School of Law

University of California, Davis

400 Mrak Hall Drive

Davis, CA 95616
530.752.0243
http://www.law.ucdavis.edu

UC Davis Legal Studies Research Paper Series

Research Paper No. 472
Dcember 2015

The One Woman Director Mandate: History and Trajectory

Afra Afsharipour
This paper can be downloaded without charge from
The Social Science Research Network Electronic Paper Collection:
http://ssrn.com/abstract=2686991

The One Woman Director Mandate: History and Trajectory

Forthcoming in CORPORATE GOVERNANCE IN INDIA: CHANGE AND CONTINUITY
(ed. Indian Institute of Corporate Affairs) (Oxford University Press, 2015)
Afra Afsharipour, Professor of Law, UC Davis School of Law 1
Abstract
In 2013, India passed historic legislation mandating that boards of publicly listed
and certain other large companies must include one woman director. The mandate,
which came into effect on April 1, 2015, has the potential to vastly change the
profile of Indian boards and board members. This chapter examines the history
and trajectory of Indias board diversity requirement. It seeks to understand the
genesis and goals of this requirement, and explores some of the challenges that
India has already faced and may continue to face with respect to the possible
effectiveness of this requirement. The chapter then considers for the Indian
context the implications of business and social science literature on gender
diversity on corporate boards.
Key Words: India, Women, Board of Directors, Quota, Gender Diversity

1. INTRODUCTION

In 2013, India passed a sweeping overhaul of its Companies Act. The Companies
Act, 2013 followed years of significant debate about the role, function and makeup of the board of directors of Indian firms. While this debate focused primarily
on the independence of the board, part of the debate centered on whether to
impose a requirement for the boards of a certain class of companies to include one
woman director. This proposal, which eventually was enacted into law and
replicated by the Securities and Exchange Board of India (SEBI) in the listing
1

Afra Afsharipour, Professor of Law & Martin Luther King, Jr. Hall Research Scholar, UC Davis School of Law. I
am grateful to Umakanth Varrotil, Darren Rosenblum and participants at the AALS 2014 Section on Economic
Globalization and Governance meeting and at the 2014 American Society of Comparative Law Conference of the
Younger Comparativists Committee for helpful comments and conversations. Kristin Charbonnier, Khushi Desai
and Victoria Wong provided excellent research assistance with this chapter.

agreement, 2 was quite radical given that in 2010 less than 5.5% of board seats in
the boards of the top 100 companies on the Bombay Stock Exchange (BSE) were
occupied by women.

Indias gender diversity requirement arose in the wake of similar requirements

around the world. To date, over a dozen countries have adopted gender diversity
requirements. These international standards generally set a 33-50% female quota
for board membership. The most celebrated example is that of Norway which in
2003 adopted a 40% female quota for board membership. Other countries, such as
France, Spain, Belgium, Finland and Italy, followed suit. Even more countries
have included in their respective country corporate governance codes the
requirement to report gender diversity recruitment efforts and board
gender/diversity composition (i.e., under the codes comply or explain
principle). The penalties for non-compliance range from none to fines to
Norways stringent requirement for dissolution of the company.

Given the push for gender diversity around the globe, scholars have spent much
time analyzing the value of gender diversity (and diversity more broadly) on
corporate boardsattempting to both qualitatively and quantitatively measure the
effect of women directors. In a comprehensive overview of recent studies,
scholars Deborah Rhode and Amanda Packel state that while the relationship
between diversity and financial performance has not been convincingly
established. There is, however, some theoretical and empirical basis for believing
that when diversity is well managed, it can improve decision making and enhance
a corporations public image by conveying commitments to equal opportunity and
inclusion. To achieve such benefits, diversity must extend beyond tokenism, and
corporations must be held more accountable for their progress. 3

The Listing Agreement with stock exchanges defines the rules and processes that companies must follow in order
to remain listed companies on an Indian stock exchange. Afsharipour (2009), p. 340.
3
Rhode and Packel (2015), p. 1.

This chapter examines the history and trajectory of Indias board diversity
requirement. It seeks to understand the genesis and goals of this requirement, and
assesses some of the challenges that India has already faced and may continue to
face in implementing this requirement. The chapter then considers for the Indian
context the implications of business and social science literature on gender
diversity on corporate boards.

2. INDIAS

BOARD

DIVERSITY

REQUIREMENT:

HISTORY,

REQUIREMENTS AND GOALS

Over the past two decades, the Indian government has convened a number of
committees, largely made up of leading industrialists and government officials, to
consider amendment and modernization of Indian business law. Since the late
1990s, SEBI, the primary regulatory authority for Indias capital markets, has
convened a number of committees to help formulate corporate governance
standards for publicly listed Indian companies. Many of these standards were
inspired by corporate governance reforms around the world. At the same time,
beginning in 2002, the Ministry of Corporate Affairs (MCA) 4 worked through a
multi-committee process in order to amend the Companies Act, 1956. 5 After years
of debate and several failed starts, in 2013 India enacted the new Companies Act,
2013 overhauling the entire company law regime in the country. Section 149 of
the 2013 Act includes a requirement that the board of directors of a certain class
of companies include one woman board member.

