GENDER DIVERSITY IN BOARDROOM AND DIFFERENT COMMITTEES: A STUDY WITH REFERENCE TO BSE SENSEX 30 COMPANIES

Rozy Lasker1*, Amit Majumder2

1Bhairab Ganguly College, West Bengal, India

2 Bijoy Krishna Girls’ College, Howrah, India

*Corresponding Author’s Email: rozylasker@gmail.com

ABSTRACT

A gender diversified Board leads to multidimensional vision in an organizational structure. As psychological construct of woman brings a whole new and different perception about the situation and influences decision making of management. For this purpose, unbiased treatment towards the woman in the Board is the need of the hour. The gender composition of the board can affect the quality of financial and monitoring performance of the organization. Researchers like Ruth Mateos de Cabo, Claude Francoeur, Kevin Campbell aimed at investigating the impact of women directors on the performance of the company. Women held the 17.9% of the board seats of Fortune 1000 companies in 2015. This percentage is getting elevated day by day. The women directors in Scandinavian countries like Norway, Sweden, Denmark occupied high proportion of Board seat. On the other hand, European countries like France and Germany also have significant presence of women directors. In India, with effect from 1st April 2015, it is compulsory to appoint at least one-woman director in the category of company under section 149(1) of the Companies Act, 2013. In this context, the objective of the study is to investigate the presence of women directors and its impact of the companies under S&P BSE Sensex 30 companies before and after enforcement of legislature. After a careful observation, it is concluded that degree of diversity with reference of different personal affiliation is less intense in board of S&P BSE SENSEX companies. Though some of the companies like CIPLA, INFOSYS go beyond the legal compulsion and compose their board with higher degree of diversified gender representation.

Keywords: Psychological Construct, Gender Diversity, Legal Compulsion

INTRODUCTION

Diversity in workforce got the earnest importance in recent times as it is a means of improving corporate governance. Here diversity specifies in accordance with age, race, origin and most importantly with gender. In past years, women made their representation only at the lower level of workforce. But at present situation, many countries like Norway, Spain, France, Netherlands imposes quota for women representation in boardroom. Gender diversity invokes greater diversity in opinion. As there is a positive linkage between board diversity and shareholders value, women representation results in assertive impact on the outcome of the organization. The diversified board helps to tackle various issues from different view point. As a result, single decision established by different ideas from divergent background. So, it

can be said that women representation in board advances the company one step ahead towards success. In view of this, government also have taken a brief decision by making women representation legal at boardroom in category of company under section 149(1) of the Companies Act, 2013.

Objective of the study:

In India, after getting higher importance through legislature, board diversity becomes the focal point in board composition. On this context, this study is undertaken to achieve the following objectives: -

1. To observe the degree of improvement of woman representation in Board in S&P BSE Sensex companies after implementation of section 149(1) of the Companies Act, 2013.

   
   

2. To examine diversity in the mandatory committees under clause 49 of SEBI listing agreement after legalization of gender diversity in Board.

   
   

3. To examine the degree of intention, other than legal compliance, of S&P BSE SENSEX companies to practice gender diversity in Board composition.

   
   

   Theory related to board diversity: Upper Echelons Theory

   Upper Echelons Theory brought into light by Hambric & Mason in 1984. It states that organizational outcomes are partially predicted by the characteristics of managerial background of the top-level management teams (TMTs). As TMTs are responsible for strategic formation and enactment in an organization, their personal experience, value, personalities and other human factors like race, age, gender has a huge impact on the performance of the organization.

   
   

   Reasons for practicing gender diversity in Board composition:

   1. International Corporate Governance Network (ICGN) stated that board should have a “sufficient mix of relevant skills, competence, and diversity of perspective.” On this view point, it can be said that gender diversity in board is the need of the hour.

      
      

   2. GMI, the corporate governance rating agency, recognizes gender diversity as a yardstick and a key indicator of corporate performance.

      
      

   3. Women representation helps to flourish fresh perspective in corporate decision making.

      
      

   4. The observations of various researchers conclude that the board with amalgamation of both men and women help to rise ROE (return on earning) in comparison with exclusively male dominated board.

   5. Board composition with women representation brings better competitive opportunities, initiating innovative solutions.

LITERATURE REVIEW

Researchers have explored different board characteristics and numerous board compositions. They have found assertive link between gender diversity and corporate financial outcome.

1. Smith, Smith & Verner (2006) in their investigation found that the proportion of women in top management jobs tends to have positive effects on firm performance. It also showed that the positive effects of women in top management strongly depend on the quality of women representation.

