The best-run companies across the world differentiate themselves from mediocre ones by adopting high standards of corporate governance. Even so, tighter regulations have placed an increasing demand on companies to be more responsive to investors, to engage shareholders and protect minority interest.
And then, corporations themselves are realising the value robust governance standards have on their brand and long-term performance.
The reality is that corporate governance is not just a box-ticking exercise to meet regulatory requirements, but a business imperative. All companies — big and small, private and public, early stages or established, even family-owned — need to be concerned about, and stand to benefit from, strong corporate governance.
Infusing gender diversity in corporate boardrooms is easily one of the most effective ways of ensuring boards truly add value. There can be little doubt that diverse, and professional boards are a strong indicator of a well-run company.
As a growing body of research shows that including female directors on boards has a direct and positive impact on a company’s profile and risk management, India Inc is waking up to the potential benefits that accrue through a diverse talent pool, thinking, perspective, and skill-sets.
Women add value to corporate decision-making, and the results are there to see in the form of improved financial performance and shareholder value, increased customer and employee satisfaction, rising investor confidence, greater market knowledge, innovation and reputation.
According to a 2015 Grant Thornton report, ‘Women in Business: the value of diversity’, publicly traded companies on NSE CNX 200 with all-male executive boards missed out on annual investment returns of £9 billion in India. That is not all. Companies with diverse boards outperformed male-only boards, translating into an opportunity cost of $14 billion.
India has been consistently raising the bar for implementation of best corporate governance practices. The introduction of the Companies Act, 2013, and the Securities and Exchange Board of India (Sebi) regulations have been important milestones in that direction.
In keeping with the requirement of Section 149 of the Companies Act, 2013, under corporate governance norms, Sebi mandated in April 2014 that all listed companies appoint at least one woman director on their board by October 2014. This was later extended by six months to April 2015.
Many companies reacted by rushing to make such appointments in the last few days without following the due process, or merely elevating women family members on the boards in one fell swoop on the day of the deadline.
Not surprisingly, in over 40 per cent of the compliant NSE-listed companies, these women directors are non-independent, putting into question the true independence of such boards.
Companies in search of true diversity should look beyond the relatively small inner circle of familiar corporate boardroom faces to find equally qualified individuals who can offer fresh perspectives.
Clearly, the progressive and well-thought out measure has turned out to be the proverbial tortoise. Companies are taking their own time to walk the talk. In March last year, Sebi wrote to companies to ensure compliance after it was informed by stock exchanges that one-thirds of the top 500 listed companies do not have any woman on their boards.
A year later, not all have complied with the law. What is worse, there is little information about the unlisted registered companies that fail to comply with the regulation. At IFC, we have seen that the inclusion of women at the leadership tier leads to a stronger private sector. In our own investee companies, we have almost reached the target of 30 per cent female representation for IFC-nominated director positions, and we aim for full parity in the near future.
Good governance standards is without doubt a key factor an investor looks out for before deciding in favour of putting money into a particular company. It should be the one item where the government must keep the eye on the ball to improve the health of Corporate India and the country’s investment climate both.
The writer is Regional Corporate Governance Lead, South Asia, International Finance Corporation
