Sex, it is said, sells. In the case of the proposal to reserve seats on the boards of Indian companies for women however, the matter has not only been cold-shouldered, but downright criticised. Why has there been such a negative response?
The reservations would mean that any woman who gets appointed to any board will henceforth be viewed as a reserve candidate. It may suppress recognition of her inherent competence.
It will also, perhaps, lead to dilution in the quality of directors, as companies struggle to fill so many quotas that they are already asked to cater to, according to the provisions of the Companies Act, the listing guidelines and an assortment of other guidelines from varied regulators.
Take a look at the banking regulations and you will know what I am talking about. Adding another dimension about the distribution of the directors on the basis of their gender would mean that much more desperation for search of candidates.
At the core of the issue is governance and role of the board of directors. The present construct of governance envisages that the shareholders, who are the owners of the company, appoint the board as a body that will safeguard their interests.
It therefore stands to reason that the board gets constituted in a manner directly proportional to the relative holdings that various shareholders have in the company.
In a pure sense, all the thinking that goes into the composition of a board need only take cognisance of this fact and nothing else. The notion of imposing a gender distribution therefore violates the core principles of good governance.
Further, from a governance principle, shareholders will look to the board to perform three main functions in order to safeguard their interests.
The principal objective of safeguarding their interest includes besides representing them the guidance and direction of the company's affairs along prudent and wealth-creating lines, and supervision of the management which runs the company on a day to day basis.
This requirement superimposes the need for competent persons to act as representatives of the shareholders. As said earlier, competence being the prime qualification for being a director on a board, any externalities to that requirement will impair the process of governance.
Competencies that one would look for in a person to be a good director are technical proficiency, business acumen, statespersonship and integrity.
Gender or indeed any other external considerations including nepotism, political affiliations, caste or geography are serious aberrations in constituting a quality board.
Since the shareholders would want the board to have the authority to supervise the management, each person who is on the board, and the board in its collective strength, should have the power to question the management.
It goes without saying that the management themselves will have to be competent and competitive to run the company in a manner that generates wealth for shareholders. That only emphasises the need for tougher directors who can command authority over such powerful management.
Under these circumstances, where is the question of introducing any further distributive factors such as sex?
Don't get me wrong. I have nothing against women. Indeed my entire argument is for having competence as the sole criterion for selection of directors; there should be no other bias. I sit on a board full of extremely competent persons, two of whom happen to be women.
My personal observations are that the contributions from directors have not been influenced by their gender. We must certainly be concerned if there is any bias against women being directors on any board. This would again be perverse to the logic of having competent people on the board, and should therefore be rejected as a notion.
However such a bias should be redressed individually wherever it exists, and cannot be rectified by a broad sweeping brush.
It must be recognised that the privity of arrangement is between the shareholders and the board, and there is little room for any external agency to interfere. Such interference should be brooked only under exceptional circumstances, when it is clearly established that there is disorder and malfunction.
The present situation does not warrant such a dispensation. Even the few cases of malfeasance that have come to light have nothing to do with the gender distribution on those boards, and cannot be addressed by having more women on them.
The reason for such misgovernance is the lack of proactive intervention on the part of both the boards and indeed the shareholders. Therein lies the rub.
I think the laws of our country already give one of the best environments for good governance, providing an admirable structure for governance, and a good route for remedial action, should there be any grievances in individual cases.
Yes, one can do with a lot more speed with which these issues can be addressed. But the law and the required institutions already exist to ensure nothing comes in the way of shareholders exercising their rights or indeed the boards exercising their powers.
The problem is a pervading sense of helplessness and ennui with shareholders, whose inaction in the face of gross impropriety often puzzles one.
They seem to act only after the cause is completely lost and there is little hope of any sensible retrieval of the situation. A generic observation one can make is that the boards in general tend to be too somnolent to be the vigilant watch-dogs that shareholders expect them to be.
(HDFC, HDFC Bank, Hero Honda Motors and Dabur India are among the known exceptions as determined by the Crisil Governance and Value Creation Ratings).
There is evidence, however, that things are improving both at the shareholder and the board levels. Especially the free press that we have in this country is a remarkable aid to shareholders in taking up their cause.
Many more instances of shareholders intervening and holding managements accountable have surfaced in the past year than ever before.
There is also clear evidence that in most companies that Crisil has seen, the board has become far more active and participative than ever before.
But the whole edifice of good governance has been built on a system of checks and balances, with each counter-force exercising its measure of rights.
The efficacy of such a system will depend on the efficiency with which all concerned exercise their rights.
No amount of external or statutory intervention, exemplified by the proposal to reserve seats for women on boards, is likely to address any malady in the system, in the absence of the practise of good governance by all concerned.
Rather than these measures, what is needed from the government is to make its supervision more effective and its redressal mechanism more efficient.
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