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Journal of Advance Management Research, ISSN: 2393-9664

Vol.05 Issue-04, (October 2017), Impact Factor: 4.598

Double-Blind Peer Reviewed Refereed International Journal - Included in the International Serial Directories

Journal of Advance Management Research, ISSN: 2393-9664 (JAMR) http://www.jamrpublication.com email id- [email protected] Page 242

IS GENDER DIVERSITY ASSOCIATED WITH SIZE OF FIRM AND BOARD SIZE: EVIDENCE

FROM INDIAN CORPORATE SECTOR

PUJA GABA,

RESEARCH SCHOLAR,

I. K GUJRAL PUNJAB TECHNICAL UNIVERSITY, KAPURTHALA, PUNJAB, INDIA

RAJESH BAGGA

DIRECTOR,

APEEJAY INSTITUTE OF MANAGEMENT TECHNICAL CAMPUS, JALANDHAR, PUNJAB, INDIA

ABSTRACT

With a compulsory condition imposed by Company Law Amendment, 2013, to include at least

one women director, Indian companies now have to recruit more women on board. This is in line

with the global trend of brining more gender diversity on corporate boards which is considered

to be associated with better and reliable decision making at board level. The present study is an

attempt to analyse the association of number of women on board in India with two major

corporate variables namely size of companies and with size of boards. Taking an exhaustive

sample of BSE 500 Index companies, it has analysed the trend of women directors on Indian

companies across these two criteria. Taking absolute number of women on board as one variable

and classifying the size of companies into four different categories on basis of market

capitalisation, the study found lack of association between these two variables using chi square

test. On similar grounds, chi square testing has been done to establish association between

absolute number of women on board and size of board as classified into four categories. In this

case, the relationship established has turned out to be significant and inverse in nature.

KEYWORDS: BSE 500 Index, Chi Square Test of Independence, Gender Diversity, Market

Capitalisation, Size of Board, Size of Company, Women on Board

INTRODUCTION

Diversity in any organization always helps as it tends to bring new ideas, better decision making

and new approaches to problem solving. With increasing globalization, companies exploring new

territories believe in bringing local manpower from the respective territories covered. The

motive is to develop a broader organization structure with absorption of people from different

backgrounds. This provides depth to organization in terms of critical and wider evaluation of

business decisions, making it an effective manpower recruitment strategy. Certainly, this change

has to be brought and incorporated at all levels. In fact, in this top to bottom approach to be

adopted, firstly, the inclusion of board members from different backgrounds in terms of age, race,




Journal of Advance Management Research, ISSN: 2393-9664 (JAMR) http://www.jamrpublication.com email id- [email protected] 43

colour and gender needs to be done. The first rationale for bringing diversity in organizations lies

in the “Resource Based Advantage” theory of competitive advantage and strategic analysis

whereby organizations performance is not industry specific or due to individual competitive

advantages. Corporate Governance issues also involve bringing racial, cultural and gender

diversity in modern day corporations. Mainly, the supporting argument for this is Agency theory

whereby, the shareholders are able to avoid any collusion among the planners (board members)

and the implementers (managers). Including more outside & more diverse board helps in solving

agency problems. Board independence is believed to ensure better performance as people with

different ethnicity, culture and gender ask questions with organizational performance as top

priority. Besides, corporate diversity is believed to help corporations as it brings creativity &

innovation to the forefront. Heterogeneity at the top is believed to cause effectiveness of

corporate leadership. Diversity on board level has become necessary post 2008 crisis and

resulting failure of many major corporations and institutions across the globe. The need for

transforming homogenous boards with similar thinking and having similar backgrounds to

diverse entities has been talked about in corporate world. The big question is how to overcome

the challenge and bring people having diverse ethnicity, colour and gender on board.

