In recent times, the concept of boardroom diversity has gained significant momentum in India and in the rest of the world. Unfortunately, the law in India currently focusses only on gender as an indicator of diversity.
Gender Diversity
It is the form of diversity that has been identified by most countries, including India. Internationally, a number of countries such as Norway and Australia have a very high representation of women. In India, while some progress has been made, a number of Boards continue to induct the mandatory minimum of one woman independent director. Talent, and not tokenism, should inform induction of women on Boards. There are some companies which continue to excel under the leadership of women, either as Chairpersons or Managing Directors, and have shown phenomenal growth.
NASDAQ has, in recent times, mandated the presence of at least two members on the Board, who are diverse, where at least one director should identify as a female and at least one director who self-identifies as an Underrepresented Minority or LGBTQ+.
Age Diversity
Law and regulations in India do not explicitly provide for age diversity, except to state that allotment of Director Identification Number (DIN) would be to individuals who are minimum 18 years, that a Managing Director should not be below 21 years and should not be more than 70 years. As per a Survey of the top 100 companies in India, conducted by Excellence Enablers, as on March 31, 2022, only 8.27% of the independent directors appointed on the Boards were less than 50 years. It would be desirable for Boards, especially of companies dealing with new age offerings, to have a blend of relatively older and younger persons so that in addition to bringing wisdom and experience, fresh perspective too could inform the discussions. Younger directors could also connect better with the younger employee base of the company.
Skill Diversity:
Skill diversity is one of the most overlooked forms of diversity. The skill or expertise required by different company Boards would vary. However, there are some skillsets that most, if not all, Boards require. These include domain knowledge, legal knowledge, and financial knowledge. As per SEBI (LODR) Regulations 2015, Nomination and Remuneration Committee must have a policy to identify the skillsets that are required for the Board, and the Committee must induct Directors on that basis. Further, there is a need to disclose the list of skills and competencies that the Board requires, along with the names of the Directors who possess those. There should also be a mention whether any skillset is found missing on the Board. in order to attain better transparency with its shareholders. As per a Survey of the top 100 companies in India, conducted by Excellence Enablers, no company identified any missing skillset on the Board.
Geographical Diversity:
With majority of the bigger companies having an international presence, it is important that at least one director be a person representing the geographical area in which the company has major presence or stakeholders. It will enable the Board immensely to understand the perspectives of the newer geography.
There are many forms of diversity. Diversity brings a fresh perspective, which can help to distinguish well-intentioned Boards from others.
Heeral Nichani