The coming year of the ‘great refresh’: a test of India’s boardroom diversity commitments
Rabindra Jhunjhunwala
Khaitan & Co, Mumbai
rabindra.jhunjhunwala@khaitanco.com
Saranya Mishra
Khaitan & Co, Mumbai
saranya.mishra@khaitanco.com
Introduction
The year 2024 is colloquially referred to as the ‘board refresh year’ for India, because of the statutory director tenure provisions. This presents an opportunity for India Inc to ingrain diversity principles at the board level and achieve a real-time notch-up in corporate governance.
In the past several years, there has been a notable trend of regulatory intervention[1] to increase gender diversity in corporate boards globally, by either mandating gender quotas or setting out principles as a voluntary guideline[2] for the appointment of at least one woman director to the board of directors. As a matter of metrics, 30 per cent female representation on boards and C-suites[3] is considered a significant milestone for achieving gender parity and this has made way for organisations like the Thirty Percent Coalition[4] and the 30% Club[5].
The situation in India
India has kept pace with this global trend and the representation of women gained momentum in 2013 when the country’s corporate laws were consolidated and overhauled[6], mandating certain classes of companies (public listed companies and public companies with paid-up share capital of INR 1bn or more, or turnover of INR 3bn or more) to appoint at least one woman director to their board. Subsequently, in 2019, the Indian market regulator, the Securities and Exchange Board of India, mandated that the top 500, and eventually the top 1,000 listed entities, appoint at least one woman independent director[7] to their boards. Consequently, as per an EY report[8], the number of women directors in India saw a jump from six per cent in 2013 to 13 per cent in 2017 to 18 per cent in 2022.
Now, almost a decade since the overhaul, India is faced with a unique situation concerning the mandatory refresh of boards of directors because of the statutory limit of ten years (being two continuous terms of five years) for board membership of a company as an independent director. On account of such a statutory requirement, if a company continued the tenure of an independent director for two consecutive terms, such an independent director will not be eligible for a third term with the company without a cooling-off period of three years. Accordingly, such companies will have to begin headhunting for independent directors to find a suitable match for their company. In this context, it is worthwhile to bear in mind that: statutorily the role and responsibility (along with liability) of independent directors is expanding, which might be discouraging for some people to become or continue being independent directors; and there is a limit on the maximum number of directorships a person can hold under Indian laws. These two factors collectively, could have the impact of considerably reducing the pool of qualified candidates suitable to be appointed as independent directors, and come 2024 (the year of the ‘great refresh’), one is likely to see some novice independent directors.
Conclusion
The coming year presents the perfect opportunity for Indian listed entities (looking for independent director replacements) to take the leap beyond the mandatory statutory requirements and consider appointing more than one woman independent director to their board and overcome the ‘golden skirt phenomenon’ (ie, a small group of prominent women being appointed as directors to multiple boards). Suffice to say that this will be the penultimate test to understand whether or not India is really keeping up with trendy concepts like environmental, social and governance (ESG) and diversity, equity and inclusion (DEI) in boardrooms, and the diversity commitment reflected in the statutory Business Responsibility and Sustainability Report of the listed entities. However, it is relevant to note that, while India Inc will be under the lens during the board refresh, it will be an uphill task given the lack of women in leadership positions in India and possible apprehensions about appointing a fresh face. Nonetheless, with timely measures, given that there is a year to go until the refresh, support, mentorship and leadership would go a long way.
[1] World of Labor, Gender quotas on boards of directors, wol.iza.org/uploads/articles/461/pdfs/gender-quotas-on-boards-of-directors.pdf, accessed 19 April 2023.
[2] International Labour Organization, Improving gender diversity in company boards, www.ilo.org/wcmsp5/groups/public/---ed_dialogue/---act_emp/documents/briefingnote/wcms_754631.pdf, accessed 19 April 2023.
[3] World Economic Forum, How gender equal are the world's boardrooms?, www.weforum.org/agenda/2021/03/study-shows-the-state-of-female-representation-on-corporate-boards/, accessed 19 April 2023.
[4] The Thirty Percent Coalition, The Coalition for Board Diversity, www.30percentcoalition.org/, accessed 19 April 2023.
[5] The Thirty Percent Coalition, The Coalition for Board Diversity, www.30percentcoalition.org/, accessed 19 April 2023.
[6] Government of India, Ministry of Corporate Affairs www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==, accessed 19 April 2023.
[7] Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 [Last amended on 17 January 2023], www.sebi.gov.in/legal/regulations/jan-2023/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-january-17-2023-_67590.html, accessed 19 April 2023.
[8] EY India, Women's representation on Indian Boards has tripled in 10 years: EY Report, www.ey.com/en_in/news/2022/10/womens-representation-on-indian-boards-has-tripled-in-10-years, accessed 19 April 2023.