How Women Directors Can Contribute to Excellence in

Governance

Dolly DhamodiwalaCEO, Business Beacon Management Consultants

Women Economic Forum, 2016May 16, 2016

What is Corporate GovernanceCorporate governance is the System by which

Companies are Directed and Controlled ( Sir Adrien Cadbury, UK, 1992)

Corporate Governance specifies the distribution of rights and responsibilities among company’s stakeholders and articulates the rules and procedures for making decisions on corporate affairs

Corporate Governance DefinedCorporate Governance provides the Structure

for defining, implementing and monitoring a company’s Goals and Objectives and Ensuring Accountability to all its Stakeholders

The shareholders or the owners of the company appoint the Board of Directors to put in place an appropriate Governance Structure

The Four Pillars of Corporate GovernanceAccountability – Ensure that management is

accountable to Board and Board is accountable to Shareholders

Fairness – Ensure protection of shareholders and treat all shareholders equally

Transparency – Ensure timely and accurate disclosures on all material matters including financial situation, performance, ownership and governance

Responsibility – Encourage cooperation between company and all its stakeholders in creating wealth, jobs and economic sustainability

Benefits of Good Corporate Governance

Good governance leads to :Better Access to External FinanceLower cost of Capital due to better knowledge of company’s

performanceBetter Company Performance due to good management

supervision, better allocation of resources and improvements in productivity

Higher firm valuation and share performanceReduced risk of corporate crisis and scandals through

Enterprise Risk Management and Disaster Recovery Systems

Key to all these benefits is a Well Informed Board fully aware of its functions and responsibilities

Role of DirectorsThe Role of Directors is important when the

Owners of the Company are different from its Managers

Managers act as Agents in whose hands the company’s capital is transferred by the shareholders or owners

Directors are the guardians of the company’s assets and are appointed by the shareholders to act on their behalf and supervise the managers

The Board of Directors thus serves as the Conduit between the Shareholders or owners of the company and the Managers who run the company

Board of Directors holds the Key to Good Corporate GovernanceThe Board provides the leadership which is at

the Centre of Corporate Governance ( Merwyn King, leading Corporate Governance practitioner from South Africa)

Leadership which is transparent and accountable and necessary for Efficiency, to compete effectively and create jobs

Leadership for Probity and Integrity in the interest of shareholders and other stakeholders

Leadership for Responsibility as companies have to increasingly address Social Concerns

Specific Responsibilities of DirectorsDevelop the company’s Purpose, Vision and

Values. The entire organization must understand the company’s strategic direction

Establish and monitor the implementation of corporate objectives

Approve the strategy, annual budgets, risk policy and business plans

Oversee, motivate and appoint the CEO and put in place an effective succession plan

Specific Responsibilities of DirectorsBoard is responsible for monitoring the

company’s governance framework, policies, procedures and practices

Board should ensure appropriate controls for Accounting and Financial Reporting systems, Independent Audit, Risk Management systems, Financial and Operational Controls and Compliance with law and operational standards

Board should Oversee Transparency and Disclosures and other Communications relating to the company

Board Composition – At the Centre of Good GovernanceThe Performance of the Board and the performance of the

Company depends greatly on its Board Composition The Board’s Size, Constitution, Expertise, Tenure and

Independence should be in tune with the nature of the company’s business and its subsidiaries and the expertise and experience desired to implement its strategies

Board members must act critically and independently of one another

Number of Independent directors should be in keeping with the regulations of the country, each an expert in his own field

Board should be diverse in terms of Gender, Age, Expertise, Skills, Experience, areas of Specialization and Accessibility

All these add up to better governance of the company

Greater Board Diversity, Better Company PerformanceTraditionally Corporate Directors formed “a cozy club of

insiders, or friends of existing board members.”  Boards now reach out to seek greater diversity - imbibing

New and Relevant Skills and Competencies, Demographics, and Networks – To generate Thought Diversity

Diversity at times also entails representation of Minorities, Disabled people, LGBT, Ethnic groups and others

