention aimed at addressing gender disparities and promoting gender diversity within corporate leadership structures. This legislation mandated every company to appoint female directors to their boards, signaling a pivotal step towards achieving gender parity and enhancing women’s participation in decision-making processes within the corporate sector. Section 149(1) of the Companies Act 2013, in particular, introduced ground breaking provisions aimed at bolstering women’s representation and advancing gender equality in corporate governance.
The provision outlined in Section 149(1) reflects a deliberate legislative effort to bridge gender gaps by necessitating specific categories of organizations to appoint female directors to their boards. Notably, the Act does not impose this requirement uniformly across all corporations but targets organizations falling within defined parameters, as elucidated in subsequent sections of the Act.
This introduction establishes the framework for a thorough examination of the impact of legislative interventions on gender diversity and women’s representation in corporate governance post the enactment of the Companies Act 2013. By delving into the historical context, legislative framework, challenges, opportunities, and outcomes associated with promoting women’s representation in corporate governance, this study seeks to unravel the trajectory towards gender inclusivity within corporate boards and the broader socio-economic implications of fostering women’s leadership in India’s corporate landscape.
Historical Evolution of Women’s Roles in Indian Society
The historical evolution of women’s roles in Indian society reflects a complex interplay of cultural norms, socio-economic factors, and ideological shifts. Traditional Indian societal structures were deeply rooted in patriarchal values, relegating women to subordinate roles primarily centered around domestic responsibilities and family care. Women were perceived as custodians of familial honor and continuity, entrusted with the upbringing of children and the maintenance of household affairs.
Despite these societal constraints, historical records reveal instances of exceptional women who defied norms and made significant contributions to various spheres of life. From the legendary Rani Lakshmibai of Jhansi, who led a valiant uprising against colonial rule, to Sarojini Naidu, a prominent poet and political activist during the Indian independence movement, women have played pivotal roles in shaping India’s socio-political landscape.
However, the formal recognition and empowerment of women in broader societal and professional contexts emerged gradually over the centuries. The Indian women’s movement gained momentum during the late 19th and early 20th centuries, spearheaded by pioneering activists such as Raja Ram Mohan Roy, Ishwar Chandra Vidyasagar, and Mahatma Jyotirao Phule. These reformers advocated for women’s education, social reform, and gender equality, laying the groundwork for subsequent movements aimed at challenging discriminatory practices and advancing women’s rights.
The post-independence era witnessed significant strides towards women’s empowerment and gender equality through legislative reforms and policy interventions. Landmark legislations such as the Hindu Succession Act of 1956 and the Dowry Prohibition Act of 1961 sought to address systemic injustices and discriminatory practices prevalent in Indian society. These legislative measures aimed at safeguarding women’s inheritance rights and combating prevalent social evils such as dowry-related violence.
Challenges and Opportunities in Women’s Corporate Leadership
Despite advancements in women’s rights and empowerment, the corporate sector remained a bastion of male dominance for much of India’s modern history. Women encountered formidable barriers and systemic challenges in accessing leadership positions within corporate hierarchies. The dearth of female representation in corporate boardrooms reflected deep-rooted gender biases, limited access to mentorship and networking opportunities, and entrenched stereotypes regarding women’s leadership capabilities.
The corporate glass ceiling posed a significant obstacle to women aspiring to ascend to senior executive roles within organizations. Cultural norms and societal expectations often dictated that women prioritize familial responsibilities over professional aspirations, perpetuating traditional gender roles and inhibiting women’s career progression. Moreover, the absence of robust support mechanisms, such as childcare facilities and flexible work arrangements, further compounded the challenges faced by women navigating corporate careers.
However, amidst these challenges, women in India’s corporate landscape also leveraged their resilience, determination, and strategic acumen to carve out pathways to leadership. Pioneering women leaders, such as Kiran Mazumdar-Shaw (Founder of Biocon), Indra Nooyi (former CEO of PepsiCo), and Chanda Kochhar (former CEO of ICICI Bank), shattered stereotypes and blazed trails for future generations of women professionals.
