Indian boardrooms getting increasingly diverse and independent, but also ageing

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Prodded by Indian laws, India Inc has brought on board more women – up 15 percent, and independent directors – up 55 percent in FY19, a CLSA study titled ‘Boardroom nectar — distilling the essence of India’s annual reports’ found.

The Companies Act 2013 mandated that listed firms have at least one female director from April 01, 2015, with a year to comply with the new norms.

Among BSE listed company, women comprised 15.2 percent of directors in FY19 compared to 7.9 percent in FY14. Notably, by FY18, boards had achieved 100 percent compliance with women representation.

Indian Oil currently has the lowest share of women at 6.3 percent of the total board strength among BSE companies, while Godrej Consumer, Infosys and UltraTech Cement lead with 33.3 percent of women on their board.

India’s female board representation is lower than the S&P’s 25 percent and Nasdaq’s 22 percent. But, is far better than Nikkei’s 8 percent share.

On the independent directors’ front, more than half have shorter tenures than SEBI. However, the average ratio was higher, standing at 55 percent in FY19.

While the effectiveness of independence has recently been questioned following corporate bankruptcies/frauds, quantitatively, Indian Boards continue to become more independent.

Age-wise, analysis of 411 directors on boards of 38 BSE companies showed that average age has risen from 59 at FY09 to 63 in FY19.

What's notable about the age-wise spread is that about 32 percent of these members were on the board of the same company in 2009, thus the 4x rise in ages is due to the rising ages of existing board members.

This is, however, not a cause for worry as usually, around 30 percent of the company’s board members remain unchanged. This because many companies have promoters with executives that retain their Board seats.

Among industries, none of the sectors stands out as particularly young or old. However, each has seen an increase in average age over the past ten years.

The data also shows that little board diversity in terms of age, with only 7 percent below the age of 50 in FY19, which is down from 18 percent in FY09.

This is not very different from the global scenario, where analysis of Nasdaq companies found an average Board age of 62 years. The small gap is surprising, considering that Nasdaq mostly comprises hi-tech and modern firms.

It also indicates a preference for experienced board members, which reduces the chances of young people joining, unless they are from the founding family.

The S&P and Nikkei have a similar average age for their Boards, at 63 years for each. However, as disruptive factors and tech advancements become more important for Indian businesses, it is worth questioning whether Boards need more young blood, or if the experience is more important.

Importantly, the average tenure of independent Board members has fallen, as the Companies Act 2013 sets a maximum tenure of an independent Board member at two continuous five-year terms. Thus, an independent board member cannot remain on the board of a company for more than ten continuous years. As such, the average tenure has declined from 10.1 years in FY14 to 6.5 in FY19.

Among BSE companies, L&T has the biggest board with 22 members, while Eicher Motors has the smallest board with 4 members.