   
   

2. Nielsen & Huse (2010) surveyed on 201 Norwegian firms which suggested that the rate of women directors is positively associated with board strategic control. The survey also proved that the positive effects of women directors on board effectiveness are mediated through increased bard development activities and through decreased level of conflict.

   
   

3. The result of research of Francoeur, Labelle & Sinclair-Desgagné (2008) indicated that firm operating in complex environments do generate positive and significant abnormal returns when they have a high proportion of women officers.

   
   

4. The study of Campbell & Mínguez-Vera (2008) suggested that investors in Spain do not penalize firms which increase their female board membership and membership and greater gender diversity may generate economic gain.

   
   

5. Carter et al., (2010) in their study do not support the business case for inclusion of women & ethnic minorities on corporate boards.

   
   

6. Joecks, Pull & Vetter (2013) have found evidence for gender diversity to at first negatively to at first negatively affect firm performance and only about 30% women has been reached to be associated with higher firm performance than completely male boards.

   
   

7. Adams & Ferreira (2007) have found that:

   1. The likelihood that a female director has attendance problem is 0.29% lower than for male directors.

   2. Firms with more diverse boards provide their directors with more pay-performance incentives.

   3. Firms with more diverse board have more board meetings.

      
      

8. Farrell & Hersch (2005) have suggested in their research that the likelihood of a firm adding a woman to its board in a given year is negatively affected by the number of

women already on the board. The probability of adding a woman is materially increased when a female director departs the board. Adding a director, therefore, is clearly not gender neutral. Although they found that women tend to serve on better performing firm.

RESEARCH METHODOLOGY

The companies across the world already have taken initiatives for woman representation in Board. After realization of the benefit Government of India also legalise gender diversity under section 149(1) of Companies Act, 2013. In this context, this research study explores degree of representation of woman directors in the board by using demographic data of BSE Sensex 30 companies. For this purpose, Annual Report of last 5 years of these companies have explored. Also, various website for electronic disclosure have been studied.

Statistical Significance Test on Improvement of Gender Diversity in Board

In order to check statistical significance on improvement of Board Diversity on BSE SENSEX Companies we have used Paired-T test at 95% level of significance. It has been observed that t (29) = -4.211, p < 0.0005. So, we can conclude that there was a statistically significant improvement in Gender Diversity in Board. Results are shown below (refer to table 1a, 1b & 1c)-

Table 1a: Paired Samples Statistics

Table 1b: Paired Samples Correlations

Table 1c: Paired Samples Test

Source: Results Generated by using IBM SPSS 21

Woman representation: a composite picture of BSE Sensex 30 companies in last 5 years

The Annual Report for last 5 years of BSE Sensex 30 companies articulate a clear picture of board composition, specifically women representation (table 2). Before the legal mandate, recognition of woman representation at the top level was sporadic. But from the financial year 2015-16 it catches the speed though pace is slow. Most of the companies scale down their effort after touching the basic requirement. On the other hand, companies like CIPLA, INFOSYS LTD and AXIS BANK embrace the different path. They try to achieve higher firm value by equitable board composition.

Table 2: Status of Gender Diversity of S&P BSE SNESEX Companies from 2102-13 to 2016-17

Source: Computed by Authors from Corporate Disclosure Practices

Observation:

Before the legislative compulsion, the paramount of gender diversity in board was on back stage. From 1st April 2015 section 149(1) of the Companies Act, 2013 play the catalyst role for the elevation of woman representation in board. As a result, most of the companies indicates degree of assertive changes of woman directors. It is observed that companies like CIPLA, COAL INDIA LTD. & INFOSYS LTD tried to appoint at least one-woman member in their committees from the base year. But ADANI PORT & SEZ, DR. REDDY’S LABORATORIES, RELIENCE INDUSTRIES LTD., SUN PHARMA, TATA MOTORS,

TATA STEEL and WIPRO are not putting their genuine effort in woman representation in board beyond legal compulsion.

Degree of improvement of Gender Diversity after implementation of section 149(1) the Companies Act, 2013

Before the legislative compulsion, the paramount of gender diversity in board was on back stage. From 1st April 2015 section 149(1) of the Companies Act, 2013 play the catalyst role for the elevation of woman representation in board. As a result, most of the companies indicate degree of assertive changes of woman directors. CIPLA holds the leading position (33.33%) in escalating woman representation in board (table 3 & figure 1). INFOSYS LTD, on the other hand, manage to achieve second position (22.86%).

