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Corporate Governance & Women on Boards

By Suresh kumar, Chennai

Sep 22 nd 2020

Corporate Governance plays a key role for any Organization. The stronger the Governance better the Corporate results and Shareholders Interest and the Corporates emerge as Sustainable Corporates. The main reason for this is transparency and trust which gets created with right governance practices and which uplifts stakeholders Interest, Stakeholders Value. Now the World is moving from shareholders value creation to the Stakeholders value creation and Corporate Governance is playing an important role in this transition.

What is Corporate governance?

Corporate governance is the system of rules, processes and practices by which an Organization is directed, governed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, senior management executives, customers, suppliers, financial institutions, the government, and the community at large. The Main purpose or the Significance of the Corporate Governance can be summed up as FART:

F- Fairness

A- Accountability

R- Responsibility

T- Transparency

The above factors constitute the Governance practices in the following areas for any organization:

1) Setting up objectives and Vision

2) Create or Build Strategy.

3) Strong and Competent appointment of Leaders

4) To Supervise the Board Functions.

5) Primary motive report to Shareholders.

Further, with the complex corporate structure, Committees come to rescue the Boards in effective governance and the Board Members become part of the Sub Committees to supervise the Functions of the Organization. The Board of Directors of Organization decides the roles and responsibilities, scope of functioning of such committees which help them to perform

Under Indian Regulations, for Listed Entities following are some Committees which mandatorily needs to be formed by every Company:

1) Remuneration and Nominations Committee

2) Audit Committee

3) Risk Committee

4)Corporate Social Responsibility (CSR) Committee

In addition to these Committees the Company can also form following committees for smooth functioning of the organization:

1) HR Committee

2) New Business Committee

3) Sexual Harassment Committee

4)Performance Review Committee

5)Ethics, Diversity & Inclusion Committee

The above Committees gives the Board, a deep understanding to Manage & Take Quick and Right decisions by recommending right actions for faster and efficient decision making at the Board level.

Therefore stronger the Committees and it’s Members, stronger the Corporate Governance.

Now, lets understand Role of Women Directors:

Various Reports have proved that Appointing Women Directors benefits the Companies in following ways:

1) Improvement of Financial Performance

2) Increased Productivity

3) Increased top lines

4) Better Corporate Image

5) Positive Work Environment

6) Control over Sexual Harassment matters

7) More disciplined Boards

8) Creates Good Morale in the Corporate Environment

More Diversity on the Indian Boards will be required if the Corporates want more balance on the Boards in terms of Gender, talent, experience and skillsets. Women plays a key roles in Countries Like Europe and United States and Australia as well. Further, recently countries like Germany have proposed to take the ratio of Women Directors on Boards to 50% by 31^st December 2020. Looking at these scenarios, restricting them to 1/3 in India needs a deeper look to revisit the Company law.

Study by Harvard Business Review shows following challenges why more Women are not approaching Boardrooms:

Women had to be more qualified than men to be considered for directorships. Women also seemed to pay a higher personal price to become board members than men did.
Although boards say they like diversity, they don’t know how to take advantage of it. There was stark disconnect between female directors’ experiences and their male colleagues’ perceptions. Women told us they were not treated as full members of the group, though the male directors were largely oblivious to their female colleagues’ experience in this regard.
Great talent alone is not enough to create a well-functioning board. Boards need formal processes and cultures that leverage each individual member’s contribution as well as the directors’ collective intellect.

In India, currently, only Fortune 1000 listed Companies, with predominant focus, are mandated currently to appoint Women Independent Directors on their Boards. Hence, India needs better governance processes, practices for creating well- functioning Boards which can happen only through right awareness, right handholding and right mentoring of the Boards over their roles as Directors and Independent Directors. The Indian laws needs further Amendments, to support Women on Boards by passing bills not only on the Company’s front, but also on the NGO, Nidhi Companies ,Trust, LLP as well. Further, more success stories of Such Women Directors who are transforming Indian Corporates should come to limelight which can set benchmark for corporates to look upto and if you have such a transformational story, write to us on info@mentormyboard.com.

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*Source: https://hbr.org/2013/06/dysfunction-in-the-boardroom