Relevance: GS-1: Role of women and women’s in organization, population and associated issues.

Key Phrases: Female CEOs, Leadership positions, Woman Directors, Companies Act, 2013, CEOs, ESG friendly, female directors, Private Sector, Gender parity.

Why in News?

• A 40 percent quota for women on boards in France has a discernible effect as the percentage of female CEOs has increased almost tenfold.

Context:

• The 500 largest companies in the world, with a total revenue of US$33.3 trillion, represented nearly 40 percent of the global GDP in 2019. Whoever sits on the boards of these companies can bring in enormous change. Unfortunately, women hold just 6.7 percent of the board chairs and merely 5 percent of the CEO roles globally.
• Lack of female leadership in the private sector has ramifications far beyond the boardroom as decisions are taken without adequate female perspective.

Gender gap in the Boardroom:

• The percentage of female CEOs in the Middle East and South America is as low as 1.6 percent. Last year, for the first time, S&P 500 companies elected a woman on their board.
• However, 60 percent of the venture-backed private companies with funding of more than US$100 million in the US, did not have a single woman on their board and only 7 percent of their board seats were taken by women.

Hurdles for Women:

• During their journey to reach leadership positions and board seats, women face various hurdles that put them at a disadvantage compared with men.
• Women have more demands on their time to attend to family needs that may lead to delays in career advancement.
• Women going on maternity leave or temporarily leaving work to look after their children further slow their career progression.
• Another hurdle is that many large companies have policies where only the top-most executives can join external boards. As the percentage of women on the C-suite is low, such policies affect the chances of women joining external boards.

Benefits of Gender Parity to Companies:

• Companies with at least one woman on their board outperform other companies, according to a Credit Suisse report.
• Women outscored men in most leadership skills that include team working, innovation, and problem solving. These skills are critical for board-level decision making.
• Millennials prefer sustainable investment. Appointing more women on company boards has implications outside the boardroom. It will encourage several younger women to aspire and have the confidence to lead organisations in the future.
• Globally, countries are losing US$160 trillion due to inequality in the lifetime earnings between men and women, according to the World Bank, which is nearly twice the global GDP.

Recommendations to close the gap:

• Gender equality across levels: Though women constitute nearly half of the workforce, they only make up 25 percent of the senior executive positions in listed companies in the US. Corporate governance policies need to be brought in place for gender parity across company levels.
• Increasing networking: The common and preferred way to fill board positions is by identifying potential candidates through known sources and informal networking. As boardrooms are dominated by men, this makes it difficult for women.
• Commitment is needed from existing board members to network with people outside their circles. Having advisory boards with majority women reporting to the board can help give exposure to talented young women.
• Gender quotas and disclosure requirements: In France, a 40 percent quota for women on boards came into effect in 2017 and 43.2 percent of the board seats in France are currently held by women. However, only 9.7 percent CEOs and 9.8 percent board chairs in French companies are women, indicating that more board seats were given only due to regulations.
• However, the 40 percent quota for women on boards in France has a discernible effect as the percentage of female CEOs has increased almost tenfold—rising from less than 1 percent in 2014. Making companies disclose their diversity policies has worked in Australia, which saw a 5 percent increase in women representation on boards.
• Investor pressure: Companies with women on their boards have a 66 percent higher return on invested capital. With millennial investors also being more ESG friendly, it is in the economic interest of large investment companies to push for greater gender parity on boards that they have invested in.

Way Forward:

• Some positive steps taken by eminent global organisations include pushing for boards to have at least two female directors and even refusing to work with companies with an all men board.
• With the private sector accounting for more than 60 percent of the GDP of countries in the world, boardrooms of private-sector companies should have a gender balance. Gender parity in boardrooms can help bring in a top-down change in attitudes towards women leadership globally.

Source: The Hindu BL

Mains Question:

Q. “Gender parity in boardrooms can help bring in a top-down change in attitudes towards women leadership globally”. Critically Analyse.