Articles & Write Ups


    by  Kamakshi S. Mehlwal, Arbitrator and AOR Supreme Court of India

    One of the most conspicuous features of the Indian Companies Act 2013 is the mandate that every Listed Company /Public Company with paid up capital of Rs. 100 Crores or more / Public Company with turnover of Rs. 300 Crores or more shall have at least one Woman Director.

    In July 2015 the National Stock Exchange issued notices to 260 companies including 145 suspended firms for their alleged failure to comply with the SEBI norms to appoint at least one woman director on their respective boards by 1st April 2015.  By October, 2015 Bombay Stock Exchange had fined 370 firms for not complying with the Securities and Exchange Board of India’s norms to appoint at least one woman director on their respective boards within the prescribed timelines.

    The government of India issued a statement on 4th December, 2015 confirming that over 2000 companies do not have women directors on their boards. There are over 5,700 companies listed on BSE and nearly 3,000 on NSE.

    SEBI the regulator, wrote to the cabinet secretary that women directors should be appointed on the boards of public sector undertakings to meet corporate governance norms. SEBI said if a company doesn't comply with its listing agreement rule, which mandates appointment of at least one woman director on the board before June 30, 2015, it would have to pay a fine of Rs 50,000.

    Companies complying with this requirement between July 1 and September 30, 2015, would have to cough up Rs 50,000 plus Rs 1,000 per day starting from July 1 till the date of compliance and those entities complying on or after October 1, 2015, would have to pay Rs. 1.42 lakh plus Rs 5,000 per day from October 1, 2015, till the date of compliance.

    For any non-compliance beyond September 30, 2015, SEBI will take other action against the non-compliant entities, their promoters and/or directors or issue such directions in accordance with law, as considered appropriate, the regulator had said. "It's really unfortunate that several listed companies have failed to appoint women directors despite reminders from market regulators," said Shriram Subramanian, founder and MD, InGovern Research Services. "Unless the market regulator takes stringent action against these companies, they won't be serious in complying with this rule," he added.


    The scarcity of women in the boardroom is not unique to India - nearly one-fifth of the world's 200 largest companies have no women directors, according to an August 2014 report by “Biz Divas”, an international network of professional women.

    Some western countries such as France, Italy and Norway have made it compulsory for larger firms to have women on their board. As a result, in Norway, women's representation on company boards surged to 41 percent in 2013 from 7 percent in 2003.

    But the largest economies – the United States, China and Japan - have no quotas for women and have had the lowest increase in female directors, suggesting that companies do not bring women onto the board unless they are forced to. Hence the need to allocate quotas!

    In 2003 Norway led European nations in legislating that at least 40 percent of corporate Board seats be filled by women. Spain followed in 2007 with a law requiring 40 percent female representation on large company Boards by 2015;  Iceland’s 40 percent quota started rolling in 2014;  and France will impose the same minimum for big companies by 2017.

    In February 2011, a bill was passed by France requiring 40% female directorship by 2016. This quota is to be implemented on two schedules, one for private companies and one for public companies. Public companies will require 20% female board representation within three years, and 40% within six years. Private companies will have nine years to reach the 40% quota. Failure to comply with these schedules will result in voided nominations and suspended remuneration of board members.

    Yet some researchers say Norway’s experience casts doubt on the efficacy of such mandates. “The quota led to younger and less experienced Boards, increases in leverage and acquisitions, and deterioration in operating performances, consistent with less capable Boards,” found a 2011 study by researchers at the University of Southern California’s Marshall School of Business and the University of Michigan’s Stephen M. Ross School of Business.

    On many Boards, creating an inclusive culture for the organization has not been a focal point; while  the increased importance of diversity to organizational success is compelling Boards to make it part of their well thought-out focal point. Unfortunately, many Boards lack awareness of “best practices” in this area and are uncertain about how to integrate “diversity” and “inclusiveness” initiatives into their organization’s long-term policy.

    Not surprisingly, twice as many women than men (51% vs. 25%) agree that quotas are an effective mechanism  for increasing diversity in the Boardroom.