Table 3: Improvement of Gender Diversity of S&P BSE SNESEX Companies after introduction of Companies Act, 2013

Source: Computed by Authors from Corporate Disclosure Practices

Figure 1: Improvement of Gender Diversity in Board from 12-13 to 16-17(%)

Observation:

Before the legislative compulsion, the paramount of gender diversity in board was on back stage. From 1st April 2015 section 149(1) of the Companies Act, 2013 play the catalyst role for the elevation of woman representation in board. As a result, most of the companies indicates degree of assertive changes of woman directors. CIPLA holds the leading position (33.33%) in escalating woman representation in board (table 3 & figure 1). INFOSYS LTD, on the other hand, manage to achieve second position (22.86%).

Gender diversity in different mandatory and no-mandatory committees of Board

Table 4: Audit Committee: Gender Diversity before and after introduction of Companies Act, 2013

Source: Computed by Authors

Observation:

The Annual Report for last 5 years of S&P BSE Sensex 30 companies articulate a clear picture of board composition, specifically women representation. Before the legal mandate related to the gender diversity in board, recognition of woman representation at the different committee level was sporadic. Most of the companies scale down their effort for gender diversity. On the other hand, companies like CIPLA, ADANI PORT & SEZ embrace the different path. They try to achieve higher firm value by equitable Audit Committee composition (refer to table 4).

Table 5: Nomination & Remuneration Committee Gender Diversity before and after introduction of Companies Act, 2013

Source: Computed by Authors

Observation:

The Annual Report for last 5 years of S&P BSE Sensex 30 companies articulate a clear picture of board composition, specifically women representation. Before the legal mandate related to the gender diversity in board, recognition of woman representation at the different committee level was sporadic. Most of the companies scale down their effort for gender diversity. On the other hand, companies like CIPLA, BAJAJ AUTO LTD, HDFC BANK, NTPC embrace the different path. They try to achieve higher firm value by equitable Nomination & Remuneration Committee composition (refer to table 5).

Table 6: Stakeholders’ Relationship Committee Gender Diversity before and after introduction of Companies Act, 2013

Source: Computed by Authors

Observation:

The Annual Report for last 5 years of S&P BSE Sensex 30 companies articulate a clear picture of board composition, specifically women representation. Before the legal mandate related to the gender diversity in board, recognition of woman representation at the different committee level was sporadic. Most of the companies scale down their effort for gender diversity. On the other hand, companies like CIPLA and BHARTI AIRTEL LTD. embrace the different path. They try to achieve higher firm value by equitable Stakeholders’ Relationship Committee composition (refer to table 6).

Table 7: Corporate Social Responsibility &Governance Committee: Gender Diversity before and after introduction of Companies Act, 2013

Source: Computed by Authors

Observation:

The Annual Report for last 5 years of S&P BSE Sensex 30 companies articulate a clear picture of board composition, specifically women representation. Before the legal mandate related to the gender diversity in board, recognition of woman representation at the different committee level was sporadic. Most of the companies scale down their effort for gender diversity. On the other hand, companies like CIPLA ITC LTD. and SUN PHARMA embrace the different path. They try to achieve higher firm value by equitable Corporate Social Responsibility &Governance Committee composition (refer to table 7).

Gender Diversity: No. of companies within specific range

In recent years board diversity got its pace in India. Although most of the BSE Sensex 30 companies just manage cross the legal hurdle. Only two companies i.e. CIPLA and INFOSYS LTD have 30% or more-woman directors (table 8). 14 out of 30 BSE Sensex companies stand below or equal to 10%-woman representation in their board (Figure 2). Equitable board composition still a day dream for most of the companies.

Table 8: Range of Gender Diversity

Source: Computed by Authors

Figure 2: Gender Diversity: No. of companies within specific range

Observation:

It is observed from the Annual Report for last 5 years of S&P BSE Sensex 30 companies that 14 out of BSE Sensex 30 companies stand below or equal to 10%-woman representation in their board whereas only one company i.e., CIPLA, stands out in woman composition and scored more than 30% in composing gender diversified board (table 8 & figure 2).

DISCUSSION

Before the legislative compulsion, the paramount of gender diversity in board was on back stage. From 1st April 2015 section 149(1) of the Companies Act, 2013 play the catalyst role for the elevation of woman representation in board (Soares, 2014; Catalyst, 2015). As a result, most of the companies indicates degree of assertive changes of woman directors. CIPLA holds the leading position (33.33%) in escalating woman representation in board. INFOSYS LTD, on the other hand, manage to achieve second position (22.86%). In order to check statistical significance on improvement of Gender Diversity in Board on BSE SENSEX 30 Companies we have used Paired-T test at 95% level of significance. It has been observed that t (29) = -4.211, p < 0.0005. So, we can conclude that there was a statistically significant improvement in Gender Diversity in Board after the implementation of Companies Act, 2013.

