Why Indian family businesses still don’t have space for women4 min read . Updated: 28 Sep 2020, 10:39 AM IST
- The question of qualification often comes up as a big issue, with some families still believing that women may not be capable enough
Valli Arunachalam’s fight to find a space in the all-male board of her 119-year-old family business is a reminder of the struggles women continue to face in the corporate world and the widespread gender bias that continues to haunt the Indian workplace.
A nuclear scientist, with ample work experience and education, Arunachalam wants a board seat on Ambadi Investments Ltd (AIL), the holding company of Chennai-based $5.7 billion Murugappa Group, of which her late father M.V. Murugappan was the executive chairperson. The 59-year-old alleges the members of her family “cannot tolerate women in their boardrooms," which is why they, she claims, have appointed a 23-year-old male heir to the board.
This has always been the tradition, points out Rajiv Agarwal, professor of strategy and family business, Bhavan’s SPJIMR. “Traditionally, since the women successors or heirs were believed to leave the family of origin after marriage, they would be given a portion of the family wealth. The business would be handed over to male heirs. Today, there are multiple dynamics playing out. There are more women successors who are part of the family business, are equally or more competent than their male counterparts," he explains.
The question of qualification often comes up as a big issue, with some families still believing that women may not be capable enough. In 2013, for instance, Madhu Kapur fought a legal battle with her brother-in-law and co-founder of Yes Bank Rana Kapoor to get a say in the nomination of her daughter Shagun Gogia for a board seat. Besides wanting to assert her rights as a legal heir to the business, Kapur also proved that her daughter was qualified enough to take a board position. The Bombay High Court passed the judgement in her favour two years later.
In some cases, the board seat becomes elusive for women successors as they may own less percentage of shares in the business. “Equal right is mainly determined by the percentage of ownership, even if she has the ability, experience and education. It’s still a challenge for women to get on the board of their generation old family business," says Vinod Surana, managing partner and CEO, Surana & Surana International Attorneys, whose firm handles family business succession planning and conflict resolution.
According to a 2018 study by Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business, the number of women directors had gone up from 4.9% in 2013 to 14.3% in 2017. This steady rise could be as the result of the strict implementation of the Companies Act (2013), which mandates listed companies to have at least one woman director on its board. In fact, the number of women directors was 15.2% (2017) in standalone family firms, as compared to 13.7% (2017) in family business group affiliated firms.
The figures can’t be taken at face value, though. The regulatory requirements play a huge role in the numbers going up, as standalone family firms comply with the regulations much faster and it’s easier for them to bring women from their families on the board. However, these boards are more lenient about who can qualify as board members, Prof. Agarwal says.
In a family business group affiliated firms, on the other hand, since it has many listed companies, there are many more independent directors on the board. "The family business group affiliated firms are generally larger, with more institutional investors and better board quality. It may be difficult for them to appoint their own family members to the boards as the independent directors may oppose it if the family member does not have relevant experience and qualification. Meritocracy should be the only criteria when appointing someone to a business board. Gender and/or entitlement by virtue of being from the family should be out of the equation," point out Nupur Pavan Bang, co-author of the study, and associate director of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business.
If the board rejects a nomination based on lack of relevant qualification, it might be important to check the qualifications of all the members, Agarwal opines. “The true test of this is to check who the other members on the board are, and what their qualifications are. Does the argument then still have any merit? This again differs from family to family," he explains. This is something Arunachalam pointed out in her statement, criticizing the induction of her younger cousin to the group’s board. She said: “A female heir with a doctorate degree, 24 years work experience in fortune 500 multinational companies, and numerous patents and publications to her name cannot be inducted to the board, even three years after her father’s death, despite being representative of the same shareholding, whilst a 23-year old male heir with a master’s degree and no job experience can be inducted to the board soon after his father’s passing."
The board not only refused to give Arunachalam a board seat, but also rejected her alternative offer to buy her family’s stake out. “She’s entitled to the substance of her inheritance and not the symbol of it, which is what her stake is right now, a piece of paper," says Sunil Shah of Evergreen Family Business Advisors. Although the current legal climate favours Arunachalam, the family business will come under intense social and media pressure, which may do much damage to their reputation, believes Shah.
In the interest of business continuity, however, Prof. Agarwal believes it’s time for families, including the Murugappa Group, to question and examine their governance system. “A demand for board seat only comes in when a part of family may feel insecure or concerned about their interests which have been overlooked. It’s a question families will have to ask why this impression has arisen and what can we do to prevent such things in future."