History of the One Woman Director Requirement

4

The MCA (which until 2007 was known as the Ministry of Company Affairs) is charged with administering much
of business law in India, including developing regulations to implement business law legislation such as the
Companies Act 2013, the Companies Act 1956, the Limited Liability Partnership Act, 2008, the Competition Act,
2002 and the Partnership Act, 1932. Ministry of Corporate Affairs, Government of India, About MCA,
http://www.mca.gov.in/MinistryV2/about_mca.html (last visited Jan. 30, 2015).
5
The Companies Act, 1956 provides the general legal framework for companies in India, governing the
incorporation, functioning, and winding up of Indian companies. While the Companies Act, 2013 will eventually
replace the 1956 Act, not all of the provisions of the 2013 Act have been notified as of Winter 2014 and therefore
some provisions of the 1956 continue to apply. Ministry of Corporate Affairs, Government of India, Acts & Rules,
Companies Act, 2013, http://www.mca.gov.in/MinistryV2/companiesact.html (last visited Jan. 30, 2015).

The Companies (Amendment) Bill (2003), which followed recommendations of

the Naresh Chandra Committee in 2002, included the first reference to women
directors on Indian Boards. The draft bill included a provision to allow the MCA
to prescribe a gender quota for board, but the provision faced significant backlash
and was dropped and little discussed over the next several years. While the 2009
version of the Companies Bill did not include any provisions related to women
directors, the MCA introduced the one woman director mandate as a provision in
the Companies Bill (2011).

The introduction of the one woman director mandate came after many corporate
governance proposals both within India and around the globe advocated for
greater board diversity and several countries in Europe instituted gender diversity
quotas. For example, the Higgs Report, commissioned by the British Department
of Trade and Industry, argued that diversity could enhance board effectiveness
and recommended that firms draw more actively from professional groups in
which women are better represented. Similarly the Davies report in the United
Kingdom advocated for gender diversity citing various research studies that
suggested that women directors help to improve corporate performance through
enhancing board independence and board decision-making processes.

Norway was the first country to adopt a requirement for corporate boards to have
women directors. The 2003 Norwegian quota made it mandatory for
approximately 500 state-owned and privately-owned businesses to have 40%
women representation on board, setting compliance deadlines of 2006 for stateowned firms and 2008 for publicly traded firms. The Norwegian law included a
drastic penalty provision: dissolution of the company. In early 2011, France
became the largest country to adopt a gender diversity law that requires a floor of
forty percent for women directors on corporate boards. A number of other
European countries have adopted similar quotas, and the European Union has
been debating whether to adopt a quota. While quotas have not been widely
4

adopted outside on the European Union, there has been vigorous debate around
the world regarding the low representation of women on corporate boards.
The debate over female representation on corporate boards has not been limited to
the West. Various Indian business organizations, influenced by international
trends, instigated similar debates in India. For example, in 2010, Community
Business, a non-profit organization dedicated to corporate diversity and social
responsibility in Asia, partnered with Standard Chartered Bank, one of the largest
international banks on India, to develop an influential report on women on
corporate boards of leading companies on the BSE-100. The report which has
been widely cited, demonstrated a sparse number of women serving on BSE-100
boards. The report found that out of a total of 1,112 directorships on the BSE-100,
59 directorships, representing 5.3%, were held by women. An even smaller
number of women, just 2.5%, held executive directorships in BSE-100 companies.
In addition, at the time, more than half of all BSE-100 companies had no women
on their boards. As the report noted, the data from India compared unfavorably
with both developed economies like the United States and the United Kingdom,
but also with Asian regions such as Hong Kong. Similarly, reports from various
well-known international firms, such as Korn-Ferry Institute and McKinsey &
Company, highlighted that Indian companies lagged far behind Western
companies, and even behind companies in other parts of Asia, such as China,
Hong Kong, Malaysia and Singapore, with respect to women board
representation.

Like other corporate governance initiatives in India which have been largely
initiated by the business sector, the one woman director requirement was put forth
after significant advocacy by various Indian business organizations. Activists
argued that a quota system would be necessary given the structural barriers and
prejudices faced by women in India. In putting forth the draft bill before
Parliament, the MCA described the board diversity requirement as in line with
the policy of the Government for encouraging more and more women

participation in decision making at various levels. 6 According to the MCA, the

requirement would force companies to give salience to the female gender in the
realm of corporate governance. 7

In response to the revised Companies Bill, in 2012, SEBI released its Consultative
Paper on Review of Corporate Governance Norms in India. SEBI described the
need for greater board diversity under the lens of better decision-making, stating
that Diversity, in all its aspects, serves an important purpose for board
effectiveness. It can widen perspectives while making decisions, avoid similarity
of attitude and help companies better understand and connect with their
stakeholders. The handful number of woman directors in the board of Indian listed
companies may explain the need for bringing gender diversity in the board. 8

Current Rules Regarding the Woman Director Requirement

After years of debate, in December 2012 the Lok Sabha (the lower house of the
Parliament of India) passed the Companies Bill (2012) which was slated to
replace the Companies Act (1956). The Companies Bill (2012) was approved in
the Rajya Sabha (the upper house of the Parliament of India) on August 8, 2013,
and received presidential assent on August 29, 2013, becoming the Companies
Act, 2013. Unlike the Companies Act (1956), the Companies Act, 2013 includes
broad sweeping provisions regarding the composition and function of the board of
directors, as well as regarding the duties of directors. More specifically, Section
149 of the Act provides that every company must have a board of directors and
that such class or classes of companies as may be prescribed, shall have at least
one woman director; thus leaving it to the MCA to develop rules to make Section
149 functional.