WOMEN ON BOARD IN INDIA

In a survey conducted of BSE-100 companies by Standard Chartered in 2009, it was found that

women held 59 directorships among the top 100 companies. Primarily, majority of

representation is noticed in companies working as family run businesses followed by government

managed enterprises. With India mainly being a patriarchal society, the mindset is influenced by

traditional thinking which attributes majority role for women within households. The dual

responsibility of managing corporate life along with household chores forbid women from taking

senior responsible positions. With a conservative mindset, women are perceived to give first

preference to their family work, the challenge of putting women on leadership roles gets

aggravated. The silver lining in the cloud is the presence of women on top specifically in Banking

& Financial Services sector. The success of Shikha Sharma & Chanda Kochhar has highlighted the

role to be played by women in top echelons of management. In 2002, the SEBI constituted the

Narayana Murthy Committee to assess the adequacy of current corporate governance practices

and to suggest improvements. Based on the recommendations of this committee, SEBI issued a

modified Clause 49 on 29 October 2004 (the ‘revised Clause 49’) which came into operation on 1

January 2006. However, none of the provisions require compulsory appointment of any women

directors on the board. With increasing education facilities and better job opportunities for

women in Indian society, women are progressing and applying for top level jobs. The

demographic dividend (more than 50% of population below 35 years of age) has changed the

thought process leading to more and more women appearing on surface for top level corporate

jobs. The representation at board levels have certainly increased and women’s contributions in

organizational performances are duly acknowledged. 33% quota fixed for women in Indian

parliament is a landmark which has strengthen the case for more representation of women at all

levels in all spheres of life.Women on board has become a burning issue since passing of

Companies Act, 2013 which has made it mandatory to include women on board. Section 149 of

Companies Act, 2013 deals with various issues of recruitment of different categories of investors.

This section has made it mandatory for every listed company in India to have at least one women





director starting from 1st April, 2015. Besides, a 3-year time frame has been given to public

companies not listed but having either a paid-up capital of 100 crores or turnover of 300 crores.

LITERATURE REVIEW

[1] conducted a study comparing the status of women on board across four major countries of

Asia including India. The study found almost similar patterns in hiring of women as employees

and directors. Interviewing the top women corporate leaders across these countries, the study

talked about the presence of challenges for women to reach the top positions. Besides, managing

the work life balance is a daunting task in all these countries due to conservative social attitude

which prescribes women to be handling both outside and home roles together. Paucity of

opportunities thus acts as major restraining factor for such women to occupy the peak career

positions. In another study, [2] compared the number of women on board in UK in 1998 to 1993.

As per the survey, the number of women on board has become double of the original number, yet,

it is still just 4% of total directors. However, interestingly, the number of women performing non-

executive role is increasing as ratio has reversed to 80:20. As a positive sign, the women joining

boards are younger, more qualified and have a rich profile in terms of background of holding state

or central government appointments. [3] identified that the situation of women representation

on board is not so rosy even in an advanced country like Australia. In his study conducted which

involves census of women directors on board of Australian companies, only 8.6% representation

of women has been found on Australian boards. The lack of women in executive positions and

very few managers working on independent profit centers have been identified as the major

reasons for such low representation. [4] conducted their study in the state of Texas state of USA

in 2005 observed that only 7.8% of directors’ positions were occupied by women. Besides, only

2 companies out of total sample of 257 had women CEOs which means that the representation of

women is abysmally low in this state. The study focused on improving society welfare measures

as support measure for improving these ratios. With increasing education, there will be more

qualified women leaders available in corporate sector which will ultimately decrease the

disparity in women to men ratios at board level. In another study [5], the presence of women on

board of US companies and its trends over 2002-2007 was analysed. It found an increase of 9%

(From 82 to 91) in number of Fortune 500 companies having at least women director, however,

this is just 14.8% of all board positions on Fortune 500 companies. During 2002-2004, Europe

has shown an increase from 62% to 68% while UK showed a marginal increase from 11 to 12.4%.

Identifying the various reasons for such low presence of women on board, the study attributed it

to reluctance on part of women directors as the main reason along with indifferent attitude on

part of male directors to persuade women directors to join the boards. Women have been found

to be playing a prominent role in top management in specifically those industries like consumer

goods, banking and financial services where consumer interaction is more and is a deciding factor

in influencing purchase decision. The study supported the idea of having minimum 3 directors on

board which will make women directors influence board decisions through their presence. [6]

analysed the presence of glass ceiling in European banking sector. Taking a sample of around 612

banks, the study found significant signs of discrimination against women in appointments as

directors on boards of these companies. First type of discrimination arises from banks with

smaller boards who are seeking more homogeneity on boards and in decision making. Second

way of discrimination called as statistical discrimination emerges from banks having low





standard deviation of return on total assets preferring more women on their boards. Third type

of discrimination flows from Becker’s discrimination that market dynamism and competitiveness

help in increasing women participation on board.