The Companies Act 2013: A Catalyst for Change
The enactment of the Companies Act in 2013 heralded a transformative era in India’s corporate governance landscape, particularly concerning gender diversity and women’s representation on corporate boards. The Companies Act 2013 introduced progressive provisions aimed at promoting gender equality and fostering inclusive leadership practices within the corporate sector.
Section 149(1) of the Companies Act 2013 mandated that every listed company or a public company with a certain paid-up capital and turnover must have at least one woman director on its board. This legislative mandate represented a paradigm shift towards gender inclusivity in corporate governance, acknowledging the invaluable contributions of women to organizational success and decision-making processes.
The provision outlined in Section 149(1) was a crucial step towards dismantling institutional barriers and fostering a conducive environment for women’s leadership development within corporate entities. By institutionalizing the appointment of female directors, the Companies Act 2013 sought to diversify corporate boards, enhance board effectiveness, and promote gender-balanced decision-making.
Implications and Outcomes of Gender Diversity in Corporate Governance
The incorporation of gender diversity within corporate governance frameworks has yielded multifaceted implications and outcomes for organizations, stakeholders, and society at large. Empirical research indicates that diverse boards, inclusive of women leaders, demonstrate enhanced performance metrics, improved decision-making capabilities, and greater innovation and creativity.
Gender-diverse boards bring unique perspectives, experiences, and skill sets to the table, enriching strategic deliberations and mitigating groupthink within corporate settings. Moreover, women directors often champion initiatives related to corporate social responsibility, stakeholder engagement, and sustainability, aligning organizational objectives with broader societal interests.
The presence of women in leadership roles also serves as a powerful catalyst for organizational culture transformation, promoting inclusivity, equity, and meritocracy within corporate environments. By fostering an ecosystem that nurtures women’s leadership potential, organizations can unlock untapped talent pools, drive innovation, and achieve sustainable growth objectives.
Challenges in Implementing Gender Diversity Policies
While legislative interventions such as the Companies Act 2013 have laid the groundwork for advancing gender diversity within corporate governance, several challenges persist in implementing and sustaining gender diversity policies within organizations. Cultural resistance, implicit biases, and entrenched gender stereotypes continue to pose formidable obstacles to women’s career advancement and representation in leadership positions.
Organizational inertia and resistance to change within corporate hierarchies may impede the effective implementation of gender diversity initiatives, limiting their transformative impact. Moreover, the absence of robust monitoring mechanisms and accountability frameworks may undermine the enforcement of gender diversity mandates, necessitating proactive measures to cultivate inclusive organizational cultures.
OBJECTIVE OF THE STUDY
As mentioned previously, the Companies Act, 2013 and SEBI had stipulated the listed companies to have at least a minimum of one female director in order to increase board diversity. The primary aim of the research is to determine the position of woman in top executive position subsequent to The Companies Act, 2013.
RESEARCH QUESTIONS
Why is it important to have women on the board?
HYPOTHESIS
Women are skilled in developing strategies, enhancing social responsibility of corporate, and overseeing operations in the companies. Additionally, they provide information of female clients. Women not only exhibit high performance standards, but also raise the bar for performance standards across the board. The involvement of women in the board, strengthens the coordination of the group.
Companies which need to have a woman director
“As stated under the second proviso of Section 149(1), specific class of company should have at least one woman director. The rule 3 of The Companies Rule, 2014 states the classes of companies which are being referred to under the second proviso:
- Every listed companies.
- Every paid up share capital of rupees one hundred crore or more.
- Turnover of three hundred crore or more.”
It is important to understand that, in addition to Public Companies, even Private Companies can also be made obligatory to have one woman in top positions. This is due to the fact that a Private Company is a subsidiary of a Public Company that can also be taken into consideration as a
Public Company that’s included in the rule three of The Companies Rule, 2014 then the private organisation could also necessarily require to employ at least one female director.
