Looking beyond family to achieve gender diversity on board

As Nita Ambani, wife of Reliance Industries Chairman Mukesh Ambani, joined the board of Reliance Industries on June 18, 2014, she became the first woman to be appointed on the board of the largest private sector company in the country

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Nita, 50, took the place of Mukesh’s uncle Ramniklal H Ambani -- elder brother of the late founder Chairman Dhirubhai Ambani -- who retired from the board at the age of 90. This appointment also helps RIL meet a new law requiring listed companies to have at least one woman in the boardroom to boost gender diversity.  With this, Nita figures among a dozen members of promoter families taking up board positions recently.  

As corporate India ramps up its search for woman directors to meet a rule that requires women's participation on the boards of listed and some private companies, the promoter families have been a key catchment source for new directors. However, some of the recent marquee appointees have been associated with various ventures of respective corporate groups.

Although the new Companies Act, 2013, gives corporates time till April 1, 2015, to fill up these board positions. But, the listing agreement of the market regulator Securities & Exchange Board of India (Sebi) has brought the deadline forward for listed companies to October 1 this year. Since the introduction of a new companies law, as many as 85 companies listed on the National Stock Exchange (NSE) -- India's largest bourse in terms of turnover -- signed on 80 women directors between January and May this year, according to a research by Indianboards.com, a joint initiative of NSE and Prime Database. Around 50 of these appointments were as independent directors. In the same period last year, 40 women were appointed directors.

They (Indianboards.com) found that two-thirds of the 1,500-odd listed companies on NSE did not have any woman member on their boards in March 2014. Also a Bloomberg study said nearly half the top-100 companies listed on BSE did not have woman directors.

True, there was enough time for implementation by companies under the new Companies Act, 2013, to fill up these board positions, but the listing agreement of the SEBI has brought the deadline to October 1 this year, has put pressure on human resource heads and head-hunters.  Now HR heads complain of inadequate availability of board-level talent and seek more time to fill up such vacancies, experts feel tapping the family for directors is a short-term measure but cannot be a fool-proof. 

Paucity of talent

Citing paucity of talent, industry body Confederation of Indian Industry (CII) said in a recent note to the corporate affairs ministry that the government should dispense with the requirement for woman director on boards of unlisted companies. But HR consultants feel companies need to come out with long-term strategies to facilitate the path of talented woman employees to the boardrooms. This will also help improve representation of women in top management. India was one of the last three among Asian nations in representation of women on boards or executive positions, said a Mckinsey & Co report.

A recent study by Catalyst -- an American non-profit corporate membership research firm to build inclusive environments and expand opportunities for women and business -- noted that companies with more women board directors experience higher financial performance.  It went to the extent of saying that Fortune 500 companies with the highest representation of women board directors attained significantly higher financial performance, on average, than those with the lowest representation of women board directors.  The study looked at three critical financial measures: return on equity, return on sales, and return on invested capital, and compared the performance of companies with the highest representation of women on their boards to those with the lowest representation.

In contrast, take a look at 30-bluechip companies that form the benchmark Sensex at the Bombay Stock Exchange reveals that over one third or 10 companies including TCS, ONGC and L&T do not have a woman director on their boards.  The others in the list of Sensex companies that do not have a woman director on their boards are Hero MotoCorp, Bajaj Auto, Cipla, HUL, Sesa Sterlite, Sun Pharma and BHEL.

With the SEBI deadline for woman directors on the company board being advanced to October 1, this year domestic listed companies are in a tearing hurry scouting for women directors on their boards. As every listed company must have at least one woman director on their board, as many as 966 companies of the 1,456 companies listed on NSE will now have to comply with this directive.  They would therefore need to appoint a woman director on their board within the next three-odd months as Sebi’s amendments to the listing norms will come into effect from October 1.

Currently, Renu Sud Karnad holds the maximum number of board positions at nine companies of which six are as an independent director followed by Ireena Gopal Vittal (former McKinsey  consultant) seven (all as independent director).  Zia Mody, the founder of Mumbai-based AZB & Partners (a law firm), who avers that ideally, a board should have at least two women directors to have a quality discussion.

On an aggregate basis, there are a total of 9,009 persons occupying a total of 11,596 directorships in NSE-listed companies. Of these, only 597 positions are held by women, just 5.1 per cent.  It is still a long way to go... but definitely it is time now for India Inc. to buck up on the gender diversity front.