STANDING COMMITTEE ON FINANCE (2011-2012), FIFTEENTH LOK SABHA, MINISTRY OF CORPORATE AFFAIRS, The
Companies Bill, 2011 Fifty-Seventh Report 124 (June 26, 2012)
7
Id.
8
SEBI, Consultative Paper on Review of Corporate Governance Norms in India (Jan. 4, 2013),
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1357290354602.pdf

Under the rules finalized by the MCA in Spring 2014, Section 149s one woman
director requirement is applicable to all listed companies, and any public company
with (i) a minimum paid up share capital of 1 billion rupees (approximately $16.5
million), or; (ii) an annual turnover of at least 3 billion rupees (approximately $49
million). For existing companies, the deadline for appointing a woman director
was March 26, 2015. Newly incorporated companies must have one woman
director within six months from the date of incorporation. Neither the Act nor the
rules include a specific penalty provisions for companies that fail to have a
woman director. 9

Following passage of the Companies Act, SEBI also sprang into action, putting
forth heightened corporate governance standards in a revised clause 49 for listed
companies. While initially SEBI required that all listed companies must have one
woman director by October 2014, this requirement was later extended to an April
1, 2015 deadline.

Reactions to the One Woman Director Mandate

The one woman director mandate initially faced significant opposition in India.
Some Indian companies did not respond favorably to the proposal, arguing that
appointing a woman director may not be practical for all companies, and that
directors should be appointed based on talent, caliber and qualifications rather
than gender. Well-known industry organizations, such as the Federation on Indian
Chambers of Commerce and Industry (FICCI) argued that the focus for board
make-up should be on competency rather than on gender. In response to such
criticism, well-known corporate governance experts provided both business and
important social and moral justifications for promoting gender diversity on Indian
boards. As Professor Balasubramanian has argued, the gender diversity mandate
must be seen within the broader framework of equality and inclusivity discussions
9

Section 172 of the Companies Act, 2013 includes a minor penalty provision for non-compliance with the sections
of the Act that do not include a penalty provision. Under this penalty pro vision, a non-compliant company would
need to pay a fine of at least Rupees 50,000 (approximately $800) and up to Rupees 500,000 (approximately $8000).

so that all eligible and qualified candidates receive fair and unbiased consideration
for board membership. 10

After passage of the Act, some criticized the final rules adopted by SEBI and the
MCA as potentially ineffective. One criticism stems from rules adopted by both
the MCA and SEBI that clarified that the one woman director would not need to
be an independent director. Indian companies in general have dominant
controlling shareholders, many of whom are old-money business families with
significant political and social connections. Scholars have argued that the primary
weaknesses in Indias corporate governance model arise from the domination of
promoters and majority shareholders. 11 Experts expressed concern that if women
directors are not required to be independent, the requirement would likely result in
nepotistic and token appointments, such as the appointment of wives and relatives
of promoters. Others have criticized the Acts failure to include any penalties or
other enforcement mechanisms for noncompliant companies.

Despite arguments about its shortcomings, the MCA vigorously backed the one
woman director mandate. In the months prior to passage of the Act, then-Minister
of Corporate Affairs, Sachin Pilot, addressed complaints that the quota was
insufficient to address womens equal participation by describing the Acts
requirement as initial move toward greater gender equality. In news report, thenMinister Pilot stated There is a lack of gender parity in most of the work field.
Women have done enough work to prove their mettle. This (the bill) is just a first
step we have embarked upon. 12 Pilot argued that Indian firms should welcome
the requirement because companies having women at the higher management
levels perform better.

13

Following the Acts passage, then-Minister Pilot

continued to defend the mandate from criticism that it promotes tokenism.

10

Balasubramanian (2013), p. 16-19.

11

Afsharipour (2009); Varottil (2009).

Gupta (2013).
13
Ibid.
12

3.

INDIAS BOARD DIVERSITY REQUIREMENT: IMPLEMENTATION

CHALLENGES

The reach of the one woman director requirement was expected to be vast.
According to some reports, almost 1000 directorship positions would need to be
filled in listed companies alone to comply with the mandate. Other reports placed
this number in the many thousands given the large number of firms listed on the
BSE and NSE. Early reports after passage of the Act provide support that many
companies were beginning to search for women directors prior to the effectiveness
of the MCA and SEBI rules in Spring 2015. Despite these early efforts, there have
been significant challenges with implementing the mandate.

Challenges with the Pipeline

Initial reactions to the requirement brought up concerns about the pipeline of

women executives at Indian firms. Various reports show that compared to other
leading economies in Asia, the representation of women in the labor force in India
is the lowest in the region. The Global Gender Gap Report, 2011, ranked India
ranked 131 out of 135 countries with respect to womens economic participation
and opportunity. India also fares very poorly on the percentage of women in
senior management positions when compared to other Asian countries. A 2012
report by Catalyst cited to various studies that showed that less than 3% to 6% of
senior management positions in India were occupied by women. Thus, there were
concerns about whether India had a sufficiently qualified number of women with
senior executive experience who could serve as board members.

