Editor’s Note: FII’s #MoodOfTheMonth for May, 2022 is Gender at Workplaces. We invite submissions on the many layers of this theme throughout the month. If you’d like to contribute, kindly refer to our submission guidelines and email your articles to sukanya@feminisminindia.com
In a recent development, the Los Angeles Superior Court struck down a law (Assembly Bill No. 979 (AB-979)) in California on the grounds that it was discriminatory and therefore, unconstitutional. Specifically, AB-979 sought to increase the diversity among the board of directors of corporations, by mandating that publicly held companies in California appoint a specific number of directors from the underrepresented communities, depending on the total numerical strength of the board.
In case a company failed to comply with the law, the Secretary of State could impose fines for non-compliance. The Los Angeles Superior Court is currently hearing a similar legal challenge against SB-826 which mandates companies in California to appoint a specific number of women directors on their boards.
Around the world, women hold an abysmally low percentage of top executive positions. A 2022 report found that women make up just 8 per ccent of the Financial Stock Exchange (FTSE) 100 CEOs. As of March 2022, there were a total of 74 female CEOs at Fortune 500 companies in the US.
Economists and corporate governance scholars have studied the link between greater corporate board diversity and the performance of a firm. For instance, the two main findings from a 2016 study were, firstly, that female workers at higher levels receive greater wages (about 10 per cent higher) when the firm is headed by a female CEO (as compared to a male CEO), because a female CEO is better at processing information about the productivity of female workers.
Secondly, the performance of a firm headed by a female CEO increases with an increase in female workers, attributed to a better allocation of tasks to female workers by a female CEO and mentoring by the female CEO. The study concluded that significant costs are incurred when women are not adequately represented at the top echelons of a company.
Another study found that firms with a higher gender diversity on their boards were larger and more profitable than firms whose boards were less gender-diverse. The study suggests that this is partly because female CEOs are held accountable to a greater standard than their male counterparts. Another reason may be that by increasing the number of women in executive ranks, the firms become more risk-averse and open to change, thereby becoming more innovative in the process. This in turn creates more value for the firm.
In India, Section 149 of the Companies Act, 2013 mandates that certain classes of companies (as prescribed by law) must appoint atleast one woman director. Rule 3 of the Companies Appointment and Qualification of Directors Rules, 2014 lays down that the requirement to appoint a woman director under section 149 applies to: firstly, every listed company and secondly, every other public company having paid-up share capital of one hundred crore rupees or more, or turnover of three hundred crore rupees or more. Failure to comply with this requirement is an offence under the Indian Companies Act
History of the California legislation on Corporate Board Diversity
In 2018, California became the first state to require companies having their “principal executive offices” in the state to appoint a minimum number of women on their corporate boards, depending on the size of their company boards. AB-979, modelled on similar lines as SB826, came into effect on 30 September, 2020.
Laws mandating gender diversity on corporate boards have faced stiff opposition from employers, activist investors as well as some diversity and inclusion advocates. The arguments against mandating corporate board diversity range from unconstitutionality to creating “lack of merit” on the corporate boards, where a more qualified man may not be appointed on a company board merely so that the company may fulfil its gender diversity requirements under the law.
The analogy sometimes offered is that of affirmative action in college admissions. Interestingly, those opposing laws mandating corporate board diversity also argue that such laws actually undermine the merit of the woman who has been appointed on the board, as it may be perceived that she was hired to fulfil the legal requirement and not on the basis of her merit.
Also read: How Holding Corporates Accountable And Empowering Women Can Alter Climate Change
They also argue that such laws are violative of the equal protection clause which is contained in the 14th Amendment in the U.S constitution. Notwithstanding the equal protection clause, the U.S government may make laws which discriminate on the basis of gender, so long as the law ‘furthers an important government interest’ and does so ‘by means that are substantially related to that interest’ (the ‘intermediate scrutiny’ test). Some argue that SB826 would not pass muster under this test.
California’s board diversity requirements have also been criticised inter alia by industry associations such as the U.S Chamber of Commerce on the grounds that they are unconstitutional and violate California’s Civil Rights Statute. The Chamber has instead advocated for increasing diversity through disclosure requirements, rather than quota-driven strategies. SB826 and AB-979 were finally challenged in Robin Crest v. Alex Padilla, a case brought by three U.S tax-payers on grounds that the corporate board diversity requirements violate the equal protection clauses of the federal as well as state constitutions.
Corporate Board Diversity in India
In a report released earlier this year, Deloitte India found that women held close to 17 per cent of the board seats in India, with 3.6 per cent of the corporate board chairs being women. The report contrasts the present statistics with 2014 statistics when 9.4 per cent of women comprised corporate boards in India.
While India is hailed as one of the first emerging economies to mandate corporate board diversity, the perception of token women directors is especially acute due to lesser corporate transparency, weak institutional mechanisms and less progressive attitudes towards gender equality in emerging markets. Some argue that this may lead to male corporate leaders in India appointing their own female relatives to the board, thereby defeating the purpose of the law. Fortunately, evidence contradicts this concern to a large extent, with 70.4 per cent of women appointed to previously all-male boards found to be independent
A significant legal development which can explain the increase in corporate board diversity in India is the enactment of the Companies Act, 2013. Section 149 of the Companies Act, 2013 mandates that certain classes of companies (as prescribed by law) must appoint atleast one woman director.