The need for women on board has been accepted and recognized across the globe. [7] support

the idea of having more women on board as it inculcates a collaborative leadership style. The

study has made an evaluation of having 3 or more women directors on board and gives reasons

like higher diverse perspectives, better decision making and open and collaborative boardrooms

for supporting it. The study proposed that this proposition of 3 or more members is entitled

“critical mass” which is deemed necessary to enjoy the benefits of a gender diverse board. [8]

conducted a study on FTSE 100 companies and made a case for inclusion of women on boards by

comparing human capital contribution by women vis a vis men. The study found women

contributing more effectively in boards as they have more practical experience of working on

boards of smaller companies. Besides, they are more educationally qualified vis a vis their male

counterparts which make them much more eligible for board positions. They only lack CEO/COO

experience which is mainly due to reluctance of top management to appoint women on top

positions. [9] conducted a study on 1260 women directors through web survey analysing the

relationship of role played by women on boards with their numbers on board. The women

directors on boards are not merely tokens, they are actually participating in board decisions. This

study found higher informal interactions outside the board, more perceived influence enjoyed by

women directors and higher information sharing in case of more women directors on the board.

Whereas, the women directors become token in case of their lone presence on board. The

presence of women on board is affected by factors other than male reluctance and glass ceiling.

It is equally important to gauge their trend across different variables across organisations. [10]

by taking a sample size of 112 firms, tried to estimate the probability of having women directors

on US Fortune 500 companies. The study observed that smaller companies have more probability

of hiring women director’s vis a vis larger companies. The study revealed a disproportionate

allocation of women directors across US companies. [11] carried out by taking a sample of 200

work places in US companies relating to different factors affecting the inclusion of women on

board. Citing organizational factors like beliefs and attitudes of employees, human resource

policies, social structures prevailing in society and type of industry do affect the involvement of

women in corporate sector at top levels. The study also attributes the effect of various group and

organizational influences to have more women in board. In terms of differentiating involvement

of women in manufacturing sector vis a vis services sector, the study has found a clear-cut

increase in women in service companies as compared to manufacturing companies. [12] Collected

data from 278 women directors from Canadian companies on various demographic

characteristics of these women directors. With majority (80%) of women directors have been

university graduates with 25% with professional qualifications having an average age of 45 and

mostly married with average 2.4 children. Besides, the representation of women in private

companies have been found to be substantially higher vis a vis public sector companies. Taking

note of their representation on different boards, the study found an average, a woman working

on 3 boards. Attitude of male CEO and male Chairman of the company and the perceived

discomfort of working with women directors have been identified as the main reason for low

representation of women on board. Besides, low availability of qualified women directors has

been ascribed to be responsible for the same. The lack of any regulatory requirement has been

put forward as the criterion responsible for little hope of change in this situation in Canada in





near future. [13] carried out a longitudinal study making an attempt to map the growth of women

directors on boards of companies in Australia over a period of 6 years, i.e. 1995 to 2001. Making

various assumptions about the changes in women directors in terms of their educational levels,

managerial levels, number of directorships, board chairmanship, size of boards, size of

companies, type of directors and board corporation type, the study found women directors to be

older on average over a 6-year period. [14] found a high correlation between corporate executive

management (indicative of size of board and top-level management) and women on board.

Besides, large size companies have been found to be having more gender diversity at top level as

compared to smaller firms. [15] taking a sample of 1000 US firms over a period of 13 years (1990

to 2003) makes an attempt to identify the possible causes for trends of gender diversity across

US firms. Using resource dependency theory, it has identified size of the organisation, type of

industry, diversification strategy and network effects as influencers impacting the divergence

among US firms in hiring women as directors on their board. It laid down a strong emphasis on

internal factors affecting choice of having increased number of women on board. [16] In this study

carried out among UK companies, the authors have made an attempt to understand the variables

affecting the representation of women on board. This study found better representation of

women in case of smaller firms mainly due to the small businesses specially in services sector

being started together as mom & pop stores. The rate of growth of women directors have been

slow in UK which is similar to similar trends observed in other developed nations as well. [17]

observed that the presence of women on board is strongly influenced by many factors including

the board characteristics like extent of outside membership on board, board members serving on

outside boards and board size. This study carried out on 3200 US companies found the size of

company also to be positively influencing the inclusion of women on board. Besides, the age of

board members, especially those who are retiring is also supposed to help bringing new members

from women community preferably. The literature review clearly shows a plethora of analysis

being carried out on presence of women on boards outside India, however, there is lack of

sufficient evidence and data regarding factors influencing women participation on boards of

Indian companies which the present study plans to achieve.