Like the push for the requirement, private sector actors stepped in to address the
pipeline problem. For example, in 2013, Arun Duggal, Chairman of Shriram
Capital, and Anjali Bansal, a Managing Director at Spencer Stuart, launched
Women on Corporate Boards Initiativestructured to resemble similar
international board mentoring programs. The initiative, which was widely touted
9

in the press, recruited leading corporate governance experts, including the former
SEBI chairman, to mentor competent women to become independent directors.
There are several challenges that affect the pipeline of women executives to board
positions. One challenge is that financial services firms churn out the highest
number of women leaders in India. However, internal policies at leading
investment banks restrict executives from taking external board memberships that
can generate a conflict of interest. Moreover, the banking industry produces the
greatest number of women CEOs in India, yet these women currently cannot be
tapped because regulatory norms prohibit them from having an interest in any
other company.

Even more significant are the challenges that arise from traditional gender norms
and societal expectations in India that place significant burdens on the familial
and household responsibilities of women. Many womens groups have expressed
the general sentiment that the lack of Indian women in senior positions are due to
archaic cultural stereotypes on the roles of men and women in society, such as
the notion that womens primary responsibility is to take care of the family, as
well as to gender gaps in literacy and in the numbers reaching higher education. 14
In the 2010 report by Community Business and Standard Chartered Bank, many
of the women directors interviewed also commented on the role of patriarchal
norms in hindering womens advancement to board positions. According to the
report One of the key themes that emerged was that women in India need to
juggle their career with their family responsibilities. Family duties remain,
according to all the women interviewed, the number one perceived and actual
responsibility of women in India. This means that until the family is taken care of,
there is little capacity for working women to commit to leadership roles. Indeed,
as some of the women highlighted time constraints are a real issue. 15 Thus, many
women executives have declined offers to serve on boards because they just
dont have time.

14
15

Biz Divas and Khaitan & Co. (2014), p. 10.

Banerji, Mahtani, Sealy, and Vinnicombe (2010), p. 26.

10

These realities led experts to express concern that the corporate sectors response
to the requirement would be to seek women directors who are already serving on
other boards. It appeared, at least at first, that many of the same women were
initially being tapped for board positions. For example, in October, 2013, Wipro,
Indias third largest software services company appointed former McKinsey
executive Ireena Vittal to its board as an independent director. Ms. Vittal was the
first woman to serve on Wipros board for over 30 years; the last women director
being the chairmans mother who served as a director for 17 years until 1983. Ms.
Vittal, a well-known executive, was appointed to six prominent board positions in
2013 alone, including at large listed companies such as Tata Global Beverages,
Axis Bank, and Godrej Consumer Products.

Implementation Shortcomings

Despite the lofty aims of the one woman director requirement, corporate India as a
whole did not move quickly toward compliance. Various reports indicated that by
the end of 2014, almost 37% of companies listed on the NSE had not appointed a
woman director. Even with significant advance notice of the compliance deadline,
analysts estimate that nearly 600 companies announced the appointment of a
woman director in the last two days before the April 1, 2015 deadline. In addition,
some companies, including some very large state-owned firm, failed to comply
with the deadline. Early figures from analysts estimated that approximately 13%
of companies listed on the National Stock Exchange of India (NSE) failed to
appoint a woman director as of April 1, 2015. The lack of non-compliance was
likely much larger for BSE-listed firms. The last minute push to appoint woman
directors raises legitimate concerns about whether companies have adopted a
check-the-box attitude and about the quality of the nomination process
undertaken to identify women directors.

11

The lack of compliance resulted in threats by SEBI that it would take action
against non-compliant companies. In early 2015 the Chairman of SEBI noted that
it was shameful that companies had failed to find competent women, and that
SEBI would be open to imposing penalties for non-compliance. Under section
23E of the Securities Contracts (Regulation) Act, 1956, any violations of the
requirements of the listing agreement could result in a potential penalty of up to
Rupees 250 million (approximately $3.9 million). In early April 2015, SEBI
directed the stock exchanges to impose fines on non-compliant firms. According
to the SEBI circular, companies that missed the April 1st deadline but appointed a
woman director before June 30, 2015 would have to pay Rupees 50,000 as a fine,
and firms that do so between July 1 and September 30, 2015 would have to pay
Rupees 50,000 plus Rupees 1,000 a day from July 1st to the date of compliance.
In addition, companies that comply with the one woman director requirement after
October 1, 2015 will have to pay Rupees 1.42 lakh (approximately $2200) along
with a fine of Rupees 5,000 a day from October 1st till the date of compliance.
SEBI further warned that for any non-compliance beyond September 30, 2015, it
may take any other action it deems appropriate against the non-compliant entities,
their promoters and/or directors.

In addition to problems with companies failing to appoint women directors, many

have also expressed a concern that companies would fill directorships with family
and friends rather than developing the experience and talent of women who have
no prior experience on boards. The goal of gender diversity advocates is to
attempt to populate Indian firms with experienced and competent women who
could meaningfully contribute to board processes and decision-making. Thus,
advocates have sought to provide opportunities for board membership to a wider
array of women. Some early results are promising, with one report finding that in
the first half of 2014, 91 women were appointed to 97 directorship positions in 94
companies.

