Just a woman director or an independent woman director? Sebi to examine

MUMBAI: Market regulator Sebi has said it will examine whether the mandate for Indian companies to have at least one woman on board should specify the requirement as an “independent“ woman director.
"We will examine whether women should be independent director or not as the representation of women on boards improve," said Ajay Tyagi, chairman, Sebi.

Independence of directors is a serious issue, Tyagi said. He was speaking at the NSE auditorium at the launch of a study by Women on Corporate Boards (WCB) Mentorship Program, Institutional Investor Advisory Services, a proxy advisory firm, and Prime Database Group. The study shared exclusively with ET, evaluated 4,690 women directors. "It is a very difficult issue and various other regulators including the government have to be brought in. We are committed to dig deeper into this issue," he said. Also, there is the larger issue of corporate governance which is engaging Sebi attention now.

The Companies Act of 2013 mandates a certain class of companies to have at least one woman director on board. Sebi, in compliance with the Companies Act 2013, made it compulsory to have at least one woman on a board from October 2014.

There has been a wide view that there is a need to specifically mention the word "independent" while mandating gender diversity so that women directors get appointed beyond the promoter family and it does not turn into a tick-box exercise.

Interestingly, a study shows that a large proportion of women directors (60%) are independent -which is contrary to the popular notion that women directors are only getting appointed from the promoter family to comply with the regulations.

The study shows that female representation in the NIFTY 500, which was at 5% as on March 31, 2012, has increased to 13% as on March 31, 2017. "What we need is a change in mindset. If one goes with an open mind, the representation of women on boards will be much higher," said Tyagi.

"What we really are looking at as the road ahead while mandatory part is by and large covered there is adequate acceptance of fact that women bring diversity in much broader sense not just gender," said Ashok Chawla, chairman, NSE.

Clearly more needs to be done. At 13%, women are still underrepresented in board roles despite constituting a significant portion of the talent pool in corporate India. This is much lower than countries like Norway (39%), France (34%), UK (23%), and US (21%). Only 26 boards in the NIFTY 500 had three or more women directors on 31 March 2017. 15 companies had no female representation on the boards, as compared to only six companies in the S&P 500 on 31 March 2017, the study shows.

A recent IMF study says firms with a larger share of women in senior positions have significantly higher return on assets (ROAs). The study states that replacing one man by a woman in senior management or on the corporate board is associated with 8­13 basis points higher ROAs. This is corroborated by a 2015 MSCI study, which concluded that companies in the MSCI World Index with female leadership (at least three women directors or female representation higher than country average) generated a return on equity (ROE) of 10.1% versus 7.4% for those without.

"Where we are falling short is probably not emphasising that one woman on board is tokenism ...we need to get there where we recognise the fact that we need more than one," said Zia Mody , managing partner, AZB & Partners.

"Corporate India will soon find that this diversity is not only to meet the regulation but to help improve the performance of a company ," said Arun Duggal, co-founder, Women on Corporate Boards (WCB) mentorship programme, and chairman, ICRA.

Anjali Bansal, a co-founder, WCB mentorship programme, said: "We are seeing the need to grow the programme. Very soon we will look at increased effectiveness of all members on board which is gender agnostic and start a programme that will be for men and women."