The significance of gender diversity in boardrooms has, over the years, amassed extensive attention. Many organizations and research groups including IMF, MSCI, Catalyst, have established through their research initiatives the importance of having more women directors on board.

Having a higher number of women directors in the boardroom is definitely a progressive step which will eventually translate into enhanced organizational performance. Female representation in NIFTY 500, which was at 5% as on March 2012, has increased to 13% on March 2017. However, this development is low in comparison with other countries like Norway, UK, and the USA. Only 26 boards in the NIFTY 500 had three or more women directors as on 31 March 2017. Fifteen companies had no female representation on the boards as compared to only six companies in the S&P 500.

Moreover, compared to the aggregate of women who enter the corporate world, the number of women in audit or risk management, nomination and remuneration committees are still abysmal. These committees are critical in respect to corporate governance. They comprise about 12% of members of audit committees, 13% of nomination and remuneration and roughly 15% of CSR committee. In India, women’s participation at senior level is about 18%, nearly half the number at middle management (5-10 years of experience). At the CXO level, the representation is even more poor at about 8%, while at board level, women are at 1%.

A report released by management consultancy firm, Mckinsey India, stated that the representation of women in the senior management level in India is significantly less than the Asian average. While in Asia, the average is around 11%, in India only about 4% of women make it to the high-level management of the corporate world. These issues can be overcome only if there is more gender parity in the whole corporate society. It goes without saying that if women are exposed more to these experiences and responsibilities, they will obviously adapt to them better.

Interestingly, there is no specific penalty for non-compliance with the rule of Section 149 of Companies Act, 2013. That is to say, if the minimum requirement of women directors is not adhered to, there is just a general punishment described in Section 172 of the Act. The violators will be fined for a sum of Rs. 50,000 to Rs. 5,00,000. The Companies Act, 2013, prima facie, comes across as an over-prescriptive regime, therefore it is rather unusual to not have a specific regulation imposing sanctions on the particular issue of appointment of a woman director.

This is a loophole, yet to be addressed, in the existing framework of law as it does not focus on complying with women directors’ rules. It is just an umbrella provision which is not pivotal in giving a push to the measures of increasing women representation on board of directors. Alternatively, the sanctions should be stringent enough and focussed in order to be effective.

To conclude, companies must remember that, having gender diversity on the board is expedient for its own performance. It’s not just a mandatory provision to have required number of women directors, but it’s actually the most rational thing to do.

Author: Sneha Sagar

Disclaimer: THE STATEMENTS HEREIN REPRESENT THE CURRENT OPINION AND BELIEFS OF THE AUTHOR ONLY AND NOT THE ASSOCIATION OF INDEPENDENT DIRECTORS OF INDIA (AIDI). UNDER NO CIRCUMSTANCES SHOULD ANYTHING IN THIS POST BE CONSTRUED AS INVESTMENT, LEGAL, TAX, REGULATORY, FINANCIAL, ACCOUNTING OR OTHER ADVICE.