Rule 3 of the Companies Appointment and Qualification of Directors Rules, 2014 lays down that the requirement to appoint a woman director under section 149 applies to: firstly, every listed company and secondly, every other public company having paid-up share capital of one hundred crore rupees or more, or turnover of three hundred crore rupees or more. Failure to comply with this requirement is an offence under the Indian Companies Act.
While India is hailed as one of the first emerging economies to mandate corporate board diversity, the perception of token women directors is especially acute due to lesser corporate transparency, weak institutional mechanisms and less progressive attitudes towards gender equality in emerging markets.
Some argue that this may lead to male corporate leaders in India appointing their own female relatives to the board, thereby defeating the purpose of the law. Fortunately, evidence contradicts this concern to a large extent, with 70.4 per cent of women appointed to previously all-male boards found to be independent. At the same time, however, it is found that independent female directors may be less likely to serve on highly prominent committees such as an audit committee, as compared to independent male directors.
Measures to enhance Corporate Board Diversity
Other countries have experimented with board gender quotas, for instance, Norway, which passed a law in 2003 mandating companies that at least 40 per cent of their boards be composed of women. The evidence on the effectiveness of such measures is mixed and therefore, there is a need to explore alternate measures to address gender imbalances and gender discrimination at workplaces.
Jurisdictions are exploring strategies to enhance corporate governance through board diversity, by means of disclosure requirements. The Improving Corporate Governance Through Diversity Act of 2021 was introduced in the U.S Congress in February last year which has not yet been enacted. The proposed legislation requires issuers of certain securities to disclose the gender, ethnic, veteran status and racial composition of their board of directors and executive officers. Additionally, under the proposed legislation the Securities and Exchange Commission (SEC) is mandated to establish a Diversity Advisory Group tasked with formulating strategies to increase corporate board diversity.
Interestingly, within the private sector too, there have been attempts to enhance diversity and inclusion on corporate boards. For instance, NASDAQ formulated a rule in 2021 requiring companies listing on the stock exchange to disclose the composition and diversity of their boards. The rule also stipulated that by 2023, the NASDAQ listed companies would have to either appoint a diverse director on their board or explain to NASDAQ why they failed to do so.
Undoubtedly, mandatory disclosure requirements on board diversity would nudge companies to be more intentional about gender diversity. At the same time, governments and companies together need to explore more substantial strategies for improving board diversity, which lie in between stringent gender board quotas and the softer nudge approach.
Also read: Why Should It Be Harder For Women To Survive In The Corporate Sector?
Devika is a lawyer empanelled with the Ministry of Women & Child Development as a resource person with expertise on the PoSH law. She also runs Women & Justice, a research and awareness initiative. She is on Twitter and LinkedIn
Featured Illustration: Ritika Banerjee for Feminism In India
“As of March 2022, there were a total of 74 female CEOs at Fortune 500 companies in the US.”
True, just as an even smaller percentage of women are found doing the most dangerous jobs in the world. Most women prefer the comfortable life of light housework with a maid over corporate slavery. The reason why men are found in high positions is because men don’t have the option to sit at home, which explains why the majority of suicides, heart attacks, and workplace deaths are men.
Yes, I think that is why the workplace culture matters. Even indirect measures to promote women at workplace, such as strict implementation of workplace sexual harassment laws are important. This will ensure equality of opportunity to women at the workplace.
– Devika (author)
You are missing the point. There will always be fewer women in the professional world because millions of women do not want to be a corporate slave. They prefer the comfort of their homes with domestic help doing all the work.
That’s a great observation that you made but I don’t agree that most women sit at home with “domestic help doing all the work”.
Over the years, we have defined gender roles in the society. It is “masculine” to earn for the family and a matter of great shame if a man is unemployed, even though it may be out of ‘choice’ that the man is unemployed (say, he ‘wants’ to take a sabbatical).
For a woman, on the other hand, the expectation is that they would prioritise house work and at some level, ‘want’ to be sitting at home. That is not true. Not all families can afford domestic help and even with domestic help, there are other household responsibilities like supervision of the household help and taking care of children.
Even if all women don’t want to be corporate slaves, they are increasingly taking to entrepreneurship or starting a home business to sustain themselves. Therefore, not every women who opts out of a corporate career is necessarily sitting at home.
Supervising domestic help, cooking, laundry, taking care of children, etc. takes a lot of time and effort, but housework probably does not cause the same level of stress as a job outside the home, which explains why men’s life expectancy is much shorter than women’s. If a considerable percentage of women don’t want to get a job outside their homes, then obviously there will be fewer female bosses and CEOs, just as there are fewer women working low paying jobs (as mentioned in my comment below).
The majority who take arts and humanities in college are women because they know they don’t need to worry about getting a job that pays well, or a job at all. Those who seek employment don’t consider income as a priority. Their jobs are based on satisfaction, flexibility of hours, and working conditions. If the job is not comfortable, they have the option to quit. Then they ask why there are more male CEOs.
For every one male CEO there are crores of men working as labourers, rickshaw-pullers, fruit and vegetable sellers, street vendors, carpenters, plumbers, electricians, waiters, mechanics, welders, sewage workers, coal miners, factory workers, construction workers, tailors, barbers, milkmen, salesmen, clerks, truck drivers, bus drivers, auto drivers, taxi drivers, sweepers, cleaners, security guards, call center employees, cashiers, peons, repair workers, painters, janitors, petrol-pump attendants, garment pressers, dishwashers, and many more low paying jobs.