12

Nevertheless, reports indicate that many of the women directors appointed to

company boards were family members of the promoter or non-independent
directors. For example, Reliance Industries, one of Indias largest companies,
appointed Nita Ambani, the spouse of the companys chairman, as the first
woman director on the companys board. Early evidence suggests that many
companies followed the example of Reliance and appointed to Indian corporate
boards women who were relatives of company promoters, thus undermining the
diversity rationale behind the law.

International Comparisons

The lag in the appointment of women directors in Indian firms resembles the
situation in other parts of the world. By some measures corporate boards have
been trending towards greater gender diversity. In the United States, the number
of Fortune 100 boards with at least one woman increased from 11 percent in 1973
to 97 percent in 2006, between 2001 and 2007 the number of Fortune 500 boards
with two, three or more women increased appreciably, and womens share of
board appointments has been rising steadily since 2007. Nevertheless, other
measures indicate a plateau in board gender diversity. Members of the corporate
boards of Americas largest companies are still predominately men. In 2011
women held about 16% of the seats on Fortune 500 boards and about the same
percentage of important board committee chairs. Less than one fourth of Fortune
500 companies in the United States had 3 or more women serving together on the
board in 2011 or 2012.

What Next?

Scholars who have studied Indian corporate boards have made very useful
suggestions for how to better develop the pipeline so as to both add diversity and
lessen the risk of nepotism. Srinivasan and George conducted interviews of male
and female directors to study their experiences on Indian corporate boards with at
13

least one woman director. Two Chairpersons who had inducted women directors
to the board during their tenure were also interviewed. The study presented the
following findings: (1) board member identification/recruitment was typically not
structured (i.e. boards proposed names from their circle of contacts rather than
using a headhunter); (2) all women board members had a largely positive
experience associated with being on the board; (3) some female respondents
thought women brought unique competencies to the board, and mentioned that
women board members were more likely to question inappropriate decisions; (4)
all male respondents mentioned that women brought unique competencies to the
board; (5) the chairman of the board played a critical role in ensuring participation
of the women of the board; (6) there is a need to increase the pipeline of potential
women board members, increase the visibility of the potential directors, and
increase the education of new board members.

The authors proposed several policies to increase the pipeline of women directors
in India. First, improve the process of identifying women directors. This will
increase the available talent pool by helping to bring competent women in the
non-business sphere to the boards attention. Second, firms should develop a
director training and development program for mid-career women with high
potential, competence, and willingness to be on boards. Additionally, existing
executive directors can be groomed during their tenure to be independent directors
in non-competing industries. Third, enhance the supply of potential women
directors with education and networking organizations such as those seen in the
West.

Others have also advocated for SEBI to amend its listing rules to require that the
one woman director in listed companies must also be an independent director.
Such a requirement could positively impact the nomination process for women
board members, and enhance board processes. In addition, the appointment of
independent women directors would more likely convey that corporate India is
committed to diversity and inclusion of womens voices.
14

4. LESSONS ON BOARD GENDER DIVERSITY FROM INTERNATIONAL

EXPERIENCES

Around the globe, current research has yielded somewhat inconclusive results
regarding the value of gender diversity for corporate boards. While many
advocates, including government officials and members of the corporate
community, argue that diversity improves business performance, the academic
evidence linking board diversity and financial performance is rather mixed. Of
course, the arguments for gender diversity on corporate boards do not just rest on
firm financial performance. Others advocate for larger representation of women
on boards as a valuable source of human capital. As evidenced by the arguments
made in the Indian context, many argue that gender diversity enhances board
processes, decision-making and effectiveness. Indeed, with respect to gender
diversity and board decision-making, there are several studies that suggest that
diversity improves firm governance and board decision-making. Nevertheless,
studies suggest that it is somewhat doubtful that one token woman director will
improve board decision-making and governance. Despite the shortcomings of
empirical research on the business case for board diversity, some scholars have
made important social and moral arguments in favor of diversity. The discussion
below analyzes the implications of this research for Indias one woman director
mandate.

Mixed Findings on the Effects of Board Gender Diversity on Firm

Performance

Empirical findings on the relationship between gender diversity on corporate

boards and financial performance is mixed. Some studies find a positive
relationship, while other studies find a negative relationship or no relationship. A
2007 study by Catalyst, for example, is often cited by board diversity advocates as
establishing a link between gender diversity and financial performance. The
15

Catalyst study ranked Fortune 500 companies in the United States according to
the percentage of women on their boards and found that companies with a greater
percentage of women outperformed companies with fewer women in various
financial performance measures. Studies of firms in other countries have also
suggested a positive relationship between firm performance and gender diversity.
Nevertheless, few of these studies illustrate a causal link between gender diversity
on boards and improved financial performance. As Rhode and Packel state it
could be that better financial performance leads to increased board diversity in
that more successful firms can both attract high quality women candidates and
may have more resources to devote to pursuing diversity and may face more
pressure from the public and large institutional investors to increase board
diversity. 16

Several studies have found either no relationship or a negative relationship

between board diversity and financial performance. Several studies of U.S. firms
have found a negative relationship between gender diversity and various measures
of financial performance. In studies of firms in other countries, scholars have also
failed to find any significant relationship between the proportion of women
directors and firm performance using various measures. In fact, in one wellknown study of Norwegian firms, the researchers found a negative effect of
quotas on firm performance. In this study, the researchers found that the
Norwegian quota led to both a higher proportion of women directors and a
decrease in the average age and experience of directors. Accordingly, the authors
attributed the decrease in firm value to the quotas unintended consequence of
younger and less experienced boards. 17

The mixed empirical results on the effect of board diversity on firm performance
may reflect differences in methodology and significant differences among
countries and economies. As Rhode and Packel argue, these differing empirical

16
17

Rhode and Packel (2015), p. 2.

