Why women on boards make smart business sense

Is India Inc.’s new found enthusiasm to have woman board members a reflection of changing mindsets or mere tokenism?

Media reports suggest that more than 250 companies appointed women directors on Tuesday to meet the SEBI’s deadline. In fact, many companies have appointed wives, daughters and sisters of promoters and top company executives as directors in a desperate attempt to be in compliance. Is this the right approach?

India passed a law in 2013 mandating publicly-listed companies with five or more directors to have at least one woman board member.

With women making up only 4.7% of India’s corporate directors, there was a crying need to address this anomaly.

If you look at the global trends you will realize why. Countries like Norway, Finland, France and Sweden have over 30% of women representation in corporate boards. Unfortunately developing countries like India, China and Brazil are far behind the global best practices. India, at sub-5%, is at the lowest rung.

The presence of women in the boardroom has shown to lead to better performance. A survey of Fortune 500 companies indicates that companies with higher female boardroom representation outperformed on various financial parameters like return on sales (ROS) and return on investment (ROI)

Most Indian corporates seem to pay scant heed to empirical data. Which is why SEBI’s initial timeline was largely ignored and the regulator had to extend it by six months to enable companies to make the right choice of women directors.

Still, over one-third of India’s top 500 companies had not appointed a single woman to their boards till March 2015 reflecting the low priority ascribed to the issue of gender diversity. Even large public sector entities like ONGC, PNB and BPCL were found to have not complied, as per latest available updates. I believe it is a wake-up call for the government to ‘Practice what you preach.’

For the regulator to ensure compliance by the private sector, it needs to first ensure that the Govt. enterprises emulate best practices of compliance and governance. But it seems both the Govt. and the private sector companies have viewed the gender clause in the companies bill as another routine matter. The fact that SEBI itself inducted a woman Board member as late as March 2015 reflects poorly on the regulator.

Ironically, the manner in which many corporates have gone about implementing this mandate at the last minute with the induction of family members, is making a mockery of this directive. Their hurried action has completely undermined the potential and value that competent women can bring to the board. Some of the Companies have given the specious argument that there is not enough talent available in India.

Women to the Fore

The truth is India has a huge pool of talented women professionals waiting to be identified and given an opportunity to bring value to the boardroom.

Global studies have revealed that companies with greater gender diversity not only do well financially but are also characterized by better leadership, accountability, innovation, operational efficiency and a motivational work culture.

If India Inc. wants to give itself a competitive edge it needs to invite skilled economists, social scientists, chartered accountants and women with diverse competencies to bring a fresh perspective to corporate decision-making.

If corporates need any more validation they should check the results of a recent study by Randstad of the top 100 Indian companies (BSE 100) that showed companies with women on their boards performed better.

The study revealed that the board of a private sector company, run by a professional CEO with a mix of both men and women, helped Return on Equity (ROE) rise by 4.4% in 2014. In contrast, a similar company with a men-only board saw its ROE rise by a mere 1.8% in the same period.

Affirmative Action

The undeniable body of evidence in favor of women’s empowerment presents a powerful case for building more diverse corporate leadership. Corporations and governments must capitalize on the contributions women can make. It’s a daunting task, and one at which many have failed in the past. But it is imperative today, to do whatever it takes — now.

In today’s ‘Ideas Economy’, businesses need creativity and innovation – qualities that are not dictated by gender!

Ensuring gender balance in the board does not mean we compromise the quality of the board. The selection of women directors based on their professional capabilities, will enhance the quality of the boards leading to much better outcomes.

At the same time, its equally important to address the gender diversity issue at the organization level. For inclusive development it is imperative to embed gender diversity into the organization’s culture.

To conclude, instead of seeing SEBI’s mandate as a box that needs to be ticked, India Inc. needs to respect the spirit behind the SEBI directive and take affirmative action to channelize the power of women to bring in transformational change for a much greater economic value add to India.

This article is published in collaboration with LinkedIn. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Kiran Mazumdar-Shaw is CMD at Biocon Limited.

Image: A woman walks on the esplanade of La Defense, in the financial and business district in La Defense, west of Paris.   REUTERS/Gonzalo Fuentes