Addressing the women directors’ conclave at the Bombay Stock Exchange (BSE) headquarters in Mumbai on September 16, Finance Minister Nirmala Sitharaman wondered why women representation on boards of directors of India Inc is so farcically and abysmally underwhelming, when they constitute 50% of the population. She is right. Logically, 50% of the board strength should be female just as 50% of Lok Sabha strength should be female. But is the Lok Sabha adequately represented by women? No, there are 462 men and 81 women in the Lok Sabha, translating into 85.08 % and 14.92% respectively. The skew in favour of testosterone-driven males is overwhelming in the Lok Sabha, the House of People. Small wonder that the representation of women on company boards too is pathetically low. The microcosm mirrors the macrocosm.
The minister shared that only three-fourths of the listed firms on the NSE have appointed at least one woman as an independent director, as mandated by the listing regulations. Data from Prime Database shows that there are 2,350 women and 10,356 men holding positions of directors at listed firms. Prima facie, it may appear our corporate democracy respects women more than the political democracy does — 18% vis-à-vis about 14.92% — but, like in panchayats where women’s representation is constitutionally mandated at a much higher one-third level, domineering men use women of their household as proxies for themselves and do considerable backseat driving.
Norway is cited as a leading country, with avantgarde legislation harking back to 2008 mandating minimum 40% representation of women on the boards of its listed companies — though this may have something to do with Scandinavian chivalry. Prime Minister Narendra Modi has done well to give the highest representation ever to women in his cabinet — out of the 78 ministers in the expanded ministry, 11 are women. This is the highest number of women in the Union council of Ministers in the last 17 years. To be sure, this translates into a measly 14% representation but at least there has been a conscious attempt at drafting women into the cabinet to whatever extent possible.
There is a view that women’s presence has a sobering influence on obstreperous male board members, and that financial propriety too is more scrupulously and strictly adhered to in the face of the grim prospect of being shamed in front of women. There is of course no empirical evidence to prove these psychological vignettes of male behaviour, any more than there is evidence to prove that men are from Mars and women are from Venus. The finance minister would thus do well to usher in board reforms which perhaps would automatically correct the current skew in favour of men on our boards.
As it is, one can be a director of 20 companies simultaneously so long as there is a judicious mix of 10 private and 10 public. This encourages persons, especially celebrities, to flit from one board meeting to another desultorily, attracted by the generous sitting fee of Rs 1 lakh that is the maximum. Directorships are perceived as ornamental for the directors and something to boast about for the companies. It is time this notion is done away with. The cap on directorship of public companies must be reduced to three or four per individual. This will create space for others, including women. And the minimum strength of independent directors which is at present just two in select companies — namely, public companies having paid up share capital of Rs 10 crore or more, or public companies having turnover of Rs 100 crore or more, or public companies which have, in aggregate, outstanding loans, debentures and deposits exceeding Rs 50 crore — should be hiked to five or six on a progressive scale of public exposure instead of the present one-size-fits-all. This too would in due course create space for women’s participation.
Above all, Ms Sitharaman must address the issue of conflict of interest fostered by cross-holdings and mutual back-scratching tendencies. A founder director of a prestigious bank may be wooed by the who’s who of private sector giants to be on their boards as well. This is common both in the USA and India. And this licentious regime is given a leg up by the generous limit of directorships in 10 public companies. So, let us say a bank promoter is also on the boards of a steel firm, an airline and eight other assorted public companies belonging to different sectors. Now comes the conflict-of-interest situation. While her bank considers loan applications from these companies, she is supposed to scrupulously sit out and abstain from participating in the deliberations concerning the loan applications of these companies and above all abstain from voting. These are well-intentioned rules against mutual back-scratching tendencies so rampant and common in businesses. Yet, people in the know aver that they are followed more in breach than in compliance. To be sure, the interested director might scrupulously avoid voting — because that leaves a visible audit trail — but do everything else including lobbying with other directors, exiting the boardroom only when it is time to vote. Time the FM cracked the whip on this pernicious practice by introducing more sensible restraints like reading the riot act to company secretaries turning a blind eye to the licentious behaviour of directors bordering on cosy-club backslapping bonhomie. Better still, prohibit the very practice of converting boards into cosy clubs.
There is a view that having directors from diverse industries and sectors is conducive to better management, but not necessarily — just as the belief that academics are less prone to the temptations of moolah is hogwash. The Satyam Computers scam happened in the presence of a board with a sizeable representation of academia.
The larger point of this article is that the finance minister must address broad issues that call for corporate board reforms, and not be excessively obsessed with righting the testosterone balance on boards. Of course, female representation is important but that will come when our legislatures wake up first and blaze a trail. And also, after we create space for them by limiting the role of “professional” company directors who collect directorships like maharajas of yore collected trophies.
The writer is a freelance columnist for various publications and writes on economics, business, legal, and taxation issues