Ahern and Dittmar (2012).

16

results may reflect differences in the context in which diversification occursin

other words, board members prior experience and a countrys larger social
structure. With this in mind, as Indias experiment with board diversity
progresses, it will be crucial to address the social pressures placed on women in
India, such as household and familial expectations, in order to assess the impact of
the one woman director mandate on Indian corporate boards.

Gender Diversity and Board Decision-Making

Various scholars have argued that gender diversity can improve corporate
governance by improving board function and decision-making. A well-known
study by Adams and Ferreira found that (i) women directors had better attendance
records on boards than men, (ii) men on diverse boards had better attendance
records than men on homogeneous boards, and that diverse boards focused more
on monitoring.

Some scholars argue that greater inclusion of both sexes on corporate boards can
ensure that a wider range of behavioral characteristics are represented. For
example, empirical evidence suggests that women are more risk averse, more
prudent, and less ego-driven than men in financial management contexts. Some
diversity advocates also argue that womens life experiences differ significantly
from those of men, thus providing the board with a wider range of knowledge,
concerns, questions, and perspectives from which to discuss decisions. Others cite
evidence that women bring higher levels of positive traits such as trustworthiness,
collaborative work style, and cooperation. These scholars suggest that the
inclusion of both males and females on a board may increase the level of trust and
positively influence board processes and deliberations.

Scholars also argue that gender diversity may also help the board better undertake
its monitoring function by avoiding extreme positions and engaging in highquality analysis. Various researchers have found that increasing sex diversity
17

enhanced the board's overall effectiveness by facilitating higher quality decisions

through improved monitoring, mitigating groupthink, and boosting collective
intelligence. Teams with women were less often dominated by a few group
members, and were more open to diverse viewpoints. 18

The tendency of many Indian firms to appoint a woman director with significant
connections, or even familial connections, with the promoter may eliminate the
positive elements of bringing women on boards and undermine the goals of the
gender diversity mandate. Many scholars have argued that corporations tendency
to appoint women who are unlikely to challenge the status quo, or to appoint
trophy directors, with too many board positions to provide adequate oversight,
will likely dampen the benefits of diversity. In addition, in Indian firms where
promoters often dominate the board, women board members who are members of
the promoter family may in fact exacerbate the governance problems that prevail
in Indian companies.

The Dangers of Tokenism

Research on token women board members from outside of India raises other
concerns about the potential impact of Indias gender diversity mandate. Thus far,
few Indian firms show an inclination to appoint more than one woman director.
Some studies suggest that a critical mass of women is needed to realize the
potential benefits of diversity. A danger associated with the tokenism critical/mass
theory is the implication that the first or second woman board member is doomed
to fail; this may discourage women from accepting board seats.

Token female board members face unique challenges and behavior constraints and
so the value of adding a sole female director to the board is uncertain. Male
members of the board may become aware of shared attributes and how those
attributes distinguish them from the token female board member, thereby isolating
18

Rosenblum and Roithmayr (2014), p. 17.

18

the woman from the rest of the board. This is a problem as outsiders have limited
opportunities to influence group decisions, particularly in the context of corporate
boards where substantive discussions can often take place outside of official
meetings. Moreover, the token woman board members decisions and inputs can
be scrutinized because they are perceived to represent the entire gender. Thus,
tokenism may make it more difficult for women to be heard on an equal basis with
other board members.

Moreover, women face behavior constraints. A token female board member must
walk a fine line between performing equally to her male counterparts in board
discussions and decision-making (to prove her worth to the board) and not
outperforming her male colleagues (or risk being regarded as too aggressive,
pushy, and overly ambitious). Social scientists have found that token members
often encounter social isolation, heightened visibility, . . . and pressure to adopt
stereotyped roles. They are less likely to do well in the group, especially if the
leader is a member of the dominant category. 19

Evidence suggests that the benefits of diversity are achieved when there is a
critical mass of women on the board. A widely-cited study on critical mass by
Kramer et al. (2006) concluded that the benefits of diversity are achieved when
critical mass of three or more female directors is reached. Having three or more
women on a board can create a critical mass where women are no longer seen as
outsiders and are able to influence the content and process of board discussions
more substantially. When there are enough female directors to comprise a critical
mass, both women and men feel more comfortable with female presence in the
boardroom, thus enhancing female directors abilities to contribute and be heard
in board discussions. Kramer et al concluded that a critical mass of women
directors is good for corporate governance in at least three ways: (1) The content
of boardroom discussion is more likely to include the perspectives of the multiple
stakeholders who affect and are affected by company performance, not only
19

Rhode and Packel (2014), p. 394.

