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Explained: How Indian companies adhere to diversity requirements

The Sebi requires, since April 1, 2020, that the top 1000 listed companies by market capitalisation have a woman board member who is also an independent director.

Written by Karunjit Singh | New Delhi | Updated: December 14, 2020 8:29:30 am
17 per cent of directors in the Nifty 500 companies were women, with 44 per cent of Nifty 500 companies having two or more women directors. (Representational image)

The NASDAQ stock exchange in the US may soon require all companies listed on the bourse to include at least one female board member as well as one member from a racial minority group or from the LGBTQ community on their board of directors. There also are in place diversity requirements from Indian companies and their compliance with these rules.

What are the diversity requirements that Indian companies need to meet?

All public companies which are listed on stock exchanges and companies with either a paid-up capital of Rs 100 crore or annual turnover over Rs 300 crore are required to have at least one woman board member under the Companies Act. The Securities and Exchange Board of India (Sebi) further requires, since April 1, 2020, that the top 1000 listed companies by market capitalisation have a woman board member who is also an independent director. 📣 Follow Express Explained on Telegram

What is the level of compliance on diversity requirements by Indian companies?

According to data compiled by Institutional Investor Advisory Services (IiAS), 17 per cent of directors in the Nifty 500 companies were women, as of the end of the last fiscal, with 44 per cent of Nifty 500 companies having two or more women directors. The report by IiAS noted that only 3 per cent of Nifty 500 companies had no women directors. Experts noted that other than some public sector enterprises (PSEs) which have lagged on the appointment of independent directors, all major companies were in compliance with the diversity requirements.

A number of PSEs have also sought exemption from the requirement that any company without a non-executive chairman include at least 50 per cent independent directors on their board of directors as the power of appointment of directors for PSEs lies with the nodal ministry in the central government.

“Except PSUs, there has been a general increase in compliance with regulations mandating gender diversity on the board of directors,” said Ankit Singhi, partner at law firm Corporate Professionals, adding that Sebi had become more strict with regulations related to diversity in appointment of directors.

An expert who did not wish to be quoted said that a significant number of companies had appointed relatives of promoters as directors to fulfil the requirement of a woman director and that such directors were unlikely to show the level of independence expected from a director. The person, however, added that large multinational companies were leading the way in following the diversity regulations in letter and spirit by appointing qualified independent women directors to their boards.

An expert who did not wish to be named pointed out that diversity requirement mandating a member of the LGBTQ community on the board of directors was not necessary, noting that “sexual orientation should not be an issue in appointments to the board of directors.”

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