RESEARCH METHODOLOGY

1. Objective of The Study

There are broadly two objectives of the study: -

1. To determine whether women on board varies across size of the company.

2. To determine whether women on board varies across size of the board.

2. Sampling

A sample of 500 companies forming the index of BSE500 companies which cover almost all the

major industries in Indian economy. With a maximum market capitalisation of 5,02,850 crores, it

is an index in which the top 10 stocks constitute almost 36% of total market capitalisation. There

are total 29 industries as classified under BSE Industry classification which are represented by

BSE 500 index. However, data for 6 stocks was not available due to various reasons like delisting,

merger, demerger etc. which has reduced the effective sample size to 494. These companies





represent all the major industries and sectors and are this representative of Indian corporate

sector as a whole.

Table 1: Industry Wise & Sector Wise Break Up Of BSE 500 Index (As On 31-03-2015)

S. No. Industry No. of Companies S. No. Industry No. of Companies

1 Agriculture & Related 22 16 Electronics 6

2 Auto Parts & Equipment 16 17 Entertainment 11

3 Automobile 15 18 Financial Services 43

4 Banking & Insurance 37 19 FMCG 25

5 Industrial Products 21 20 Realty 20

6 Information Technology 26 21 Telecom Services 8

7 Metals & Non- Metals 15 22 Logistics 12

8 Retail 7 23 Healthcare & Education 4

9 Cement 16 24 Hospitality & Travel 9

10 Construction 20 25 Household 21

11 Diversified 5 26 Industrial Machinery 10

12 Oil & Gas 19 27 Textiles 13

13 Paper & Publishing 8 28 Trading 10

14 Pharmaceuticals 37 29 Electrical Equipment

20

15 Power 22

3. Hypothesis Testing

1. Whether there is an association between the size of the company and number of women on

board.

2. Whether there is an association between the size of board and number of women in board

4. Measures

There are 3 main variables included in the study, namely,

I. Number of Women on Board: To measure the presence of women on board, No. of women

appointed/nominated/selected on board has been used. This number ranges from minimum

0 to a maximum of 4 women present on board at the scheduled cut off timeline. The timeline

for this purpose has been uniformly taken as the end of financial year 2014-15. Any women

director present on board as member/chairman of board of directors has been included,

whereas, any woman director joining the board midway and leaving the company before the

end of financial year has been excluded.





II. Size of Company: The size of the company has been determined on basis of market

capitalisation. Afterwards, the companies have been divided among four broad categories,

namely

a. Small Market Capitalisation (SMC): The market capitalisation of these companies is

below 500 crores as on 31st March, 2015

b. Medium Market Capitalisation (MMC): The market capitalisation of these companies is

between 500 crores to 2000 crore as on 31st March, 2015

c. Large Market Capitalisation (LMC): The market capitalisation of these companies is

between 2000 crores to 10000 crores as on 31st March, 2015

d. Super Large Market Capitalisation (SLMC): The market capitalisation of these

companies is above 10000 crores as on 31st March, 2015

III. Size of Board: The size of the board has been determined on basis of number of directors

including chairman of board. Afterwards, the companies have been divided among four broad

categories, namely

a. Small Size Board (SSB): The board size of these companies is between 4 to 7 as on 31st

March, 2015

b. Medium Size Board (MSB): The board size of these companies is between 8 to 11 as on

31st March, 2015

c. Large Size Board (LSB): The board size of these companies is between 12 to 16 as on

31st March, 2015

d. Super Large Size Board (SLSB): The board size of these companies is 17 or more than

17 as on 31st March, 2015

5.Test for Analysis

Since, all the three main variables identified for the study are categorical/ordinal, hence, chi

square test for independence have been used to determine the level of association among these

variables.

