Women on Board-Beyond just a tick in the box
When it comes to Board-ready woman leaders in India, one of the biggest hurdles companies face is the small pool
Organizations failing to expand their leadership talent pool and recruiting capabilities to include woman-centered strengths may be among the biggest market losers in the coming times
The SEBI Circular dated February 13, 2014 stated some of the key requirements for a modern day company as per Companies Act of 2013. Among others, clause 35B included a game-changing directive. Part of the circular mandating how the Board of Directors should be comprised mentions that listed companies need to have at least one woman director. Prior to the directive, less than one third of the total number of companies had a woman director. That meant, the whole Board in a majority of listed companies comprised only of men. If we peek beyond the universe of listed companies, there is a similar trend noticeable outside. It is not uncommon to see a whole Board comprised solely of male directors.
Poor representation of women on the Board of companies is a global phenomenon. The phenomenon is as widely common in the developed world as in the developing world. France, which is among the top five in terms of women representation on the Board of companies, has only 18.3 per cent of women on Board positions. Some highly affluent economies, such as the UAE, has less than 2 per cent of women on Board.
It is appalling to note what followed in the months after the release of the directive in the Companies Act in India. It appears that matters were put on the backburner among a majority of the 980+ companies that did not comply with the new regulation. Citing the sheer number of companies that failed to comply as per the October 31, 2014 deadline, the regulator decided to provide a five-month extension. 450+ companies rushed to appoint a woman director in the last four to six weeks leading up to the April 1 deadline.
While there is research indicating the benefits of having a gender diverse Board of companies, it is a strange irony that Indian companies fall way behind their global counterparts in this aspect. Piyush Mehta, Senior VP HR at Genpact says, “The obvious needs to be stated – it’s 2015 and we still need a government legislation to get corporates to understand that having representation from one half of the human race is important. And I’m not even getting into the proven fact that having women in leadership brings real tangible business benefits like higher returns on investment, lower attrition etc.” Before getting into the depth of why it is important to have women on the Board, one can intuitively sense that here is a problem that needs fixing. One may point this disparity to various cultural, socio-economic and psychological factors. A peek into these may provide insights into the core of the problem that may help in finding answers to the real issue on why India Inc. is still talking about this problem in 2015.
If it’s dry, you’re looking at the wrong talent pipeline
A key consideration for any company during a Board appointment is the current pool or pipeline. When it comes to Board-ready woman leaders in India, one of the biggest hurdles companies face is the small pool. When companies sought to choose both from their internal and external pool of Board-ready woman leaders, they found out that the pool is quite dry. What was going wrong here? Is it fair to assume that in a population comprising 50 per cent in numbers holding 80 per cent authority of buying decisions does not have enough leaders? Clearly, if that assumption is untrue, where lies the real problem?
Well-known management consultant and part of several Boards Rama Bijapurkar, in a recent column, “Beyond the Bahu-beti-biwi-bhanji-on-boards Syndrome” points to a flaw symptomatic of the typical convenience trap that most fall into while selecting members of the Board. Bijapurkar writes, “Nomination committees keep complaining that they cannot find qualified women candidates. That is because they did the lazy, obvious thing of looking for women who fit into a certain profile.” In a world where a typical Board member’s success profile comprises heavily male-centered attributes such as continuous careers, aggressive growth patterns and risky stints, how many such typical profiles of women can the nomination committee come up with?
Without even questioning the legitimacy of such a flawed process, another key point to consider is this—how serious are Indian companies about having woman leaders on Board? Trends indicate, not much. SEBI started out with a threat a week before the approaching April 1 deadline that the penalties for a non-complaint Board may run up to Rs 23 crore in addition to other penalties. SEBI, in the second week of April, released the actual penalty clause for defaulting companies - Rs 50,000 for the first three months. For companies failing to comply even after October 2015, there could be further penalties. Compared to the threateningly high penalty of Rs 23 crore, Rs 50,000 seems to be like a paltry sum of money to get away with default. As an observer, what story does this talk about diversity in India Inc.?
Are nomination committees looking hard enough? There is enough literature stating the difference between the success traits of women and male leaders. A good pool to seek for woman leaders is among the pool, which demonstrates the strength of the abilities a woman brings to the Board. Vipul Singh, VP & Head of HR & Communications, ADP India says, “We currently do not have enough inventory of Board-ready women in India nor have we invested to build this yet. However, we do have a good number of senior women leaders within government and multinational corporations who can be groomed to take up these positions. We need to build a network that aims to nurture corporate governance skills, experience and not let this regulation be a gender issue. The near term consequences of the mad rush could be inadequate guidance to the Boards. But I do expect this to evolve and mature and have a steady flow of such leadership talent soon for companies to appoint.”
The people we interviewed during this investigation outline some of the key strengths that companies should be looking to build as part of its initiative to increase gender diversity of the Board.
Power of decision-making: It is true that women are firmer with decisions and their presence will impact decision-making. Andrea Stone, an experienced Executive Coach states, “Women bring diversity to boards, whether in India or globally, and diversity is acknowledged to improve the quality of decision-making and the overall performance of companies. Multiple studies show that companies with women on boards perform better than those without women directors.”
