Trimester VI Course: Legal Aspects of Business 14 Dec 2019

Women Director in Indian Companies

Course: Legal Aspects of Business

Submitted To: Dr. Neeti Shikha
Submitted By: - Saurav Kumar (Roll No. 40)
Trimester VI Course: Legal Aspects of Business 14 Dec 2019

Contents

Introduction ..................................................................................................................................... 3

Mandatory Requirement of Appointment of Women Director as per the Govt of India ................ 4

Duties and Liabilities: ..................................................................................................................... 4

Representation of Women Directors in Companies........................................................................ 6

Gender Diversity in Board and Notable Improvement ................................................................... 7

Comparison with European Nation ................................................................................................. 9

Conclusion .................................................................................................................................... 11

Bibliography ................................................................................................................................ 12
Trimester VI Course: Legal Aspects of Business 14 Dec 2019

Introduction
The principle of gender equality has been enshrined in the Indian Constitution in its preamble,
fundamental rights, fundamental duties and directive principles of state policy, but despite such
unambiguous equal rights given to both men and women Indian society is always male dominated.
The work place is a setting where gender inequalities are easily noticed. Men always get the top
positions in companies whereas working women are frowned upon. But with the modern era the
status of women is changing. The Government of India has propagated many laws for the
empowerment of women. One such revolutionary initiation taken by the Government is the
appointment of at least one-woman director in certain class of companies’ board of directors under
the land mark legislation The Companies Act 2013. The second proviso to section 149 (1) of the
act makes it mandatory every listed company shall appoint at least one-woman director within one
year from the commencement of the second proviso to Section 149(1) of the Act.

Every other public company having paid up share capital of Rs. 100 crores or more or turnover of
Rs. 300 crore or more as on the last date of latest audited financial statements, shall also appoint
at least one-woman director within 1 year from the commencement of second proviso to Section
149(1) of the Act. A period of six months from the date of company’s incorporation has been
provided to enable the companies incorporated under Companies Act, 2013 to comply with this
requirement. Therefore, the existing companies has to comply the above requirements within one
year and new companies incorporated under the new companies act has to comply within 6 months
from the date of its incorporation. Further if there is any intermittent vacancy of a woman director
then it shall be filled up by the board of directors within 3 months from the date of such vacancy
or not later than immediate next board meeting, whichever is later. This has been a welcome move.

India is not the first country to do so; many others like Norway, France, Italy, Spain, and Belgium
have already implemented such steps by introducing legislation or quota which makes it mandatory
to appoint women directors in a company’s board. The board of directors of a company is the vital
governing body and directors are ultimately responsible for stable highly efficient and profitable
running of the concerned company, safe guarding of the interests and progress of the company and
its stakeholders.
 Trimester VI Course: Legal Aspects of Business 14 Dec 2019

Mandatory Requirement: Appointment of Women Director

As per second Proviso to Section 149(1) read with Rule 3 of The Companies (Appointment
and Qualification of directors) Rules, 2014 (Chapter 11), the following class of companies
are required to appoint at least one Woman Director-
(i) every listed company;

(ii) every other public company having –

(a) paid–up share capital of 100 crore rupees or more; or

(b) turnover of 300 crore rupees or more.

For appointment of Women Director, paid up share capital or turnover, as the case may be, as on
the last date of latest audited financial statements has to be taken into account.

Time Frame for appointment: The Companies which were incorporated under The Companies
Act 1956 and companies which were covered by Section 149 (1) were provided with the time limit
to comply with such provisions within a period of 6 months from the date of its incorporation.
Further as per interpretation other existing Companies were required to appoint Women Director
within a period of 1 year as mentioned under Section 149(2).

Intermittent Vacancy: In case of any intermittent vacancy of woman director the same has to be
filled-up by the Board at the earliest but not later than immediate next Board meeting or three
months from the date of such vacancy whichever is later (Rule 3 of Companies (Appointment and
Qualification of Directors) Rules, 2014 hereinafter referred in this chapter as Rule).

