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Although the constitution of India has granted men and women equal rights, we still find that employment of women is not preferred. Thus opportunities for women are limited for e.g., women are not preferred in Army /Air force in certain areas like combat field, in flying zones. But today the scenario has changed. You find women employed as pilots flying aircrafts, occupying top posts in many companies be it a manufacturing sector or banking /financial sector. Women have also entered the board rooms of many companies, of course in a limited way. Our Laws also have conferred many privileges or protection or relaxed provisions considering the fact that women are disadvantaged in some ways. In this scenario, Companies Act, 2013 has made a provision for employing women directors on the Boards of certain class of companies and this is a welcome move. This article focuses on the issue of representation of woman directors on the board and its effect.
Importance of the Board: Before we get into the main topic, let us discuss the role and importance of the Board of directors. The Board of Directors is an important body elected by the shareholders and responsible for running of the company. It is collectively responsible for making policies for good governance. The Board should act in the best interests of the Company and stakeholders. The Companies Act, 2013(hereinafter referred as” the Act or new act”) enhanced the accountability and responsibilities of directors by mandating certain disclosures such as evaluation of performance of board, CSR policy, whistle blower mechanism, risk policies etc in the Directors report.
What are the significant changes brought in by the Companies Act,2013?
It will be appropriate to touch upon the changes brought in by the New Act in relation to appointment of directors before delve into the main topic.
The Act, 2013 has for the first time –
- defined duties of directors
- defined the role of independent directors
- cast a duty on the Board to device proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
- made provision for appointment of woman director
- Increased the maximum number of directors from existing limit of 12 to 15 and provided for increase beyond 15 by a special resolution
- Kept the power with Central Govt for prescribing minimum number of directors in case of certain companies or class of companies
- prohibited insider trading
- provided for stringent penalties for violation of duties and non disclosure of interest in related party transactions
Why focus on Woman directors?
It is quite interesting to note certain facts about women directors from the statistics. According to “Catalyst” a non profit research organisation in America, many of the Fortune 500 companies which have highest representation of women directors on board have achieved better financial performance than those have less representation of women directors on Board. Yet in US women held about 17 % of the board seats of Fortune 500 companies in the year 2012. In UK it is 19% .In Norway it is surprisingly 41 %. In India it is roughly 7% of the directors on listed companies which is a very dismal percentage. Thrust given by the New Act, 2013 is certainly going to help in improving the representation of women directors on the board.
What are the provisions of Act?
Let us now have a close look at the provisions relating to appointment of directors. The relevant Section is 149 of the Act,2013. It deals with the provisions relating to appointment of directors and matters such as the minimum and maximum number of directors, type / class of directors to be appointed. Elaborately it dealt with attributes of an independent directors and time limit of one year within which the provisions have to be complied with for achieving employment of woman directors and minimum number of independent directors on the board.
Provisions relating to women directors:
Proviso to Section 149(1) stipulates that Companies with such criteria to be announced shall appoint woman directors. Rules currently displayed on the MCA web site for comments indicate the following for appointment of women directors on the boards of companies:
a. Every listed company shall appoint at least one woman director within one year from the commencement of the second proviso to Section 149(1).
b. Every other Public company:
- having paid up capital of 100 crores or more or
- a turnover of 300 crores or more
have to compulsorily appoint within 3 years from the commencement of second proviso to Section 149(1) of the Act.
Time limit of one year is provided to fall in line with the new requirement. A search for right kind of women directors has to be made and it is certainly a time consuming exercise.
Note: Readers may note that Rules which are display are likely to be amended based on the feed back received by MCA.
Other requirements under the Act:
As per section 152(5), every person including a woman director who has been appointed to hold the office of a director shall on or before the appointment furnish to the company consent in writing to act as such in Form No. 11.2 and comply with requirements for filing of consent on MCA portal. Woman director proposed to be appointed has to obtain DIN and shall give a declaration that she is not disqualified to be appointed as a director.
Will woman directors make an impact?
Lot of women are occupying key posts in many companies and reputed private banks. Women namely, Nainalal Kidwai, Chanda kochhar, Sheekaswarup, Kalpana Morparia have earned a reputation for leading successfully the banks as executives can also make an impact as woman directors. There is vast talent but the mindset of corporate world has to change to come forward to appoint woman directors. With this mandatory provision for representation to women on the Boards, India Inc is likely to have more talented woman on the boards of their companies.
Conclusion: Gender bias has deterred many companies to induct women directors on their Board. Now with the new Act requiring compulsory appointment of at least one woman director, companies will have to search for good woman directors within the time frame allowed. There are about 6000 listed companies on the stock exchanges and it will create a demand for woman directors Let us hope that each competent women found will stretch themselves to represent as many companies as possible to meet the requirements.
G S Rao,
DGM(Legal),OCL India Limited
Tags: Appointment of woman Directors, The Companies Act, 2013
This article contains interpretation of the Act and personal views of the author are based on such interpretation. Readers are advised either to cross check the views of the author with the Act or seek the expert’s views if they want to rely on contents of this article.