While looking for Board members, how many nomination committees actually seek to investigate deeper aspects about an individual’s decision-making abilities? Assessing an individual’s decision-making abilities may not happen over experience written on paper, but come more effectively though recommendations, referrals, and targeted assessments. Will Boards go thus far and take the trouble of seeking to build a pipeline of leaders who are recommended by colleagues and clients for their decision-making abilities? While it appears a long-drawn and painful process, it is about time companies admit that looking for candidates in the traditional pool is not the right way to go about building a Board with women leaders. Sure enough, most of the super women who have been recruited currently come from the heavily male-centric pool. These women demonstrate capabilities that extend far beyond the natural order of things. But to expect a large pool of such women is infeasible.
Organizations failing to expand their leadership talent pool and recruiting capabilities to include woman-centered strengths may be among the biggest market losers in the coming times.
Intuition and insight on human issues: Women report greater ability to understand human issues and make rational judgements based on them. As a consequent, Boards with woman representatives are better aligned to make sound judgements than the ones with only male representation. The global research firm, Catalyst, conducted a research in Italy revealing a positive association between female leadership and some key human capital drivers, such as sales per worker, value added per worker, and total productivity. The research concludes that the ability of women directors to make decisions based on their higher cognitive ability to understand human issue enables this direct correlation between the decisions of the Board and the firms’ human capital drivers.
There is also a very noticeable correlation between companies which have women on the Board and the ability of the company to continually innovate. A 2013 research by the Columbia Business School and the University of Maryland reveals a positive correlation between the presence of women on the Board and the predisposition to innovate among employees.
It is safe to conclude that women directors have better insights of human issues in the company, enabling them to steer the Board toward decisions that are more effective. Once again, how many Boards seek this capability while choosing or nominating leaders?
Symbolism or start of a change?
There was a mad scamper for appointing women directors in the Board of companies in the last few weeks leading to April 1. Business Today reported that a sizeable number of companies announced the appointment of a woman family member into the Board as an attempt to comply with the SEBI regulation on the last day. Approximately 200 companies announced the appointment of woman directors on March 30. From this pool, approximately 50 per cent of all appointments by companies in the last hour comprised family members or promoters or executives in the company. The report states that wives and daughters dominate this list of independent woman directors. These developments raise questions about the efficacy of these appointments. Were these appointments merely meant to comply with a regulation? If that were true, have companies simply complied with the word of law rather than conform to the spirit of the law? Stone observes, “Without knowing the effort and selection criteria used to make the recent appointment of many women independent directors on Boards of Indian companies, it is impossible to say with certainty whether these appointments will prove effective. If companies are serious about these appointments and value the contribution that women make in ensuring good governance, then this augurs well for the Indian corporate world in both the short and long term. However, if this is simply tokenism and the objective is merely to comply with regulations without real regard for the contribution women make, then regardless of the competence of these women Independent Directors, this may prove to be a wasted opportunity for Indian companies.”
While these are early days, this inevitable signals the beginning of a change. There is a wide range of untapped opportunities that lie ahead for companies. N.K. Jain, Corporate Advisor and Partner at Global FinServe LLP says, “Wise promoters will seize the huge opportunity to build smart and diverse Boards with a competent woman (preferably independent) being a part of it to listen to voice of a person representing almost (i) 50 per cent of the population (ii) making 80 per cent of the buying decisions at the market place and (iii) having better perception of human issues, to appreciably improve the quality of Board’s decisions and to increase the business valuations. It is a win- win for all the stakeholders. The promoters thinking otherwise will get bogged down by the new legal environment and tend to address it in only in letter and not in spirit by bringing puppets with no independent voice and thus will lose a huge opportunity.”
Backed by a pro-industry government and the economy looking at a phase of steady growth in the coming months, companies will definitely be looking to grow in a strong and sustainable manner in the coming months. In such a scenario, it is a great opportunity for them to look at building diversified competencies at the leadership levels. Appointing women directors will ensure that companies build a fair and sustainable basis of growth. Soumitro Chakraborty, Board consultant and Chief Executive Officer at Fiinovation says, “Corporations should look into capitalizing on the vast pool of talented young women professionals in India who are looking for opportunities to perform in the growing business environment. Therefore, corporations must step forward in recruiting women board members with specialization in diverse competencies who will bring a fresh outlook to corporate business strategies and decision making. What should be taken into cognizance is that amidst the number game, the corporations should not miss out on the opportunity of value creation.”
It is a great time for India Inc. to capitalize on this opportunity to strengthen its pipeline of Board-ready women leaders. Norway was among the first nations mandating the participation of women on the Board of companies. Ever since its introduction, the number of women on the Boards of companies in Norway rose from a mere 3 per cent in 2003 to more than 40 per cent in 2012. India Inc. too has a great opportunity to build a strong pool of women leaders. There are several examples that demonstrate that with the right level of commitment, companies can find great women Board leaders.
Most women Board selections presently appear to revolve around the pool of bankers and chartered accountants. But beyond these, there lies a large pool of Board-ready women leaders in the government sector. There is also a sizeable pool of senior leaders in the bureaucratic ranks, which organizations can look at as a potential pool. Lastly, there are several women leaders who demonstrate entrepreneurship both in the for-profit and not-for-profit sectors. While these profiles reside outside the traditional pool, organizations that start looking out in these pools will be much better placed to have gender-balanced Boards in the coming times. Are there any alternative pools of Board-ready women leaders in India that you can think of?