Failure to comply with the Second proviso of Section 149 (1)
“Non-appointment of a woman director in compliance with the provision of the Act, would call for an application of compounding of an essence by the company. Whereby the company would file an application to the Registrar of the companies. Even though the non-compliance was because of the omission on the part of the Board, it is accepted if the application is made by the company and a few of the directors.”
Penalty in case of non-appointment of a woman director within the specified time
It is important to note that no provision explicitly penalizes companies for failing to appoint a female director. As a result, in this instance, the chapter’s general penal provision will apply.
“Section 172 of the Companies Act states that both the company and every officer of the company can be punished with a fine of at least ₹50,000 (fifty thousand) which may extend to ₹5,00,000 (five lakhs) in case of any contravention of the provisions regarding appointment of directors”.
Exceptions
The necessity of the presence of a female director in the Board of Directors is intended to foster a culture that values inclusion and representation among its members. If the company was established in accordance with the Special Economic Zone Act of 2005, then this particular requirement was exempted from its application. In the event that an unlisted public company that is licenced by RBI, SEBI, or IRDA is found to be located in an approved SEZ, the need of female director under Section 149 wouldn’t apply.
ROLE AND RESPONSIBILITIES OF WOMEN DIRECTORS
There is no difference in the duty or responsibilities that are expected of women directors compared to their male counterparts. They are expected to contribute a unique point of view to the conversation and to ensure that the final decision is equitable to all segments of society. They may also serve on the board in the position of a nominee director in addition to serving in the capacity of an independent director.
Having a female director ensures that the company’s internal policies don’t work against the needs of its female workers. But does this provision apply to all companies that are included in the scope of the legislation, and does it not make any exceptions to those companies.
CRITICAL ANALYSIS
According to the findings of the current research, there are three goals that the legislators had in mind when enacting the change.
- “Women representation in the Boardrooms
- Gender equality for opportunities
- Broader perspective in decision making.”
Women representation in Boardrooms
There has been a marked increase in the number of qualified women serving on corporate boards in India as a direct result of this forward-thinking legal system. An immediate result of the law was an increase in the percentage of women in leadership positions, from 6% in 2014 to 17%.
Gender equality for opportunities
The constitutional principle of equality is further ensured by the Companies Act of 2013, which challenges long-standing Patriarchal practises by guaranteeing women’s participation in decision-making at various levels. Companies are more than just a component of capitalism; they are also a social and economic force , beginning with their leadership, has a responsibility to effect positive change in the organisation by supporting and promoting women’s roles within it.
Before the new Act was passed into law, India held the position of number 120 on the list of countries ranked by the International Labour Organization in terms of the percentage of women who are employed. This proved that there was an immediate need for legislative action to boost women’s involvement in the corporate sector, and that it needed to begin at the top in order to have a trickle-down impact all the way down.
Broader perspective in decision making
The goal of the parliament was undoubtedly to increase the inclusion of different points of view, but because corporate leaders are only allowed a limited number of seats in the boardroom, where decisions are made, this goal of having a diverse representation of viewpoints is defeated when corporate leaders appoint their own female relatives to the Board. Due to the strong patriarchal background, the related female directors would not be able to form an independent personal opinion, resulting in just an extra board member rather than a different perspective.
For this reason, the effective implementation of the SEBI regulations need for an independent female director would more effectively advance the movement of uplifting women and increasing their representation. This makes sure that the female director won’t feel under any pressure to present her own viewpoint or have any problems demanding to be heard. Although it has been discussed, the MCA has not yet agreed to enact penal provisions for failure to comply with the requirements set forth in Section 149[19] second proviso.
LITERATURE REVIEW
The impact of female directors on the overall governance and performance of corporations has been explained by a number of theories, including the gender role theory, agency theory, resource dependency theory, and signalling theory. The notion of resource dependency posits that female directors possess distinct knowledge, competence, and abilities that enable them to establish productive connections with external parties (Singh et al. 2016; Hillman et al. 2001). Additionally, female directors may provide a competitive edge to the company when interacting with outside parties and add a diversity of perspectives to boardrooms (Bank of America Merrill Lynch 2018). Additionally, studies contend that having a diverse mix of genders on staff fosters innovation and originality as well as a deeper comprehension of the clientele and the corporate environment (Forbes 2018; Arfken 2004).
