Former Sebi chairman M Damodaran on Thursday termed the mandate to have independent women directors on company boards as mere “tokenism”, stating that firms are adhering to the guideline just for compliance.
Damodaran also called the wording of the regulation “humorous”, saying there is nothing like an “independent woman director” as the regulations state, but it should have been “woman independent director”, and pointed out that this is reflective of a “mindset steeped over time”.
Speaking at an event hosted by Moneylife Foundation, the former head of the capital markets watchdog, who is well regarded for his views on corporate governance, said the argument over the mandate to appoint a woman on a company’s board is one between tokenism and talent.
When a woman gets approached to join a board, she should first question if the appointment is being made to tick a box or because of her abilities.
And if the latter is cited as the reason, then the woman leader should retort by asking why the company waited till the regulations came in, he said.
In 2018, the capital markets watchdog made it mandatory for the top 1,000 listed companies to have at least one independent woman director to break the all-boys clubs that company boards were. Subsequent data has revealed that most of the companies have complied with the mandate.
“Even the expression that is used in regulations and I find it very humorous at one level, is they use the word independent woman director. There is nothing called a woman director. A director is a director is a director, who might happen to be a man or a woman. So, it is a woman independent director, not an independent woman director,” he remarked.
Companies stand or fall depending on the quality of their boards and a director should be assertive enough to make the management uncomfortable, he said, adding that the promoters should have the courage to get people who can ask tough questions.
Damodaran also pointed out that the law makes it mandatory for key directors to be present at annual general meetings (AGMs) but secretarial practices make it easier for them to skip.
Further, he said data on government’s nominee directors being present at important events like AGM is “abysmal” and efforts should be made to correct it.
Other issues flagged by Damodaran included non-audit fees paid to the statutory auditors, where he said there is no bar over how much is paid. Sebi is looking into this aspect, he said.
To check the trend of regulations being written with much high frequency, Damodaran pitched for a “sunset clause” after which any mandate should be reviewed by an authority, as done by the RBI, and creation of a set of master directions later.
He also said companies need to be more transparent about the variable pay for key executives, reasoning that when the key resource areas are mentioned, the shareholders have a right to know the exact performance which made an executive eligible for the additional pay.