This week’s
announcement from the RBI identifying Indian
“too-big-to-fail” banks pulled no surprises for its readers. These D-SIBs
(domestic systemically important banks) are required to maintain additional
capital buffers to ensure they can cope with any sudden capital outflows, especially of
the kind seen in the last month. This represents yet another perceptive policy
action by the authorities to ensure that the volatility in the financial
markets does not spill over into the real economy, necessitating governmental
intervention.
News of this
tag also helped to shine a spotlight on another fact of Indian corporate life -
the robust talent that Indian women have demonstrated in the financial services
industry, with both of these banks having women CEOs steering their helm of
affairs for some time now. In addition to Arundhati Bhattacharya (SBI) and Chanda Kochhar (ICICI Bank), the financial services industry
has several noteworthy stalwarts – across investment banking, credit rating agencies, private equity and within the regulator too.
This positive
state of affairs however quickly worsens if one looks upward. Female representation
within corporate boards has been dismal historically, a fact that prompted the
regulator to call for mandatory appointment of female directors. The response
of Indian companies was on predictable lines – poor compliance first led to an
extension from SEBI and the eventual (and final) deadline was marred by the rush to make last minute appointments.
In several instances, companies appointed the female relatives of the promoters
as non-executive directors. March 2015 alone saw 308 directorship posts being
filled by women. Finally, after this mad scramble, April 1, 2015 saw women
directors make up only 12.3 % of the population of Indian corporate board
directors. These statistics should raise serious questions in the minds of
every concerned investor in the Indian capital markets as to corporate
goverance in general, and board quality in particular. Have we forgotten the lessons of 2009 already?
The recent spat between BASF and SES, an Indian proxy advisory
firm has opened a new front in this issue. Here, the appointment of a foreign lady director (and the subsequent appointment of a male replacement) was
questioned by the proxy advisory firm. The company however held that the
appointment was within bounds of the Companies Act and explained the
replacement as purely for tactical purposes.
Likewise,
apart from the financial services industry many sectors lack women in senior
management roles too. According to the authoritative 2014 study by Credit Suisse, women participation in
corporate boards globally proceeded along the management power line, with larger
presence in shared services roles and a low presence in executive leadership
assignments. This resulted in women being unable to reach the top executive CXO
profiles in most organizations.
But does
having women CEOs make a statistically significant impact to corporate
performance? The evidence on this question is mixed. While the Credit Suisse
study did observe that companies with board members performed significantly
better on financial parameters, the evidence was positively correlated but causality could not be proved. Likewise,
notwithstanding the perception of greater caution to enter into mergers and
acquisitions or taking on leverage, the study found no significant difference
between male and female CEOs and their leverage preferences or acquisition
trends. Despite these contrasting points, studies have
clearly indicated the importance of diversity in corporate boards having a
positive impact on group intelligence and corporate performance. It is perhaps
in this spirit and its positive implications for shareholders that greater
female participation should be considered. When greater diversity is seen as
the means to more widespread positive corporate behaviour in society alongside
greater stability in earnings/growth for shareholders, it can be accepted as a
necessary condition rather than a “good-to-have”. Likewise, when a more diverse
board moves quickly to punish errant (miss-selling) behaviour, employees are
less at risk of claw-back of salaries and bonuses.
So how could
greater diversity then be brought about? One approach has been already
discussed earlier – diversity by fiat. As we have seen in this method, the
opportunities for gaming the system are considerable and could inadvertedly lead
to more power in the hands of the promoter group. Corporate Affairs believes that solutions are available across timespans. A few
approaches that could be considered here are:
- Hire from the government
Companies who have appointed women from within promoter families
(without a compelling case for merit) have probably not been advised of the
enormous talent available within India’s public services. The average Indian is
well aware of the large pool of women officials within India’s bureaucracy.
Many of them have been appointed to the highest posts in India’s civil services and it is heartening
to see that in some cases this talent is being tapped. Companies should
make a strong representation to the current government for permitting more
women representatives from the civil and armed services into directorships. Further,
companies could hire more actively from the pool of retired women civil
servants. True, there might exist conflicts of interest but these could be
incorporated into a policy manual that provides practical solutions. For the
government’s standpoint, this approach would help public servants to better
appreciate the practical implications of policy nuances that India’s
bureaucracy draws up.
- Make diversity a key element of reporting to corporate boards
Diversity should be reported down to a divisional level in corporate
board presentations and analysed. It would be interesting for companies to
overlay the divisions/regions where miss-selling has been reported with their
diversity scores to identify if “group-think” or peer pressure had made a
problem far more serious than otherwise. This information should be shared with
SEBI which itself should be investing in to undertaking scientific research on
the benefits of a diverse workforce on corporate governance, similar to that of
the NSE.
- Make public sector stakeholders agents of change
Public institutions such as the LIC are large investors on the stock
markets but reported instances of their dissent have been few. Governmental institutions such as the LIC and
EPFO can take the lead in their interactions with the boards of their investee
companies to call for greater diversity in their workforce. This could ensure
the small investor whose voice is often ignored by corporates has a powerful
ally to call for greater diversity.
- Support more female entrepreneurs
An area of considerable concern has been the dismal number of women
entrepreneurs who have listed their companies on the exchanges. Listing confers
powerful visibility in the wider financial markets, courtesy the depth of press
coverage in India. Apart from high-profile founders of companies like Biocon, there are hardly any other listed companies
that have been founded by a woman. In a country with an upwardly mobile and
educated workforce, such a statistic makes for grim reading. Here, it is
possible that the booming private equity scene in India is able to throw up
entrepreneurs whose business models have developed enough for them to take
their companies public. Companies should also encourage their associates to
bring in business ideas that could be catalysed into subsidiaries. Given the
large proportion of women in the IT workforce, this sector could be best placed
for innovation and positive results.
- Invest in creating more women-based roles in the basic sciences
At the heart of this article is the hope, nay belief, that for India to
emerge as a superpower it is essential to build on its human capabilities in
the basic sciences. History is a clear indicator of how technologically advanced societies have emerged as the real winners in geo-political confrontations by
leveraging the intellectual capital created by their citizens, be it atomic
power, ballistics or the Internet. In turn, the commercial spin-offs generated
by these technological advances have provided capital markets investors with juicy
opportunities for wealth creation.
India, like many other Asiatic societies places priority on the sciences
sometimes perhaps to the detriment of other sectors. However, when it comes to gender
equality and diversity Asian societies have been found lacking in supporting
women for greater education and corporate responsibilities. While such cultural
mores are definitely changing in India, this change can definitely be faster
and more widespread, especially in rural India. Investing in increasing the
participation of women in basic sciences (also including the dismal science) would be a smart way of redressing
these imbalances.
While the fruits of this effort might present themselves in full only
over the next few decades, it is important for India to commit itself
immediately to greater gender equality and diversity. Whether one is a
feminist, a nationalist or a hard-nosed capitalist, investing in women pays rich
dividends.
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