Author(s) :

Vijaylakshmi.

Volume/Issue :

Abstract :

The essence of board diversity has been imbibed in the legislature with the advent of new Companies Act, 2013 and revised clause 49 of the SEBI listing agreement of stock exchange in India, mandating to include at least one women director and specifying the minimum number of independent directors in the board of companies listed in India. The outcome of increasing research from developed economies have indicated the benefits of having a diversity balanced board in the company, which includes better comprehension of the market, business growth, increased innovation among few. Rather than restricting to gender diversity this study has examined the statutory aspect of the diversity also that is, board independence. The present study undertakes a sample of NIFTY 500 index companies listed in India in the National stock exchange belonging to different sectors – information technology, healthcare, pharmaceutical, and consumer goods. This finds that gender diversity is positively related with Tobin’s Q (proxy for company performance) and board independence is not related with Tobin’s Q.

No. of Downloads :

12

KEYWORDS:

Corporate governance, Board of directors, Gender diversity, Companies act 2013, Companyperformance

INTRODUCTION & OBJECTIVES:

Diversity allows to hire from a huge pond of talent which is essential for business growth. It brings abundant and diverse viewpoints and expertise which will become a boon for the organisation as well as for stakeholders at large. Diversity has become a value in itself, an expression of parity, autonomy and integrity. Shin & Gulati (2011) suggest that diversity is a means to another end which enables increased employee morale and efficiency, increase customer satisfaction, higher shareholder value. Increased diversity enables creation, inventiveness, enabling board to select from a wider spectrum of perspectives and opportunities, this in turn improves the performance level and will uplift organisational image. Governance is about possessing prudent directors’ who will monitor and administer the management, thereby bringing heterogeneity in the boardroom decisions. Kreitz (2008) finds that many researchers define diversity as “any significant difference that distinguishes one individual from another - a description that covers a broad range of obvious and hidden qualities.” As per Dutta & Bose (2006), gender diversity is about having women on the board of the company, a relevant facet of diversity in the board. Carter et al. (2003) says that diversity enhances the board independence as women have the propensity to raise their query and concerns on the company issues than male directors’. Diversity in decisions and solutions to queries enables to provide more analytical and ample of aspects to deal with the issues. Doldor et al. (2012) found that there are four points to be looked to represent the case of increase in the number of female directors’. Various evidences and reports were published in order to encourage diversity on the basis of gender in the company boards. Matsa and Miller (2011) says that women have expertise that are being valued more by certain environments, like that of marketing of packaged consumer goods. The women underrepresentation in board is also due to the glass ceiling factor. Niederle et al. (2007) found that some people even says that women diminishes due to competition for promotions either they require to be away from stress or unable to bring balance in work-life and executive office case due to which is ultimately leads to supply concerns (Matsa and Miller, 2011). The findings of Julizaerma et al. (2012) shows a positive relation between female directors’ and company performance saying that women representation can give an increased financial performance of the company. Female representation increase the governance aspect of organisation as well apart from being positively impacting the performance, as they are being more vigilant in constantly attending board meeting, voluntarily in joining board committes and to oversee performance. Adams & Ferreria, 2009 says that find new proofs that female have heterogeneity in their behaviour compared with the males and found that females positively impact the measures of board efficiency. And further they observe in their positive relationship of diversity with performance. Board of directors’ diversity consists of people from heterogeneous environment, race, ethnicity, skill, expertise, experiences, gender which will enhance company value and performance through novel insights, perspective, creativity, innovation to name a few and ultimately leads to effectively solving the issues. Diversity ensures a dedication for the upliftment of people from diverse backgrounds and a responsibility towards a non-discrimination policy of minority directors, investors. Although societal norms and cultural factors about the suitability of the job between women and men is a hindrance among other factors and also there are industries that even stereotype women, limited opportunities available to women to further in the race of development. Researchers of diversity finds that as per resource dependency theory in order to cope up with uncertain and complicated environment, leadership from diverse backgrounds of people will help to deal with the ever changing scenario effectively and efficiently. Peterson & Philpot (2007) observe the probability between the female and male directors’ to be a member of standing committee wherein female through their connections with the resource provider which will provide support to organisation will enable them more to be appointed in various committees. Terjesen & Singh (2008) examines different environmental systems that affects the organisation in respect to women’s representation in the board, where they study 43 countries and found that greater female on corporate boards have positive correlation with women in senior role as well as greater parity in male and female pay, whereas countries will lesser women political representation have increased representation of female on corporate boards. Talmud & Izraeli (1999) says that the aspect of gender is not a specific equity only but more of a system engrained within the work area, occupational climate by seeking support from official protocols, regulations and habit of mental architecture where people think about their social society and all these things cannot be phased out easily. Adams & Flynn (2005) undertakes a novel and diverse structure of critical theory wherein they have developed process that can hinder the change in relation to female representation on the board of the company. The factors that are posing restrain are at individual, organisational, group and outside the company environment and then with the help of structural, relational and intellectual spectrum the board creates an actionable knowledge. Konrad et al. (2008) finds that females are more inclined to raise questions in a way that decisions are not finalised without discussing relevant aspects and it is also observed that CEOs are tend to be more verbal and participating in case of greater female representation on the board of the company. Erkut et al. (2008) says that true change happens when more women are on the board and they feel that the environment is more agreeable, accepting, less restricting in relation to thinking of others (especially of male directors’) and resulting in positive interrelationship.

DOI:

https://doi.org/10.58426/cgi.v1.i1.2019.71-85