Article: Diversity in Indian Boards: What is the story behind the numbers?

Diversity

Diversity in Indian Boards: What is the story behind the numbers?

The study shows that companies are seeing benefits from improved gender diversity. In short, companies with at least 10% female directors consistently report better financial performance than those without.
Diversity in Indian Boards: What is the story behind the numbers?

Korn Ferry recently completed a study, “Building Diversity in Asia Pacific Boardrooms”, our fourth in the Korn Ferry Diversity Scorecard series. The largest 100 publicly listed companies from ten Asia Pacific economies were examined. The list included- Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Singapore and South Korea. The study was done with the National University of Singapore (NUS) Business School’s Centre for Governance, Institutions and Organisations (CGIO). Now, here are some of the interesting findings that merit discussion.

First, the good news

India has made significant progress in broadening female representation across companies. Companies here reported an increase in female board representation from 7.3 per cent to 8.6 per cent in 2014. It goes without saying that The Company Act probably had a role to play in this. The act requires all listed companies to have at least one woman on the board and this has helped in enabling this broadening female representation. The number of all male boards has dropped from 54% in 2012 to 29% in 2014. However, there are sectoral differences. While sectors like Telecom (17.5%) & IT(11.6%) lead in female representation ; sectors like Energy(5.4%) & Industrial(4.9%) lag far behind.

The 'not so good' news 

While Indian boards at 8.6% have made some significant progress in increasing female participation; when compared to our peer group in Asia Pacific- we come in at the 7th place out of the 10 selected countries. This does not include developed economies like EU at 20.8% and America at 18.7%. Therefore, despite the progress, these findings highlight the need to explore some of the barriers that come in the way of female participation in boards.

Predictably irrational

Our study shows that companies are seeing benefits from improved gender diversity. In short, companies with at least 10% female directors consistently report better financial performance than those without. In 2014, companies with at least 10% female board members delivered a return on equity (ROE) of 14.9% versus just 12.6% for those with fewer or no female board members.  These findings hold true by other measures of gender diversity, other measures of profitability, and across three years. Our results are in line with other global research that points to better performance in companies with greater diversity.

While the numbers point to correlations between diversity and better performance; the rat pace of progress towards more diverse boards is slow. A clue as to what might be affecting the boards is found in a seminal talk "Psychology of Human Misjudgment" delivered at Harvard University in 1995 by Charlie Munger, Warren Buffet’s partner and vice-chairman of Berkshire Hathaway.

Charlie speaks of a "Bias from liking distortion, including the tendency to especially like oneself, one's own kind and one’s own idea structures, and the tendency to be especially susceptible to being misled by someone liked. Disliking distortion, bias from that, the reciprocal of liking distortion and the tendency not to learn appropriately from someone disliked." To frame it simply, we tend to listen and accept ideas from people similar to us. He adds that "you can see that very brilliant people get into this almost pathological behavior. And these are very, very powerful, basic, subconscious psychological tendencies, or at least party subconscious."

Social Allegiance Gap: A barrier to greater inclusion

In other words, with a legacy mindset of all-male boards and all-male companies, today’s directors subconsciously seek their own kind because it fits in neatly within their world view. In their book, ‘Coaching for Leadership’, Marshall Goldsmith & Laurence S Lyons call it ‘Social Allegiance’. They quote leaders saying "We don't know how to relate to women and minorities as peers". The evidence of this is found in another study by Boris Groysberg & Deborah Bell of Harvard Business School (covering mostly US firms) which highlights the four types of barriers faced by women. Excerpted from the study:-

  • 21% of Women Say Not Being Heard and Listened To: "I often feel that I’m not heard and that I need to put more effort into making sure that others hear and understand my point of view"
  • 20% of Women Say Not Being Accepted as an Equal or as Part of the "In" Group: "It's been a challenge earning respect and being treated as an equal member, particularly with older board members"
  • 20% of Women Say Establishing Credibility: "I have to establish my credentials over and over; it never stops"
  • 5% of Women Say Stereotyped Expectations of Women's Behavior: "I'm always seen as 'the voice of women'"

A bold call to action

There is a real concern if Boards today don’t bridge this allegiance gap and take board diversity beyond tokenism to a competitive advantage. 

We’re living in increasingly uncertain times and leaders in organizations will have to develop heightened contextual awareness to make sense of this ‘difficult to predict’ future. A diverse board can invest itself fully in viewing the future through multiple perspectives for robust decision making and managing risks of ‘following’ the herd. A diverse board is also more likely to pick up nuances of markets, customers and management- that others may miss out on.

Moving forward, more mechanisms are needed to empower women in the workplace to broaden the pool of female board members, particularly as executive board members, amongst whom women remain heavily underrepresented at only 4.7%. While high-profile women have served as corporate leaders in past decades, progress has been slow. Many companies have leadership programs but they tend to target senior leadership ranks that remain male-dominated. This is particularly true in the energy and industrials sectors, where women are the least represented on boards.

We can all take inspiration from Peter Loscher CEO of Siemens who said in 2008, "Our organization is too male, too white & too German". From no women directors on the board, they went to two- it was a powerful symbolic gesture. He said "Now, women know there is no ceiling in the organization".

While legislations open the door for women, we need more bold moves where Directors & Chairmen speak vocally about the benefits of diversity to their boards and become more inclusive and open towards women directors.

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Topics: Diversity

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