    The desire of governments and corporations to reduce the disparity on corporate boards is entrenched in the principle of equality of treatment. Equality of treatment requires that all people be treated equally, regardless of societal prejudices. Equality of treatment may mean either equality of opportunity or equality of outcome, with the former being the preferred interpretation by many Governments.

    The underlying problem is dominantly the failure of traditionally-dominated male Boards to train future (women) Board members to serve effectively. An effective Board member needs more than experience;  and experience can be used as a barricade to entry for women. Board members today need to be trained in laws and regulations that create compliance obligations by management and Boards of directors.

    Presently in the last ten years two game-changing pieces of legislation have altered the landscape for corporations. The Sarbanes-Oxley Act that was passed in 2002 established new obligations for Board members and oversight responsibilities were ratcheted up several steps, along with the possibility of more lawsuits against Board members for failing to carry out their fiduciary obligations. The Dodd-Frank Financial Reform Act that was passed in 2010 created a myriad of new regulations Board members need to know about; as well as whistle-blowing obligations of internal accountants and auditors. In India our very own new Companies Act, 2013 has set the revolution rolling.

    In 2013, a mere 16.9 percent of Fortune 500 Board seats were filled by women. By 2015 there were 19.7% women on Fortune 500 Boards as compared to 17.9% in Fortune 1000 companies and 22.3% in Fortune 100 companies. Boards of Fortune 501-1000 comprised of 15.9% women.

    In Silicon Valley, among 128 companies representing $1.2 trillion in shareholder value, only 8.4 percent of Board members were women in 2014.


    In his Blog posted by Steven Mintz, aka Ethics Sage, on December 18, 2012 he says:

    “ It's a shame when you consider that companies with "sustained high representation" of women on their Boards significantly outperformed those with "sustained low representation" by 84 percent in return on sales, 60 percent on return on invested capital, and 46 percent on return on equity.”

    There are a few initiatives stirring to increase Board diversity. For example, California recently passed Senate Resolution 62, making it the first state to formally encourage corporations to voluntarily add more women to their Boards of directors. Organizations such as Watermark and Catalyst are also doing important work to encourage greater Board diversity by publishing research and helping Board-ready women secure corporate director positions.

    Frustration over the slow gains pushed 51 percent of the women directors in the WCD (Women Corporate Directors) survey to say they support mandates such as the “gender quotas” and “corporate governance Codes” that have been approved in at least 10 European nations, including France, Norway, and Spain. Other directors, including Anne Mulcahy, the former Xerox chief executive officer and a director at Johnson & Johnson, Target, and Washington Post, argue that “term limits” are needed for directors to make space for women. Last year among Fortune 500 companies, only 336 Board seats changed hands out of 5,300 positions. It is true that with “tenure restrictions” the pool would predictably be more diverse.

    Only 25 percent of male directors support quotas to change the disparity, according to the 2012 WCD survey. The survey’s authors say many women blame the fact that, in business, “traditional networks tend to be male-oriented.” Rather than a talent issue, “it’s more the system,” explains Catherine Allen, who sits on three Boards and the governance committees. “For those Boards that have a token woman or no women on the Board, they may look only within their own friends. Part of it is being a little more creative.”

    It’s a different story where women hold the reins. The 15 S&P 500 companies led by female CEOs last year had about 33 percent women directors vs. the 16 percent average for companies in the group led by male CEOs.

    Back home, on 31 March 2015, 245 of the 1,475 firms listed on NSE did not have any women on their boards, according to Prime Database, a capital market tracker. Recent analysis has  found that five state-owned companies have no women on their boards, namely Bharat Petroleum Corp. Ltd, NTPCLtd,  Oil and Natural Gas Corp. Ltd, Punjab National Bank and GAIL (India) Ltd.

