Sunday, April 17, 2016

Gender Diversity and Government Companies

It has been more than a year since a provision in the Companies Act, 2013 came into effect that requires all listed companies to have at least one woman director. As we had previously discussed, companies scrambled to comply with the requirement as of April 1, 2015, the effective date. However, a recent news report in the Business Standard indicates that 57 companies listed on the NSE are yet to comply with this requirement. More importantly, at least a third of the violators are public sector companies (PSCs). This represents yet another instance whereby, instead of taking the lead in ensuring compliance with enhanced corporate governance norms, PSCs have been in breach.

Such a situation is not new. A similar one arose a few years ago when several PSCs failed to comply with the requirement of appointing a minimum number of independent directors, and SEBI initiated action against them (discussed here and here). However, those actions had to be dropped because the PSCs argued that despite their repeated efforts, the appointments of independent directors could not be implemented due to the lack of approval from the President of India for such appointments (as required under the articles of association of such companies). PSCs are staring at a similar bottleneck even regarding the appointment of women directors.

This does not at all bode well for corporate governance in India if even the letter of the law cannot be complied with, and where the perpetrators of non-compliance are government-owned companies. As I had observed elsewhere in connection with the earlier episode involving the appointment of independent directors:

This episode may likely have deleterious consequences on corporate governance reforms in India. Compliance or otherwise of corporate governance norms by government companies has an important signaling effect. Strict adherence to these norms by government companies may persuade others to follow as well. But, when government companies violate the norms with impunity, it is bound to trigger negative consequences in the market-place thereby making implementation of corporate governance norms a more arduous task. …

That sentiment would hold good even for the present episode involving women directors. Despite giant strides having been taken in strengthening substantive corporate governance norms in India, much less progress is made with compliance and enforcement.

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