Gaps in Modern Leadership- An Overview of Board Diversity in India

This post is the second in a series of guest-authored commentary pieces spotlighting data and insights from the Board Diversity Gaps report, produced in partnership between Diligent Institute, the Institute of Directors, India, and 21 other organizations committed to promoting boardroom diversity around the world.

The corporate governance landscape in India is largely governed by 2 regulatory bodies: The Securities and Exchange Board of India (SEBI), a statutory body, and the Ministry of Corporate Affairs (MCA), under the Government of India. SEBI’s Listing Obligations and Disclosure Requirements (LODR) 2015, and MCA’s Companies Act, 2013 are among the major legislations governing Indian companies in this domain. Regulation 17(1) of SEBI (LODR) Regulations, 2015 mandates ‘gender diversity’ for up to the top 2000 listed Indian companies. The latest amendments to the regulation were made in 2018 and were adopted by premier 500, 1000, and 2000 listed firms by April 01, 2019 or 2020 to be disclosed in Annual Reports. Another amendment to the regulation in 2018 required every listed company to disclose a chart or a matrix of the skills/expertise/competencies of directors on their board with effect from FY ending March 31, 2020 in their respective annual reports. This amendment was considered part of SEBI’s  effort to enable companies to consider both the skill-sets their directors bring to the boardroom and considering the gaps therein.

In India, while the conversation on diversity has been largely focused on and limited to gender diversity, regulatory moves have pushed companies to consider skill-set diversity on their boards. In other areas of the world, particularly in the United States, discourse on board diversity has expanded to include other factors of diversity such as race/ethnicity, nationality, LGBTQ+ status, specially-abled persons and more in an attempt to build more inclusive boards which represent the societies their organisations serve and exist within.

Board Size for Indian Companies 

According to the analysis of company annual reports, the average size of boards of NIFTY 50 companies is around 11 board members, with the largest board consisting of 19 directors. While all companies followed SEBI (LODR) Regulations 2015 mandate of a minimum of 6 directors, only 2 companies sat on this minimum threshold as of March 31, 2021. A majority of the companies had boards numbering in the double-digits.

Gender Diversity on Indian Boards

Gender diversity in India remains the most frequent aspect of diversity being discussed. Both regulators (SEBI and MCA) have set mandates for including women in Indian boardrooms. These moves have been largely welcomed, but their adoption has remained slow-moving in the larger set of Indian companies. Despite this, many companies have moved from the initial “check-the-box” approach to gender diversity to acknowledging the value and strength in diverse views and opinions, perspectives, professional experiences, worldviews, and the meaningful value-addition women directors bring to the boardroom. An expansion of criteria, unlocking and accessing a wider pool of potential candidates, and change in mindsets has been witnessed over the last decade since the gender diversity mandate first came into effect.

On average, boards of the NIFTY 50 companies comprised 17.9% of women directors (WDs), with the highest board achieving 37.5% of seats held by women. According to current regulation, the minimum requirement mandated is one woman director on each board. While two companies in the NIFTY 50 did not meet this minimum requirement, 70% or 35 of the companies exceeded this minimum requirement with either 2 or 3 women directors on their boards. Additionally, our research revealed that 50% of the NIFTY 50 company boards have appointed a woman director to chair at least one prominent (statutory) Board Committee, leveraging their core competencies and leadership experience. In our opinion, this is indicative of meaningful boardroom participation and leadership by women directors on these boards. However, only one company appointed a woman director as the Board Chair, indicating an area to focus on for growth and progress in terms of representation in the future.

Looking at Diversity Beyond Gender 

Non-Executive Directors (NEDs) have been the focal point to add and address diversity in boardrooms. They have also been at the heart of the global diversity and inclusion discourse sweeping boardrooms and organisations over the last two years across the globe; from cognitive and experiential diversity, to racial and other elements of diversity. India has witnessed a movement of its own in this respect:  Although at a slower pace than expected, non-executive director appointments have moved from being personal, someone known well to the company’s promoter or representing the interest of stakeholders, to now being a far more strategic and professional hire. Highly sought-after board positions are now understood to come with a lot of responsibility, performance expectations, and value-addition requirements. On the NIFTY 50 company boards, Non-Executive Directors comprised on average, 72.5% of the board. With a ratio of 7:3 for Non-Executive to Executive Directors, these boards certainly have ample room to accommodate for greater diversity from a strategic standpoint, as well as from a gender perspective. As per SEBI LODR Regulations, 2015 listed companies should have at least 50% of non-executive directors on the board.

Board Chairs in India – A Closer Look at Board Leadership

A look at board compositions of NIFTY 50 companies (as on March 31, 2022) reveals:

• 56%,  or 28 companies, have Non-Executive Board Chairs.
• 68%, or 34 companies have already separated the Board Chair and Managing Director/ CEO positions.

At present, the above two practices are not mandatory under the Indian regulatory framework but have been adopted voluntarily. We also found the median age of board chairs stands at 60.5 years, indicating that experience goes a long way in charting one’s leadership journey to the boardroom. The age range for board chairs was between 39-90 years. It is mandatory to pass a ‘Special Resolution’ to appoint any director to the board above of the ages of 70 years (by Companies Act, 2013) and 75 years (by SEBI (LODR) Regulations, 2015), we found 13, or 26% of these companies had board chairs above the age of 70. A majority of 70% (or 35 companies) had board chairs between the ages of 50 and 70. Only two companies had board chairs below the age of 49 years. Many believe as the next generation of business leaders take over, and new-age companies list on bourses, these average ages will decrease.

Final Thoughts 

A recent global study conducted by Deloitte found that women hold 17.1% of the board seats in India, compared to 9.4% in 2014 after the first regulatory mandate for gender diversity came into effect. Eight years on, the numbers have almost doubled.  In June 2022, EU lawmakers passed a landmark mandate for gender equality, ensuring a 40% women-on-boards quota be followed from June 30, 2026 onwards for all large companies. They also set a target of 33% for women in all senior roles, including NEDs and executive directors, such as the CEO and COO. In the coming years, will Indian boardrooms continue to make progress on gender diversity alongside their European counterparts? Our research revealed that while on some diversity parameters Indian boards have shown meaningful progress, some parameters require greater attention. As a result of the globally competitive business environment, discourse and developments in corporate governance (CG), preferences of institutional investors, stakeholder considerations, and regulatory push, major-listed Indian companies are keener to adopt global best practices in corporate governance, including progress on boardroom diversity.