19

shareholders but also employees, customers, suppliers, and the community at

large; (2) Difficult issues and problems are considerably less likely to be ignored
or brushed aside, which results in better decision-making; (3) The boardroom
dynamic is more open and collaborative, which helps management hear the
boards concerns and take them to heart without defensiveness. Similarly, a study
of boards of eleven Israeli government-owned companies that have been required
for two decades to be relatively gender balanced found that boards that had critical
masses of at least three directors of each gender in attendance, and particularly of
three women, were approximately twice as likely both to request further
information and to take an initiative, compared to boards that did not have such
critical masses.
5. CONCLUSION

Indias one woman director mandate has the potential to generate significant
changes in Indian boards and to serve as a model for other countries around the
world. International studies on the effects of women directors cast some doubt on
whether a token woman board member will be sufficient to truly affect board
function, decision-making and performance. These studies suggest that to achieve
the value of gender diversity, Indian firms will need to move beyond just one
woman directora challenge given the already significant pipeline problem in
India. Moreover, for the mandate to have real meaning, companies will need to
truly diversify the pool of women candidates, moving beyond family and
associates of company promoters. Overall, given that India is one of the few nonWestern countries to introduce a gender diversity quota, it would be extremely
valuable for scholars to continue to explore further the impact and import of this
mandate.

REFERENCES

20

Adams, Renee B. and Daniel Ferreira. 2009. Women in the Boardroom and Their
Impact on Governance and Performance, Journal of Financial Economics, 94:
291-309.
Afsharipour, Afra. 2009. Corporate Governance Convergence: Lessons from the
Indian Experience, Northwestern Journal of International Law and Business, 29
(2): 335-403.
Afsharipour, Afra. 2010. The Promise and Challenges of Indias Corporate
Governance Reforms, Indian Journal of Law and Economics, 1: 33-70.
Afsharipour, Afra. and Shruti Rana. 2014. The Emergence of New Corporate
Social Responsibility Regimes in China and India, UC Davis Business Law
Journal, 14(1): 175-230.
Ahern, Kenneth R. andAmy K. Dittmar. 2012. The Changing of the Boards: The
Impact on Firm Valuation of Mandated Female Board Representation, The
Quarterly Journal of Economics, 127 (1): 137-197.
Balasubramanian, Bala N. and Rejie George. 2012. Corporate governance and
the Indian institutional context: Emerging mechanisms and challenges. In
conversation with K.V. Kamath, Chairman, Infosys, and ICICI Bank, IIMB
Management Review, September. New Delhi: Elsevier.
Balasubramanian, Bala N. 2013. Gender Equality, Inclusivity and Corporate
Governance in India, Journal of Human Values, 19(1): 15-28.
Banerji, Aparna, Shalini Mahtani, Ruth Sealy, and Susan Vinnicombe. 2010.
Standard Chartered Bank: Women on Corporate Boards in India 2010. Cranfield:
Cranfield

School

of

Management,

http://www.communitybusiness.org/images/cb/publications/2010/WOB_India.pdf
.
Bhala, Nita. 2015. Indian firms mock gender diversity as boardroom deadline
passes analysts, Reuters India, 1 April.
21

Bhattacharyya, Rica. 2013. Taking Women on Board: Forced by law to ensure

representation, companies search desperately for talent, The Economic Times, 28
October.
Bhattacharyya, Rica. 2013. New company law gives a big push to gender
diversity at workplace, The Economic Times, 24 December.
Biz Divas and Khaitan & Co. 2014. Women on Boards A Policy, Process and
Implementation Roadmap.
CATALYST. 2007. The Bottom Line: Corporate Performance and Womens
Representation on Boards.
Companies Act, No. 18 of 2013, INDIA CODE.
Das, Subhash Chandra. 2008. Corporate Governance in India: An Evaluation.
New Delhi: Prentice Hall India.
Edwin, Tina. 2014. Stilettos in the Boardroom, Business Today, August 31.
Fairfax, Lisa M. 2006. Clogs in the Pipeline: The mixed data on women directors
and continued barriers to their advancement, Maryland Law Review, 65(2): 579
624.
Francesco, Anne Marie and Shalini Mahtani. 2011. Gender Diversity Benchmark
for

Asia

2011.

http://www.communitybusiness.org/images/cb/publications/2011/GDBM_2011.p
df.
Gupta, Aparajita. 2013. Draft guidelines for corporate gender party soon: Sachin
Pilot, IANS, August 19.
Heminway, Joan Macleod. 2007. Sex, Trust and Corporate Boards, Hastings
Womens Law Journal, 18: 173-97.

22

Heminway, Joan MacLeod and Sarah White. 2007. Wanted: Female Corporate
Directors, Pace Law Review, 29: 249-291.
Kamalnaath, Akshaya and Yamini Peddada. 2012. Women in Boardrooms:
Formulating a legal Regime for Corporate India, Journal on Governance, 1 (6):
676-94.
Kamalnath, Akshaya and Annick Masselot. 2014. The Transfer of Gender
Equality Norms from Europe to Asia Through the Spread of Corporate Gender
Quotas, Newcastle: University of New Castle, http://ssrn.com/abstract=2504339.
Karmali, Naazaneen. 2014. Nita Ambani, Indias Most Powerful Woman?,
Forbes, June 19.
Knowledge@Wharton. 2013. India Inc. Aims to Get More Women on its
Boards, August 1, http://knowledge.wharton.upenn.edu/article/can-india-inc-getmore-women-on-its-boards/.
Kramer, Vicki, Alison Konrad, and Sumru Erkut. 2006. Critical Mass on
Corporate Boards: Why Three or More Women Enhance Governance, Wellesley
Centers for Women, Report No. WCW 11.
McKinsey & Company. 2012. Women Matter: An Asian Perspective, June.
Ministry of Corporate Affairs, Government of India. 2014. Annual Report 20132014.
Ministry of Corporate Affairs. 2012. The Companies Bill, 57th Report 15, June
2012,
http://www.prsindia.org/uploads/media/Company/Companies_Bill_%20SC%20R
eport%202012.pdf.
OConnor, Marleen A. 2006. Women Executives in Gladiator Corporate
Cultures: The Behavioral Dynamics of Gender, Ego, and Power, Maryland Law
Review, 65: 465-501.
23