    As much as 70% of the companies across 23 sectors have a single woman Board Member, including Tata Consultancy Services Ltd, ITC Ltd. and Reliance Industries Ltd. Some 12% of companies, all large promoter-driven conglomerates such as Cairn India Ltd, Grasim Industries Ltd and HCL Technologies Ltd, have appointed only women family members as directors and only 20% of company boards have more than the single woman required.

    In Europe, Belgium passed a law requiring 33% female directorship by 2018 introduced in the new article 518bis of the Company Code. Failure to comply with these schedules will result in voided nominations and suspended remuneration of board members.

    In 2012, the United Kingdom implemented a mandatory “comply or explain” system to address the disproportionally on corporate boards through the UK Corporate Governance Code. Unlike a quota that sets a specific proportion and is often criticised for failing to account for merit, the UK Corporate Governance Code allows corporate boards to implement their own gender diversity policies and explicitly requires merit as a consideration. The UK Corporate Governance Code requires companies to annually report on their “boardroom gender diversity policy” as well as their “executive management appointment practices”  and if not, to explain why.

    In Canada, Quebec’s Bill 53, passed in 2006, is the only provincial legislation currently in effect that deals with gender representation on corporate boards. This bill requires an equal number of men and woman on the boards of Crown corporations.

    At the Federal level, two bills are currently being tabled: (1) Bill S-217,] which will impose a 40% quota for female board members of public companies and other regulated entities such as banks and insurance companies; and (2) Bill-C473, which will balance the gender proportionality of directors serving on boards of state corporations by establishing minimum participant requirements by gender.


    Notwithstanding their “comply or explain” structure, women in Sweden rarely hold executive management positions in large companies. In 2004, the Swedish Annual Accounts Act was amended in order to force companies to disclose information on gender proportionality amongst managerial levels in its annual reports. The government justified this amendment as they suggested it would lead to more women in executive positions and a larger pool of candidates for internal appointments to corporate boards.

    In 2008, Finland implemented a “comply or explain” system which required both genders to be represented on corporate boards, and if not, to explain why. A distinctiveness of Finland’s approach is the prerequisite of at least one man and one woman on every board. This hybrid approach utilizes a “comply or explain” system and a quota to further its goal of gender proportionality on corporate boards. Women account for approximately 24% of corporate board members, up from 12% before the implementation of this hybrid approach.

    In 2012, the Finland Chamber of Commerce implemented a mentoring program for women in mid to high-level managerial positions as a supplement to their current approach. This program included mentoring, seminars and networking opportunities; providing these women with the tools to become candidates for executive management positions, and to qualify for internal board appointment. In India, the Institute of Directors conducts “Masterclass for Directors” wherin prospective directors are trained in directorship dexterity and this training programme has a representation of at least 20% women.


    The Glass Ceiling :

    Ratifying “quota allocations” through legislation is one way to counter the challenges presented to women seeking board positions. However, some argue that quotas inadequately address the larger structural problem known as the glass ceiling. Board members are typically appointed in one of two ways: (1) internally, through in-firm appointments of high level executives such as CEOs; and (2) externally, through appointments made from outside of the firm.

    Quota systems geared towards a more equal proportionality on corporate boards function by targeting the gender representation of the board, rather than targeting the pool from which candidates are appointed. So although a board may be more comparative or proportional, the consortium pool from which appointments are being made remain unchanged and largely disproportional.

    If high-quality workers can be trained; then good quality women Board members can also be trained. It doesn’t matter what is their race, nationality, or gender. If they possess the skills needed for the job, experience should not be an obstruction to enter and excel. If they are leadership material, experience should not be a barrier. If they can create a culture of compliance and ethics, experience should not be a barrier. Allocating quota is perhaps the most effective tool in bringing about diversity in the boardroom and establishing an ethical tone at the top that creates a culture of compliance and principled behavior that draws talented individuals to the organization.

    References :

    1. Catalyst Accord: Women on Corporate Boards in Canada, online: Catalyst

    2. Karyn L. Twaronite, “Women on Boards: Moving from ‘Why’ to ‘How’” Forbes (8 January 2013)

    3. The Companies Act, 2013