Are Indian Companies Legally Required To Have Women On Their Boards?

In recent years, gender diversity on corporate boards has become a significant issue globally, including in India. Recognizing the importance of diverse perspectives in decision-making, India has implemented legal reforms to ensure a minimum level of female representation on the boards of certain companies. The requirement to have women on corporate boards is aimed at promoting gender equality and empowering women in the corporate sector.

Legal Requirements in India:

Under the Companies Act, 2013, Indian companies are legally required to have at least one woman on their board of directors. The provision applies to:

• Listed Companies: Companies that are listed on stock exchanges in India must have at least one woman director on their board.
• Public Companies: Any public company that meets certain criteria, such as having a paid-up share capital of Rs. 100 crore or more, or an annual turnover of Rs. 300 crore or more, is also required to include a woman on its board.

The rule was introduced by the Ministry of Corporate Affairs (MCA) to promote gender diversity in the corporate governance structure, which has been shown to improve decision-making processes, financial performance, and the company’s reputation.

Steps to Comply with the Law:

Appointment of a Woman Director: Companies must ensure that they appoint at least one woman director to their board. This is an ongoing legal requirement for listed and certain public companies.

Board Restructuring: If a company has not complied with the law, it must take steps to restructure its board to include a woman, and this should be reflected in the company's annual filing.

Audit and Compliance: Companies are also expected to disclose the gender diversity of their boards in their annual reports and filings with stock exchanges. Regular audits and reports ensure that companies comply with this requirement.

Penalties for Non-Compliance: Failure to comply with this legal provision may lead to penalties, including fines for the company and its officers.

Legal Actions and Protections:

Gender Equality Laws: The requirement for women on boards is part of India's broader efforts to promote gender equality, as seen in other policies such as those supporting women in entrepreneurship and leadership.

Further Legal Reforms: The Companies (Amendment) Act, 2017, also strengthened provisions related to board composition and increased the push for diversity. Further legal reforms may expand the scope and enforcement of gender diversity in the coming years.

Example:

In India, large corporations such as Tata Consultancy Services (TCS) and Infosys have implemented the policy of having women on their boards in response to the legal requirements. These companies have gone beyond just fulfilling the legal obligation, choosing to appoint highly experienced female professionals with diverse backgrounds to their boards. For example, Indra Nooyi, former CEO of PepsiCo, has served on various boards in India, setting an example of leadership and encouraging more female representation in the corporate sector.

On the other hand, smaller or non-compliant companies may face financial penalties or reputational damage if they fail to meet the gender diversity requirement.