Pilot, Sachin, Corporate Affairs Minister. 2013. Speech at AIMAs 40th National
Management

Convention,

September

26,

http://aimablog.com/courage-in-

uncertainty-sachin-pilot-minister-of-stateic-for-corporate-affairs/11/.
Raghunathan. Anu. 2015. Indian Companies Scrambled To Appoint Women
Directors Before April 1 Deadline, Forbes, April 3.
Rhode, Deborah L. and Amanda K. Packel. 2015. Diversity on Corporate Boards:
How Much Difference Does Difference Make?, The Conference Board Director
Notes, No. DN-V7N2.
Rhode, Deborah L. and Amanda K. Packel. 2014. Diversity on Corporate
Boards: How Much Difference Does Difference Make?, Delaware Journal of
Corporate Law, 39 (2): 377-425.
Rosenblum, Darren and Daria Roithmayr. 2014. More than a Woman: Insights
into Corporate Governance after the French Sex Quota, Los Angeles: USC Law
Legal Studies Paper No. 14-35, http://ssrn.com/abstract=2482720.
Securities and Exchange Board of India. 2014. Corporate Governance in listed
entities Amendments to Clause 36B and 49 of the Equity Listing Agreement.
April 17, 2014.
Securities and Exchange Board of India. 2014. Corporate Governance in listed
entities Amendments to Clause 49 of the Equity Listing Agreement. September
15, 2014.
Securities and Exchange Board of India. 2015. Circular: Fine structure for noncompliance with the requirement of Clause 49(II)(A)(1) of Listing Agreement.
April 8, 2015.
Sen, Anirban. 2013. Wipro appoints former McKinsey executive Ireena Vittal as
board member, LIVE MINT, October 1.

24

Shrivastava, Bhuma. 2013. Women Sought on Boards as Stiletto Groups Grow:

Corporate India, BLOOMBERG, October 21.
Sinha, Shishir and Divya Trivedi. 2011. Govt wants at least one woman director
on every company board, The Hindu Business Line, October 21.
Srinivasan, Vasanthi and Rejie George. 2012, Building the Women Directorship
Pipeline in India: An Exploratory Study, Bangalore: NSE-IIMB working paper.
Standing Comm. on Finance, 15th Lok Sabha. 2010. The Companies Bill, 2009,
21st

Report,

http://www.icsi.edu/webmodules/linksofweeks/21_Report_Companies_Bill.pdf
Terjesen, Siri, Ruth V. Aguilera & Ruth Lorenz. 2014. Legislating a Womans
Seat on the Board: Institutional Factors Driving Gender Quotas for Boards of
Directors, Journal of Business Ethics, forthcoming.
The Economic Times. 2015. Sebi wants strict compliance to mandatory woman
director norms, The Economic Times, February 22.
Torchia, Mariateresa, Andrea Calabr, and Morten Huse. 2011. Women
Directors on Corporate Boards: From Tokenism to Critical Mass, Journal of
Business Ethics, 102 (2): 299-317.
UKG. 2011. Women on boards February 2011 (The Davies report). London:
UK Government.
Varottil, Umakanth. 2009. A Cautionary Tale of the Transplant Effect on Indian
Corporate Governance, National Law School of India Review, 21 (1): 1-49.
Varottil, Umakanth. 2014. Report on Gender Diversity in Corporate Boards,
IndiaCorpLaw, Sept. 22, http://www.indiacorplaw.blogspot.com/2014/09/reporton-gender-diversity-in-corporate.html.

25

Varottil, Umakanth. 2015. Gender Diversity on Corporate Boards: The Need to

Move

Beyond

Rhetoric,

IndiaCorpLaw,

April

1,

http://indiacorplaw.blogspot.com/2015/04/gender-diversity-on-corporateboards.html.
Vijayraghavan, Kala. 2013. Ireena Vittal: Former McKinsey consultant is the
advisor that companies seek, The Economic Times, November 4.
World Economic Forum. 2009. The India Gender Gap Review 2009.
Yi, Alicia. 2011. Mind the Gap: Half of Asias boards have no women, a risky
position

for

governance

and

growth.

Korn/Ferry

Institute,

http://kornferryinstitute.com/reports-insights/mind-gap-half-asias-boards-have-nowomen-risky-position-governance-and-growth (accessed on January 30, 2015).

Zachariah, Reeba. 2013. Norms Blunt Cos Acts A-Woman-A-Board Rule, The
Times of India, Dec. 23.

26