The Annual Report for last 5 years of S&P BSE Sensex 30 companies articulate a clear picture of board composition, specifically women representation. Before the legal mandate related to the gender diversity in board, recognition of woman representation at the different committee level was sporadic. Most of the companies scale down their effort for gender diversity (Dobbin & Jung, 2011). On the other hand, companies like CIPLA, ADANI PORT & SEZ embrace the different path. They try to achieve higher firm value by equitable Audit

Committee composition. CIPLA, BAJAJ AUTO LTD., HDFC BANK and NTPC tried to elevate firm value through woman representation in Nomination & Remuneration Committee. CIPLA continues to perform inspiring role and with BHARTI AIRTEL LTD., ITC LTD. and SUN PHARMA embark as a path breaking performer in equitable gender composition of Stakeholders’ Relationship Committee and Corporate Social Responsibility & Governance Committee (Afsharipour, 2009; Carter, Simkins & Simpson, 2003; Chakrabarti, Megginson & Yadav, 2007).

It is observed that companies like CIPLA, COAL INDIA LTD. & INFOSYS LTD tried to appoint at least one-woman member in their committees from the base year. But AXIS BANK and LUPIN LTD are not putting their genuine effort in woman representation in committees as most of the times they have men-only committees. It is also found that some companies continue to perform poor in divergent committee composition. MAHIDRA & MAHIDRA LTD, RELIENCE INDUSTRIES LTD, TATA STEE, HOUSING

DEVELOPMENT FINANCE CORPORATION LIMITED have not even taken initiatives for beyond legal compliance. But NTPC and ONGC LTD. tried to walk in different path in last financial year by composing diversified committees. It is also found that only two companies

i.e. CIPLA and INFOSYS LTD have 30% or more-woman directors. 14 out of 30 BSE Sensex companies stand below or equal to 10%-woman representation in their board. Equitable board composition still a day dream for most of the companies.

CONCLUSION

Directors, through the lenses of their thoughts, tried to play a pivotal role towards the winning edge of a company. Here board diversity, explicitly gender representation, frame a positive link between woman directors and shareholders value. This leads to effective decision making, utilizing talent pool, tracking better competitive opportunities and complying with national and global corporate governance norms. The BSE Sensex 30 companies, before 1st April 2015 were not giving gravity to the equitable board composition. After the Companies Act, 2013, woman representation in board got its attention. The study clearly concludes that most of the companies only tries to achieve basic criteria in order to comply with the legislature. Recognition of the contribution of woman director to elevate shareholders value is far behind. Though degree of increase in woman representation improves from past years, but still some of the companies only consider family member of the existing directors for legal compliance. We find that, out of BSE Sensex 30 companies CIPLA, INFOSYS LTD. and AXIS BANK try to achieve higher firm value by equitable board composition. But ADANI PORT & SEZ, DR. REDDY’S LABORATORIES, RELIENCE INDUSTRIES LTD., SUN PHARMA, TATA MOTORS, TATA STEEL and

WIPRO are not putting their genuine effort in woman representation in board beyond legal compulsion. On the other hand, it is also observed that companies like CIPLA, COAL INDIA LTD. & INFOSYS LTD tried at least one-woman member in their committees from the base year. But AXIS BANK and LUPIN LTD are not putting their genuine effort in woman representation in committees as most of the times they are men-only committees. But most of

the companies continue to perform poor in divergent committee composition. MAHIDRA & MAHIDRA LTD, RELIENCE INDUSTRIES LTD, TATA STEEL, HOUSING

DEVELOPMENT FINANCE CORPORATION LIMITED have not even taken initiatives for beyond legal compliance. On a different dimension, CIPLA shows its core involvement by registering 33.33% gender diversity in board from the base year. INFOSYS LTD performs a good follower by representing 30% woman involving in board decisions and shows 22.86% elevation in composing divergent board. Though equitable board composition still a day dream for most of the companies, the companies like CIPLA, INFOSYS LTD, AXIS BANK, MARUTI SUZUKI INDIA LTD, NTPC and ONGC LTD have taken inspiring steps by saluting woman representation in board. It can boost other companies to motivate themselves and to link firm value with board diversity.

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