Accessibility to Board members is equally important for Investors and Active Shareholders

Independence of Board Directors is Imperative for effective decision making

Gender Diversity is the most Critical Element of Board Composition“Women are the largest reservoir of untapped

talent in the world” – Hillary ClintonPresence of Women on the Boards is the

biggest differentiator for Company Performance

This has been proved by a raft of research studies conducted at leading Institutes globally

Peterson Institute of International Economics in its research study has concluded that ‘Presence of women on corporate boards and C-suits can contribute to better firm performance’

Women on Boards and Company PerformanceAmong profitable companies a move from zero women leaders to

30% was observed to have increased net revenue margin by 30 % - Peterson Inst. For International Economics

A Credit Suisse Gender 3000 study in 2013 shows that companies with gender diversity recorded excess stock market returns and higher valuations and payout ratios – Average RoI stood at 14% compared to 11.2% for companies without women leaders

Fortune 500 companies with the highest representation of women on Board attained significantly higher financial performance than those with the lowest representation of women on Board

A Report by Catalyst ‘The Bottom Line : Corporate Performance and Women’s Representation on Boards’.

Return on Equity was higher by 53%, Return on Sales higher by 42% and Return on Invested Capital by 66%

Women on Boards and Company Performance

“Empowering women is not only the Right thing to do . It is also the smart thing to do” – Jingdong Hua, IFC, VP and Treasurer

“It can add trillions of dollars to global GDP, boost productivity, generate higher returns on investment and promote greater organizational effectiveness”

Over the past decade, Fortune 100 Companies have added an average of 2.7 women directors on Boards, while Fortune 500-1000 have added an average of 1.7

Women on Boards – Views of Male Directors – IFC PaperPresence of even one woman on Board changes the Board

dynamicsWomen tend to be more careful and conscientious in their

work of supervision and scrutiny. Women have no qualms in asking questions when they don’t understand. Men are constrained by their egos.

Women have specific inherent qualities that enable boards to function better – More Inclusive, Detail driven, Patient, Prudent in their reviews and have better Communication skills. This leads to better board interactions and better performance.

By nature women are better qualified to lead companies in Environment related businesses, Consumer goods, Food products, Fashion garments, etc.

How do Women make a difference to their Boards and to GovernanceWomen have different perspectives and style of conductWomen tend to be more holistic, think more broadly and be

more attuned to environmental and social concerns. They voice issues relating to implications of company strategies on their Employees, Consumers and other Stakeholders, Environment and Society at large

Women are thus more competent for decisions regarding HR policies, CSR policies, Marketing Strategies for Consumer goods, Advertising and PR and now increasingly on Compliance related issues

Women see themselves as more in tune with relationships with stakeholders while men perceive themselves as more independent focusing more on Company Strategy and Performance

How do Women make a difference to their Boards and to GovernanceWomen on Boards being highly educated and

experienced are perceived by other women stakeholders and consumers as Role Models and Cultural Change Agents

Successful Women encourage Women at all levels to challenge their situations and empower them to grow in their chosen field. They groom future directors from within

Mindset of Women is generally less overconfident and Risk averse. This leads to better procedures and policies for crosschecks, double-checks, second opinions and consultations which result in perfection

How do Women make a difference to their Boards and to GovernanceProfessionally women have always had to work harder to

prove themselves and not to be criticized. Hard work leads to better scrutiny of issues facing the

company, more wholesome discussions of the issues, considering all aspects ( even unanticipated), better results and hence better company performance

Women have an Emotional and Nurturing Mindset and are more sensitive to Environment and Sustainability issues ,so vital today

Women sensitize their Boards towards certain vulnerable sections of Society, SMEs, Female employees and Underprivileged persons

An IFC Study has affirmed that women can bring about long term Sustainable Growth in their companies

How do Women make a difference to their Boards and to GovernanceWomen are more diffident and take time over their

decisions. Are even ready to ask questions at Board and senior management meetings

This leads to greater Transparency in the decision making process and hence better Compliance with Regulations

Better Compliance creates greater Value for the company.

