Women as Directors in the Indian Corporate Structure
The Companies Act, 2013 (hereafter referred to as 2013 Act) is a landmark legislation in the history of corporate India. The 2013 Act focused on strengthening board governance, reduce the number of government approvals etc. The legislation aims to bring the Act in consonance with the growing trend in business. The Act made the appointment of women directors mandatory in the Board of Directors (hereafter referred to as BOD) of the companies. This is a welcome move towards bringing gender equity in the corporate sector.
Table of Contents
- Significance of Women Director on Board
- Corporate Governance and Women Directors
- Women as Directors under the Companies Act, 2013
- Time frame for appointment of Women Director
- Intermittent Vacancy
- Private Companies to appoint Women Directors
- Roles and Responsibilities
- Women Director as an Independent Director
- Appointment of Women Director on Rise
- Consequence of failure to appoint a Women Director
- Global Representation of Women on Board
Significance of Women Director on Board
- According to experts companies with woman directors deal efficiently with risks.
- Communication skills of woman are considered better than man.
- Research study proves that the presence of women on Board has a positive influence on shareholder value at the global level.
- Women focus more on long term prospects.
- Women are considered to be more careful in supervision.
- The presence of women on the Board helps to change the dynamics of the Board.
Corporate Governance and Women Directors
A study conducted by the Conference Board of Canada in May 2002 shows link between women and corporate governance.
The study reveals that a gender balance board tends to-
- Pay more attention to audit and risk oversight.
- Considers the need of more categories of stakeholders.
- Examine a wider range of management and organizational performance.
- 72% of board with 2 or more women conducts formal board performance evaluations while only 49% of all male board do.
- Organization that provide board of directors with formal orientation programme have a greater percentage of women directors than organizations with no such programme.
Women as Director under the Companies Act 2013
According to Section 149 of the 2013 Act and Rule 3 of Companies (Appointment and Qualification) Rules, 2014, the following class of companies are required to appoint atleast one women director: –
(i) every listed company;
(ii) every other public company having paid–up share capital of one hundred crore rupees or more;
(iii) every other public company having a turnover of three hundred crore rupees or more.
Time Frame for Appointment of Women Director
A company incorporated under the Act and covered under the provisions of the second proviso of section 149 have to appoint one woman director within six months from the date of its incorporation.
Section 149 (2) clarifies that every company existing on or before the date of commencement of this Act shall within one year from such commencement of this Act.
In case any intermittent vacancy of a woman director arises, then it shall be filled-up by the Board at the earliest but not later than
- Immediate next Board meeting or
- three monthsfromompanies (Appointment and Qualification of Directors) Rules, 2014.
Private Companies to appoint Women Directors
It is important to note that apart from Public companies, even Private companies can be mandated to appoint a woman director. It is because Private company that is a subsidiary of a Public company, is also considered as a Public company.
Thus, when a Private company is a subsidiary of a Public company, then the Private company would also require to appoint atleast one woman director.
The requirement of appointing a woman as a director of the company was not present in the Companies Act, 1956. However, the 2013 Act by introducing such provision have shown a significant change.
Roles and Responsibilities
The 2013 Act does not lay any specific roles and responsibilities on women directors. However, the general duties of directors are as follows: –
- Director to act in accordance to Articles of Association;
- Act in good faith;
- Exercise duties with due and reasonable care;
- Not involve in a situation of their direct or indirect interest that conflicts with the company’s interest;
- Shall not achieve or attempt to achieve any undue gain or advantage to himself or his relatives, partners or his associates. Having done this, the director will be liable to pay a penalty of an amount equal to the gain, made by him, to the company;
- Not assign his office as such assignment shall be void;
- In case of any contravention of the above-mentioned duties, the director shall be punishable with fine not less than 1 lakh rupees which may extend to 5 lakh rupees.
Woman Director as an Independent Director
The appointment of an Independent director is made mandatory by the 2013 Act. An independent director is a person that does not have any material or pecuniary relationship with the company. Besides this, they should not have any relative who has a pecuniary relationship with the company. Such directors help the company to improve corporate credibility and governance. They ensure that the company works toward the maximization of shareholder welfare.
SEBI (Listing of Obligation and Disclosure Requirements) Regulations, 2015 mandates the top 1000 listed entities to have atleast one independent woman director.
Thus, if the company falls within the 1000 listed entities, then the appointment of one Independent woman director is necessary. However, if the company does not fall within the 1000 listed entities, then they would have to comply with the requirement of having a woman director under the 2013 Act.
Appointment of Women Directors on Rise
The number of directorship held by women is on the rise by nearly three-fold from nearly 6% in March 2014 to 17% at the end of December 2020.
An Iias study reveals that at the end of December 2020, out of 500 Nifty companies, 475 companies had atleast 1 woman director on the Board.
Further, India ranks 12th in presence of women members on board, globally, according to a recent study called ‘Women on Board 2020’. The study was jointly conducted by the global recruitment tendering platform MyHiringClub.Com and Sarkari-Naukri.info
This reflects the intent of the Indian corporates to welcome more female directors in the companies.
Consequence of failure to appoint a Women Director
The 2013 Act does not prescribe any separate penalty for non-compliance of women director. However, Chapter XI consisting of Section 149 to 172 deals with appointment and Qualification of Directors.
By virtue of Section 172 which provides for non-compliance of any of the provision of this chapter (Chapter XI) for which no specific penalty is provided therein,
- The Company
- Every officer of the company
shall be liable to a penalty of fifty thousand rupees and in case of a continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues.
However, this can go to a maximum of three lakh rupees in the case of a company and one lakh rupees in the case of an officer who is in default.
Global Representation of Women on Board
Percentage of Women Directorship in 2019
Source: Catalyst Census
Post Enron, Satyam and other scams, the time has come for corporates to look towards women to bring in fresh ideas and change the perspectives of their companies.
It can be observed from the various studies that the percentage of women being on the Board is on the rise. However, the tenure of women on the Board is far less than the tenure of men on the Board. Further, India still continues to route behind the global standards in including women in the company’s Board.
Though the 2013 Act and the Rules thereunder are trying to bring gender equality in the Indian Corporate sector, but it would take time for the patriarchy driven corporate sector to accept woman and their contribution equal in Boards as that of men.
For giving women equal opportunity to occupy a higher position in the corporate sector, the legislation should mandate fifty-fifty reservation opportunity for both men and women.
The appointment of at least three women on the Board should be made mandatory.
The concerned authorities should appoint, train and promote more women on higher position.