Why the one-woman director rule in companies is not enough for gender diversity

When Pepsico CEO Indra Nooyi, one of the most prominent female leaders of a Fortune 500 company, steps down in October, she would augment the share of female CEOs dropping by 25 percent in just half a year in 2018. Not to undermine the women newcomers in top corporate positions, but this sharp decline throws open many vital perspectives. Is it due to the tremendous barriers that women face or rather is it falling off, what scholars popularly call, a glass cliff?

Proponents of greater diversity in the corporate world contend that female representation infuses a different perspective, intuitiveness, and a more collaborative style of leadership in corporate boardrooms. Several countries have adopted legislations to promote diversity at the leadership level leading to a snowballing effect. This was spearheaded by Norway and followed by Italy, France, UK, US and most recently India.

The Indian Companies Act, 2013 brought about this change by making at least one woman director mandatory on the boards of listed companies and on companies with a certain threshold of turnover. In October 2017, the market regulator Securities and Exchange Board of India recommended the inclusion of at least one ‘independent’ woman director on the boards of listed companies.

The reality, however, is starkly different.  The change worked only on paper. Several companies appointed relatives and family members on boards, thereby paying mere lip service to law. As on January 26, 2018, of the 1,723 NSE listed companies, 1,667 companies met with the mandate of one-woman director. But note that 425 companies have women from the promoter group or family.

An uptick in the number of new laws for empowerment of women at workplaces has been noticed in recent years. Examples: Sexual Harassment of Women at Workplace (Prevention and Protection) Act, 2013, to protect women at workplace to the Maternity Benefit (Amendment) Act, 2017, to protect the employment of women during the time of their maternity and provide them with a right to a full paid absence from work and to have mandatory creches for any establishment, employing 50 or more employees and an enabling provision of ‘work from home’ to make life safer, simpler and empowered for women.

The Narendra Modi government created a promising ‘Beti Bachao, Beti Padhao’ slogan and as far as legal enactments are concerned, it seems to have lived up to it. But whether the recent enactments would lead towards an environment enabling the next stage, i.e.  ‘Beti Badhao’ too, is a question that still needs to be addressed.  One of the examples of a clear lack of enabling environment is the perception about the financial credibility of women, as bank loans for women are still difficult, given that they are unable to provide collateral and the banks insist on a co-applicant in case a single woman applies for a loan. Reports show that only 14 percent of economic activities are owned by women compared with the United States, where women now own more than a third of US businesses.

By having only a mandate of one-woman director companies may not be able to fully realise the potential of gender diversity as an actual driver of change and efficiency as has been seen globally. Whether one mandatory woman director will suffice is a question, especially considering a mandatory 40 percent women board quota existing in the case of Norway.

Be it as it may, in the case of numbers, the larger question is whether there is a level playing field for women in India like in case of Norway. The real tragedy in corporate India is that most companies do not support fresh talent and professionals on boards. Companies, on their part, need to embrace diversity and put in place systems and processes that will end discriminatory practices and create an environment that allows for equal opportunities. It has been found in a number of studies that firms with a larger share of women in senior positions have significantly higher return on assets and when an organisation is in a crisis, it thinks of a woman.

Today, majority of companies do not have mandatory creches for children and pick and drop facilities for women or an option to work from home so that women employment can thrive. Even outside of the corporate sphere, a social structure where men share responsibilities to ensure a work-life balance is in a disarray and there is always a lurking fear of a perpetual trade off or an inevitable collateral damage in their personal lives. In such a scenario, can a single aspect of change in letters of law be sufficient? Not quite.

To work the law both in letter and in spirit, not only is a more independent woman board needed, but a conducive environment also needs to be evolved which encourages women to take up realistic positions of power and dissuades tokenism only to ape developed country laws. It will take corporates, industry bodies, regulators, and investors to push for the agenda requiring a complete shift in the corporate mindset to embrace the legislative intent and put in place practical solutions on the ground to create an environment that allows for equal avenues for development and diversity in the corporate DNAs of Indian companies. The society, needless to say, has to follow suit.