Duties and Liabilities:

The following duties and liabilities have been imposed on the directors of companies, by the
Companies Act of 2013: —

 A director of a company shall act in accordance with the Articles of Association (AOA) of the
company.
 A director of the company shall act in good faith, in order to promote the objects of the company,
for the benefits of the company as a whole, and in the best interests of the stakeholders of the
company.
 Trimester VI Course: Legal Aspects of Business 14 Dec 2019

 A director of a company shall exercise the duties with due and reasonable care, skill and diligence
and shall exercise independent judgment.
 A director of a company shall not involve in a situation in which she may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of the company.
 A director of a company shall not achieve or attempt to achieve any undue gain or advantage either
to herself or to her relatives, partners, or associates and if such director is found guilty of making
any undue gain, she shall be liable to pay an amount equal to that gain to the company.
 A director of a company shall not assign her office and any assignment so made shall be void.
 If a director of the company contravenes the provisions of this section such director shall be
punishable with fine which shall not be less than Rs.1,00,000/- but which may extend to
Rs.5,00,000/-.
Qualification / Industry Experience: The Companies Act, 2013 does not prescribe any
qualifications or minimum industry experience criteria for candidature as Women Director of any
applicable company.
Trimester VI Course: Legal Aspects of Business 14 Dec 2019

Representation of Women Directors in Companies

To understand the trends on female representation and the efficacy of the new regulations,
Institutional Investor Advisory Services (IiAS), Women on Corporate Boards Mentorship Program
(WCB) and PRIME Database Group have jointly conducted a study on the board composition of
the NIFTY 500 companies, which represents more than 95% of the of the free float market
capitalization of the stocks listed on the National Stock Exchange (NSE) as on 31 March 2017.
The study covers 4,690 directors: the study classifies these directors across multiple categories
(professionals, independent directors, promoter representatives and nominees). The research also
examines global trends and how India compares with the developed markets in terms of gender
diversity. A brief profile of the companies and directors covered under the study is provided below
for reference:
Trimester VI Course: Legal Aspects of Business 14 Dec 2019

It has also been seen over the years that big organizations have started accepted the fact that
inclusion of women in board improves the company overall performance. Women have given a
new dimension of thought and offered its services to the wellbeing of the company and employee.

The effects of the regulatory push are clearly visible in the board mix trends – from 5% female
representation in 2012, the board composition is significantly more inclusive now with women
constituting around 13% (622) of the total directors (4690) in the NIFTY 500. Without accounting
for multiple directorships, there were a total of 477 unique women directors in these companies as
on 31 March 2017.

Gender Diversity in Board and Notable Improvement

Performance of Women Directors: Women on Board More Returns The mandatory requirement
of having at least one women director was first codified in the Companies Act 2013, which became
effective from 1 April 2014. Soon after, SEBI put out its new listing regulations which had a
similar norm for enforcing gender diversity. More women on board does not only mean the mode
to attract sales and production but also creates some public image. It does increase financial return
as well rather than mere media attention. In terms financial returns means that the return on equity
(ROE) increases. The study reveals that the board of a private sector company, run by a
professional CEO with a mix of both men and women, helped ROE rise by 4.4% in 2014 over the
last year. In contrast, a similar company with a men-only board saw its ROE rise by a mere.1.8%
in the same period. Certain other examples would be Chanda Kochhar, who heads ICICI bank and
Trimester VI Course: Legal Aspects of Business 14 Dec 2019

Kiran Mazumdar Shaw, director of Biocon Limited has shown a positive difference on return on
equity. All the above analysis shows that there has been an increase in women participation on the
boards and also the highlight of the entire legislation is that gender diversity has been addressed
through initiating a move towards women on board. Failure to address such gender diversity would
lead to serious economic consequences in future. Moreover there are so many countries which
leave women unrepresented. Change gets accelerated only when there is dynamism in the mind
set of people. It sounds as a warm welcome by stating that “such class or classes of companies as
may be prescribed, shall have at least one women director”.These words mean to say no restriction
being imposed in having number of women directors on the board. In a country like India where
the scope for litigation is likely to be booming in the field of corporate and IP litigation where the
future would rest, such legislation would bring in more clarity in specifying the rights of different
genders and thereby avoiding unamicable issues. This improves corporate transparency. However
certain companies such as RPG Enterprises Ltd, Essar Group, Mahindra and Mahindra Ltd are
among the large conglomerates who are looking at bringing in women from government agencies,
academic and research institutions, non-profit organizations, and audit firms, as most of the
eligible women in the corporate world are already part of many boards. All listed companies must
have at least one woman director on their board, according to new corporate governance norms
finalized by capital market regulator Securities and Exchange Board of India (SEBI).