Women’s inherent nature for 100 per cent Compliance also makes them better Supervisors. Better supervision mitigates the risks of Non-compliance which if overlooked can result in very serious consequences

How do Women make a difference to their Boards and to GovernanceWomen are more Inclusive. They attract high quality

talent from all quarters especially female talent, enhance and encourage creativity and innovation and facilitate greater market penetration and acceptance

Women are always eager to discuss strategies at the Board level and introduce new processes and encourage management to do so

Women are more effective on Boards of companies in the FMCG sector , Hospitality, Entertainment or Environment related industries or NGOs.

In these industries they need the freedom to innovate and bring in newer processes and strategies as their understanding of the industry is superior to that of men.

Some Statistics on Women DirectorsIn 2010, Savitri Devi Jindal was the only woman

chairperson among India’s top BSE 100 listed companiesPresently 5.4 per cent of 923 directors in top BSE 100

companies are women. The average age of women is 56 yrs. compared to 62 yrs. for men.

In South Africa the percentage of women directors to total number of directors was 16% in 2010.

In UK, only 12% of boards of companies comprise women. The aim is to increase this to 25%.

In USA, 70.8% of the 1763 companies rated by Governance Metrics International (GMI) had at least one woman director in 2011, but only 9.7% of these had at least three women directors.

Some Statistics on Women DirectorsVery few companies in India have at least three

directors. Apollo Hospitals, Axis Bank, Godrej Consumer

Products Ltd., Idea Cellular, Bharati Airtel, Tata Global Beverages, Titan company, Hotel Leela Ventures, etc.

According to Prime Database, 175 women from Promoter groups are on Boards as Executive Directors and 100 as Non Executive Directors. This includes women who have set up their own businesses like Kiran Mazumdar Shaw of Biocon

Expanding the Pipeline for Women DirectorsIn the selection process for directors, boards are now moving

away from the Nomination approach to a more systematic selection approach aided by Consultants

Shareholders are more active and expect the Directors to be actively engaged in all Board related issues and bring in fresh ideas to contribute effectively to the company’s strategy.

The Companies Act 2013 under Section 149(1) has stipulated that a Public Ltd. Company should have at least one woman director to be appointed within one year of the commencement of the Act. Other companies with paid up share capital of Rs. 100 crore and above should do so within five years

Public companies to have a minimum of three directors and private companies to have two and a maximum of 15.

Expanding the Pipeline for Women DirectorsAre quotas the best approach to getting more women on Boards?Acc. to a Study by a Cambridge University Professor, for 1000

companies from Forbes Global 2000 list the more influential factors are:

Female Economic Power, defined by, i) Expected no. of yrs of schooling for girls ( Primary and Higher

Education) ii) Percentage of women in the work force along with iii) Well documented Corporate Governance Code of the company

that emphasizes on Gender Diversity Political power of women in the country also plays a role They also need to stay for longer periods on the BoardsStudy conducted in 2013 for 1002 companies from Forbes Global

2000 list.

Expanding the Pipeline for women directorsWomen need greater visibility. This should be encouraged

from middle management level itself. Building effective networks within and outside the company is important

Women must be proactive and seek advice and guidance from Senior Management and Directors

Tenure of Non-Executive directors also needs to be reduced. It is usually 6-11 yrs and at times even 15 yrs. In India it is now reduced to three years with the option for reelection for another three yrs.

Special training needs to be provided to women especially for companies in the Social Sector, NGOs and Environment related sectors to take on greater responsibilities

Expanding the Pipeline for Women DirectorsWomen need to plan their career after retirement and seek training in

corporate governance, risk management, internal controls, financial management, et al.

Mentoring by Chairmen is very important to groom women to rise from senior management levels to directors

Women must consider the skills and experiences that are valued highly in the boardroom today.

Gain better knowledge and expertise in the key risks and challenges facing organizations and boards.

Cyber security, technology disruption, customer segmentation, market competitiveness, talent retention, are some of the emerging challenges