Appointment of Women Director: A step towards empowerment of women in the corporate world

The principle of gender equality has been enshrined in the Indian Constitution in its preamble, fundamental rights, fundamental duties and directive principles of state policy, but despite such unambiguous equal rights given to both men and women Indian society is always male dominated. The work place is a setting where gender inequalities are easily noticed. Men always get the top positions in companies whereas working women are frowned upon.

But with the modern era the status of women is changing. The Government of India has propagated many laws for the empowerment of women. One such revolutionary initiation taken by the Government is the appointment of at least one woman director in certain class of companies’ board of directors under the land mark legislation The Companies Act 2013. The second proviso to section 149 (1) of the act makes it mandatory the every listed company shall appoint at least one woman director within one year from the commencement of the second proviso to Section 149(1) of the Act.

Every other public company having paid up share capital of Rs. 100 crores or more or turnover of Rs. 300 crore or more as on the last date of latest audited financial statements, shall also appoint at least one woman director within 1 year from the commencement of second proviso to Section 149(1) of the Act.

A period of six months from the date of company’s incorporation has been provided to enable the companies incorporated under Companies Act, 2013 to comply with this requirement. Therefore, the existing companies has to comply the above requirements within one year and new companies incorporated under the new companies act has to comply within 6 months from the date of its incorporation.

Further if there is any intermittent vacancy of a woman director then it shall be filled up by the board of directors within 3 months from the date of such vacancy or not later than immediate next board meeting, whichever is later.[1] This has been a welcome move.

India is not the first country to do so; many others like Norway, France, Italy, Spain, and Belgium have already implemented such steps by introducing legislation or quota which makes it mandatory to appoint women directors in a company’s board.

The board of directors of a company is the vital governing body and directors are ultimately responsible for stable highly efficient and profitable running of the concerned company, safe guarding of the interests and progress of the company and its stakeholders.

Is it a step towards empowerment of women in corporate world?

Most of the companies recognize the importance of appointing directors of different ages and with different kinds of educational background and functional expertise, but they tend to underestimate the benefits of gender diversity.

The absence of women on corporate boards is embarrassingly noticeable. Only four percent of the directors of publicly listed Indian companies are women.[2] There are many reasons for the scarce representation of women in the top positions, some say that traditional companies do not hire women; few others say that maternity leaves are a serious interruption of work and still others cite safety as an issue. The lack of women at the top in business is now referred to as a “brain drain,” and a “crisis of talent retention.”[3]

According to latest Catalyst Bottom Line Report, companies with more women board director’s experience higher financial performance. Reports also pointed out stronger-than-average performance by companies with three or more women board directors.[4] Experts also believe that female directors provide the greatest impetus for change in times of good performance and also companies with women directors deal more effectively with risk.

This legislation by the Indian Government is a good start for empowering women in the corporate world. There are several of capable women around who can add value to the boards, with this mandatory requirement these deserving women will get a chance to prove their efficiency and companies will start witnessing the merit of women directors.

Appointment of independent woman director would be beneficial in many ways but the provision is not clear about appointing an independent woman director and since there are no such norms regarding this, companies are likely to recruit women from amongst the promoter’s family and friends irrespective of whether they are qualified for the post or not. Such being the case women will be appointed to the boards but they would be the promoter’s wife, daughter, niece or a friend.

Here Norway's experience could serve as an example for us; Norway established a 40 percent quota for women on its boards in 2003. At the start of the initiative, women held less than seven percent of board seats but by 2010, women filled more than a quarter of those seats. Although the numbers of women were up in Norway, there was little evidence that corporate performances had been enhanced. A study conducted by the University of Michigan suggested that Norway’s introduction of quotas had negatively impacted both performance and board quality. In order to obey the law the Norwegian firms appointed many women as members of the board who were less experienced.[5]

Though such legislation and quota can be effective to bring women to the top positions in the companies, its benefits will be short lived if there are no proper guidelines to implement it and if it is not properly supervised by the Government.

Women should be accepted for their skills and not just because they are women. It’s undisputable that only experienced women with the right qualifications should be appointed as a director of the boards. There are lots of talented women out there; the deserving and qualified women should be brought on board.

The deadline for appointment of at least one woman director has been extended to 1st April, 2015 and with this companies will be getting more time to find the right women candidates. This provision is definitely a step towards empowerment of women in the corporate world and this will help women continue to build their presence in the corporate world.