This small proportion of directors can be only on the boards of seven listed companies, which
further restricts options for companies on the lookout for women directors, this is according to
SEBI’s guidelines. Henceforth, need for women director in Indian companies has become
inevitable. This is a good sign for the corporate growth in the country. There are many reasons for
scarcity of representation of women in senior leadership positions. Experts say that women on
boards lead to more profitability and sustainability. Thus, the 2013 landmark enactment has paved
way for gender diversity and more women participation.
Trimester VI Course: Legal Aspects of Business 14 Dec 2019

Comparison with European Nation

The European markets have taken the lead in promoting gender diversity, with most of them having
adopted regulatory quotas for female representation. Norway was one of the first countries to set
a benchmark - in 2003 the Norwegian government passed a law that required companies to have
at least 40% of board members to be women. The law came into effect in 2006 and it stipulated
that, after an initial grace period of two years, a failure to achieve the 40% quota would invite
regulatory action. The approach was subsequently adopted by other countries including France,
Germany, Italy, Belgium and Denmark. The laws in these countries have resulted in a surge of
women director appointments since the last decade. For example, as per a 2015 Corporate Women
Directors International (CWDI) report11, female representation in Italy went up from 1.9% in
2004 to 25.8% in 2014. In France, the number increased from 7.2% in 2004 to 30.2% in 2014.
Clearly, companies have responded to the regulatory sanctions.
Trimester VI Course: Legal Aspects of Business 14 Dec 2019

The data suggests that India still lags on some key metrics. Only 21% of NIFTY 500 boards have
two or more women as compared to ~80% in some other markets. On average, India has 1.2 women
directors on boards, which is significantly less than its European and US peers. Even on committee
memberships, women directors are underrepresented in India. India Inc. has made a good start in
adopting gender diversity. Although, it is one of the first developing countries to push for female
representation, it still has some way to go to catch up with developed markets, where the average
proportion of women directors generally ranges between 20%-40%.
Trimester VI Course: Legal Aspects of Business 14 Dec 2019

The Way Forward & Conclusion

Given the nascent stage of the regulations in India, available literature on the impact of mandated
gender diversity on Indian boards is minimal. However, there is a long list of academic research
globally, which suggests there is a direct correlation between gender diversity and financial
performance. Consequently, multiple jurisdictions around the world have framed laws to enforce
higher female presence in boardrooms – either as a mandatory threshold or as a voluntary target.
In India, the beneficial impact of the stipulated gender quota will play out only over the next few
years, as companies adjust their board composition to include more women directors. By pushing
for gender diversity, the regulators have taken the first step. But, mandating only one-woman
director may not help achieve the final objective of ensuring gender parity at the leadership levels
in corporate India. Companies must raise the bar and must target to have 20% of their boards
comprising women by 2020. In the interim, companies must attempt to have at least one woman
as an independent director on their boards over the next 18 months. Informal discussions reveal
that several market participants, professionals, board members, and corporate managers support
this goal. Companies, on their part, need to pick up the baton and take this initiative forward.
Gender diversity is not a regulatory or compliance exercise – along with structural changes in the
board composition, it requires a shift in the corporate mindset. To reap the full benefits of diversity,
companies have to embrace the legislative intent and put in place systems and processes which
will end discriminatory practices and create an environment which allows for equal opportunity
and collaboration. For example, in the UK, the 30% Club launched in 2010 has set a goal to achieve
a minimum of 30% women on the FTSE-100 boards – currently that figure stands at 27%, up from
12.5%. The 30% Club has now extended its original target – it has set a goal of 30% women on
FTSE-350 boards by 2020 (currently at 23.2%). In tandem – and in order to ensure that this 30%
remains sustainable – the 30% club also established a pipeline target of a minimum of 30% women
at senior management level of FTSE-100 companies by 2020 (currently women make up 19.4%
of FTSE 100 Executive Committees). The ultimate test of the impact of the forced gender diversity
is if companies begin to experience the difference, resulting in a stronger buy-in of the idea.
Therefore, we believe that market participants – companies, industry bodies, investors, and
regulators – must together commit themselves to the goal of gender diversity.
Trimester VI Course: Legal Aspects of Business 14 Dec 2019

Bibliography

Books

Dr. Neeti Sikha, Changing Paradigm of Corporate Governance in India

Online Reference

https://www.mca.gov.in/SearchableActs/Section149.htm

https://www.msci.com/documents/10199/04b6f646-d638-4878-9c61-4eb91748a82b

https://economictimes.indiatimes.com/jobs/many-companies-still-to-induct-woman-independent-
director/articleshow/67733197.cms?from=mdr

https://www.icsi.edu/media/portals/0/APPOINTMENT%20AND%20QUALIFICATIONS.pdf