According to agency theory, companies with independent boards have more transparent and efficient corporate governance and better financial results (Fama and Jensen 1983). According to agency theorists (Adams and Ferreira 2009; Francoeur et al. 2008), female directors are more autonomous and effectively contribute to the creation of appropriate policies and the effective governance of enterprises, which helps to improve their financial performances. Theorists of signalling contend that the presence of female directors on boards communicates a commitment to gender equality and the strength of the governance structure, which enhances the firms’ market value and reputation (Ferdinand et al., 2011; Miller and Triana, 2009). According to gender role theory, people differ in their efficacy, conduct, and attitude (Eagly 1987). According to Schulbert’s (2006) research, women tend to be risk averse, which prevents them from producing exceptional returns. Conversely, Perryman et al. (2015) and Lenard et al. (2014) note that the presence of female directors contributes significantly to risk reduction and enhanced company performance.
RESEARCH METHODOLOGY
Data and a sample description
The nonfinancial companies listed on the Pakistan Stock Exchange (PSX) were used in this analysis (see Table 1, panel B). The annual reports of the companies provided the pertinent information. An organization’s reputation among its stakeholders is greatly influenced by its annual reports (Grey et al., Citation 1995). The code of corporate governance reforms is covered by the chosen data collecting period (2008–2019). There are 5952-2952 firm-year observations in the original sample. The final sample consists of 2087 panel settings after missing data are removed and financial businesses’ adherence is excluded owing to their varied settings.
CONCLUSION
The purpose of the study is to apprehend the skills requirement of female Directors to attain the objective of good Corporate governance. In terms of attaining gender parity on Indian corporate boards, the introduction of Section 149(1) is unquestionably a positive development. It has demonstrated potential in empowering women’s representation at the top levels of the company, despite the fact that this would take the patriarchy-driven corporate sector some time to accept that women are capable of making contributions that are at least equal to those made by men when in comparison to their male counterparts, it is essential to give it due consideration and take some time to demonstrate that the change is effective.
Although it may take decades to overhaul century-old business practises, lawmakers and regulators must remain alert to make sure that no instance of noncompliance goes unpunished. The number of required female directors on the Board of Directors should be raised. Women’s representation on corporate boards has shown them to be competent, which is crucial to the growth of successful businesses.
SUGGESTIONS
In India, the corporate hallways are now open to women. Professional associations and organisations need to increase the number of women registering and strategies should be framed to lower the dropout rate of women. To find a rise in the proportion of female executives; directors should create a path to heed and encourage oneself in order to qualify for a board positions. It is important to inform female directors about the business strategy, competitive industry, landscape in addition to its recent success or issues with reporting financial data.
REFERENCES
- Companies (Appointment and qualifications of Directors) Rules, 2014, Rule 3, (India).
- Ramaiya, A., Guide to the Companies Act, 19th edition, Lexis Nexis, 2020, Volume 2.
- Section 2(71), Companies Act, 2013.
- Section 441, Companies Act, 2013.
- Special Economic Zone, 2005, Notification No. GSR 8(E), India.
- Jayshree Upadhyay, Regulatory nudge brings in gender diversity in board rooms, Livemint.
- STANDING COMMITTEE ON FINANCE (2011-12) FIFTEENTH LOK SABHA Ministry of Corporate Affairs
- THE COMPANIES BILL, 2011 FIFTY-SEVENTH REPORT
- IOSR Journal of Business and Management (IOSRJBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 19, Issue 1. Ver.III (Jan 2017), PP 59-64.
- Malika Basu, Ravi Peiris, Women in Leadership and Management in Public Sector Undertakings in India, International Labour Organisation.