Over the years, the issue of gender diversity in business organizations has become particularly relevant in the international corporate governance arena. For proponents of more women to secure seats at the boardroom table, this marks a remarkable moment of the shattering of the glass ceiling. Here, the glass ceiling is used as a metaphor to represent an invisible barrier that prevents a given demography, in this case women, from rising beyond a certain level of hierarchy.
Research on gender diversity has often invoked sundry perspectives on how to efficiently solve problems that companies face. To this end, India had this epiphany only back in 2013 where the 2013 Companies Act made it mandatory for listed companies as well as companies with a turnover of INR 300 crore to appoint atleast one woman director. But often, companies would induct a women member from their promoter families to meet the requirement. This was largely tied to the objective of protecting business interests.
While this broadened women’s representation, this also led to a small cohort of women accumulating directorships. So, to ameliorate this concern and to make the boardroom truly diverse, in October 2017, Securities and Exchange Board of India (Sebi) mandated that there should be atleast one independent woman director in all listed companies.
Research evinces that companies with truly diverse boards perform better than their peers over a long period of time. So far, the legal provisions have managed to trigger off a right trend where according to Prime Database (which explored and analysed data for the boards of 500 top companies listed on the National Stock Exchange or Nifty500) found that female representation increased to 13.8 % in 2017, from 5% in 2012, indicating a 8.8% increase. However, the gain is not significant as per data shown by the 2019 edition of the Credit Suisse Gender 3000 report wherein Indian female representation in boardrooms has risen to 15.2% in 2019, falling below the global average of 20.6 %.
Apart from the normative argument that suggests both men and women should have an equal opportunity to attain leadership positions, what explains the logic of having a gender-diverse boardroom? Simply put, does investment in women actually translate to better financial results for firms? The broad answer is yes. There is a significant body of research, which suggests that gender diversity can have a positive impact on financial performance as well as brand perception.
Further research shows that companies with atleast one woman on board have a higher return on equity, higher earnings and stronger growth in stock price than companies with all-male boards. In fact, the evidence abounds. According to a research brief produced by Mckinsey, companies in the top quartile of gender diversity are 15% more likely to financially outperform those in the bottom quartile. Similarly, multiple surveys have also linked companies with more women on their boards to better corporate governance and more ethical behavior.
Meanwhile,another survey published in the International Journal of Business Governance and Ethics pointed out that firms with at least one woman on the board have a 20% lower risk of bankruptcy. These stark figures should in themselves serve as an incentive for businesses to see female representation as a commercial imperative.
The quota for female representation, albeit motivated by both ethical and social responsibility also produces better economic yields. Since boards appoint and monitor the executive positions such as the Chief Executive Officer (CEO) and guide the firm’s strategy, boardroom composition has a strong impact on firm performance. Naturally, a gender diverse boardroom will positively affect the economic performance of the firm and Indian businesses would do well to co-opt women in boardrooms to ensure a successful business.
India Outbound
October 16, 2019
source https://indiaoutbound.org/why-india-needs-a-female-boardroom-revolution/
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