Gender Diversity and Government Companies

It has been more than a year since a provision in the
Companies Act, 2013 came into effect that requires all listed companies to have
at least one woman director. As we had previously discussed, companies scrambled
to comply
with the requirement as of April 1, 2015, the effective date.
However, a recent news
in the Business Standard indicates that 57 companies listed on the
NSE are yet to comply with this requirement. More importantly, at least a third
of the violators are public sector companies (PSCs). This represents yet
another instance whereby, instead of taking the lead in ensuring compliance
with enhanced corporate governance norms, PSCs have been in breach.
Such a situation is not new. A similar one arose a few years
ago when several PSCs failed to comply with the requirement of appointing a
minimum number of independent directors, and SEBI initiated action against them
(discussed here
and here).
However, those actions had to be dropped because the PSCs argued that despite
their repeated efforts, the appointments of independent directors could not be
implemented due to the lack of approval from the President of India for such
appointments (as required under the articles of association of such companies).
PSCs are staring at a similar bottleneck even regarding the appointment of
women directors.
This does not at all bode well for corporate governance in
India if even the letter of the law cannot be complied with, and where the
perpetrators of non-compliance are government-owned companies. As I had observed elsewhere in connection
with the earlier episode involving the appointment of independent directors:
This episode may likely
have deleterious consequences on corporate governance reforms in India. Compliance
or otherwise of corporate governance norms by government companies has an
important signaling effect. Strict adherence to these norms by government
companies may persuade others to follow as well. But, when government companies
violate the norms with impunity, it is bound to trigger negative consequences
in the market-place thereby making implementation of corporate governance norms
a more arduous task. …

That sentiment would hold good even for the present episode
involving women directors. Despite giant strides having been taken in
strengthening substantive corporate governance norms in India, much less
progress is made with compliance and enforcement.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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