RESULTS & ANALYSIS

Table 2: Distribution of Companies As Per Number Of Women On Board And Size Of Company

MARKET CAPITALISATION

NUMBER OF WOMEN ON BOARD

0 1 2 3 4 TOTAL COMPANIES

SMC 1 9 0 0 0 10

MMC 3 68 8 3 0 82

LMC 17 203 22 0 0 242

SLMC 16 116 22 5 1 160

TOTAL COMPANIES 37 396 52 8 1 494

CHI SQUARE

@ 5%

Calculated Value

18.562 df 12 Tabulated Value

21.026

p value 0.0996 Result H0 Accepted





Null Hypothesis: H0: There is no significant association between Size of Company

(measured via market capitalisation) and Number of Women on Board

Alternate Hypothesis: Ha: There is significant association between Size of Company

(measured via market capitalisation) and Number of Women on Board

In Table 2, the results of chi square testing clearly show the evidence of non-acceptance of

alternate hypothesis at 5% level of significance. This leads to acceptance of null hypothesis of no

significant association between size of company and number of women on the board. With no

relationship established between two variables, it shows that there is no difference among small

size, medium size, large size and super large size companies in terms of having women directors

on the board. The decision of recruiting women directors on board is not influenced by size of

company. The data clearly shows Indian companies hiring women directors mainly to fulfil the

conditions imposed by amendments in company law from 2013 onwards. However, still 37

companies out of top 500 companies fall short of having atleast one women director on board.

396 companies have only one women director and 52 companies having at least 2 women

directors. As expected, only 8 companies have 3 women directors and only one company (Dr.

Reddy Laboratories) has an impeccable record of 4 women directors on board. The super large

companies have shown relatively higher proportion of women on their board, still, the trend is

not significant so as to establish a relationship between size of company and women on board.

Table 3: Distribution of Companies As Per Number Of Women On Board And Size Of Board

SIZE OF BOARD

NUMBER OF WOMEN ON BOARD

0 1 2 3 4 TOTAL COMPANIES

SSB (4 to 7) 12 84 4 0 0 100

MSB (8 to 11) 16 237 32 3 0 288

LSB (12 to 16) 9 69 14 5 1 98

SLSB (17 & Above)

0 6 2 0 0 8

TOTAL COMPANIES

37 396 52 8 1 494

CHI SQUARE

@ 5%

Calculated Value

27.436 df 12 Tabulated Value

21.026

p value 0.006 Result H0 Rejecetd

Null Hypothesis: H0: There is no significant association between Size of Board and Number

of Women on Board

Alternate Hypothesis: Ha: There is significant association between Size of Board and

Number of Women on Board

The size of board and women on board have a significant relationship amongst themselves. This

is revealed by the chi square testing result in Table 3 whereby alternate hypothesis of significant





association between size of board and hiring of women on board stands accepted. Surprisingly,

companies with lower board size have higher chances of hiring more women on board vis a vis

companies with bigger boards. Out of total sample of top 500 companies forming BSE 500 index,

small size board and medium size board companies have higher proportion of having at least one

women director (more than 80%). Whereas, in large size and super large size boards, this

proportion of having one women director on board falls down (70%). This can be attributed to

the fact that companies with small and medium size boards have better chances of hiring women

on board so as to fulfill their corporate governance requirements of hiring independent directors.

Large and extra-large board companies generally believe in keeping more and more executive

directors on board which are predominantly male employees of the company. Specifically, in case

of public sector units with large boards, women directors are generally nominated by government

whose talent pool of women directors is very limited. It has been observed that there are total of

20 women who are IAS officers, RBI officials who are repeatedly hired to fulfill the basic one

women director requirement.

CONCLUSION

The situation of women on board of Indian companies is really alarming. Although the regulation

of having at least one women director on board was supposed to be followed by Indian companies

from 1st April, 2015 onwards, the situation as monitored by above analysis as on 31st March, 2015

seems distressed. With 37 of BSE 500 index companies (7.5%) still not having any women

director on board and 80% companies (396/494) just crossing the benchmark line of having one

women director. The study has made an attempt to identify two major trends relating to women

on board in Indian corporate sector. Firstly, the attempt has been able to find evidence of

significant association of women on board with size of company which has been rejected by chi

square test applied on data. On the contrary, relating to second trend, the study has been able to

established significant association between women on board and size of board. However, the

relation between two variables seems to be inverse with smaller boards having more

proportional representation of women on board vis a vis larger boards. The limitations of large

size boards in relation to having sufficient non-executive directors and independent directors as

per corporate governance requirements act as hindrance to presence of reasonable proportion

of women on board. Interestingly, out of large sized boards, Public sector units seem to be the

biggest defaulters in ensuring presence of women on board. With private sector falling in line as

per latest government regulations, it is the lack of compliance form public sector units which has

acted as the major stumbling block in terms of ensuring effective presence of women on Indian

corporate boards.

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