Opinion | Gender diversity aids corporate governance2 min read . Updated: 13 Oct 2019, 10:28 PM IST
Compliance with rules is not the reason our businesses should have women in boardrooms. Firms with a better balanced gender ratio are better governed and deliver superior results
You may strain your ears and still not hear it. The glass ceiling on women getting into corporate governance is either not being shattered, or not being smashed loudly enough to make much of a difference. To promote gender diversity at the top of India Inc., the Companies Act of 2013 had made it mandatory for publicly listed companies as well as those with a turnover of over ₹300 crore to appoint at least one woman director. It did set off an uptrend. According to Prime Database, a data services firm which analysed the board composition of the top 500 companies listed on the National Stock Exchange, female representation rose from 5% in 2012 to 13.8% in 2017. But since the requirement could easily be met by having a member of the promoter’s family join the board, the Securities and Exchange Board of India ruled in October 2017 that every firm listed on stock markets had to have at least one independent director who was female. The proportion of women has since risen to nearly 17%, by Prime Database’s estimate. By the numbers of the 2019 edition of the Credit Suisse Gender 3000 report, though, Indian boardrooms have just a tad above one woman for every six men, while the global number is about one for every four. Whichever way you look at it, the ratio is still disappointing.
Apart from the valid argument that all positions of power ought to reflect gender equality, however, does it matter to business? The general case for diversity was made long ago. Today, few contest the dangers of “groupthink", or the tendency of all members of a team to think alike and thus lose valuable alternative views. But, specifically speaking, does having more women govern and guide a business help it perform better? The broad answer is yes. There exists a significant body of global research that correlates higher gender diversity with better financial results. Firms with at least one woman on the board show higher returns on equity and better stock performance than those with all-male boards. According to a recent research brief put out by McKinsey and Co., a consultancy, companies that figure in the top quartile on the parameter of gender diversity are 15% more likely to financially outperform those in the bottom quartile. Other studies have linked a higher ratio of women directors with more ethical corporate behaviour in particular and better governance overall. Meanwhile, a survey published in the International Journal Of Business Governance And Ethics indicates that a single woman director is all it takes for an enterprise to lower its risk of bankruptcy by a fifth. Sticklers might ask for causation to be proven, beyond just correlation, but we have enough reason to accept that a better gender ratio is a commercial imperative.
Regardless of what laws and regulations demand, it’s clear that business leaderships must act in favour of gender diversity—if not out of a sense of justice, then for the sake of enhancing shareholder value. While chief executive officers and their teams are the ones who actually run businesses day to day, it is often the quality of board directorship that determines their future. Success in this age of complexity calls for wide perspectives and varied voices. On grasping this aspect of business reality, men seem to lag women. Induct more female directors, and maybe this gap will also begin to close.