Corporate India has made strides in adopting better corporate governance practices, but significant gaps persist, especially concerning board diversity and independence. While companies are exceeding the minimum requirement of four board meetings annually, a recent survey by Excellence Enablers reveals governance shortcomings among the top 100 listed companies.

Diversity: A Continuing Challenge

Although progress has been made in gender representation, Indian boardrooms still lag behind global standards. As of this year, women hold 21% of all director positions in the top 200 companies, up from 19% in 2023. This increase is partly attributed to regulations mandating at least one independent woman director in listed companies. However, this figure is still lower than in countries like the UK and the US, where women hold 44% and 34% of board seats, respectively.

Moreover, a closer look reveals that women are nearly three times more likely to be independent directors than non-independent directors. This suggests that the "at least one independent woman director" mandate drives much of the progress. While women are increasingly represented in committee chair roles, particularly in Nomination and Remuneration Committees (NRCs) and Corporate Social Responsibility (CSR) committees, their presence as audit chairs and board chairs remains relatively low.

Beyond gender, diversity in terms of experience, age, culture, and domain expertise remains a challenge. Financial and legal professionals continue to dominate board seats, limiting the perspectives available for decision-making. There is a growing recognition that boards need to include voices from diverse sectors like technology and ESG (Environmental, Social, and Governance) to remain relevant and effective.

Independence: Room for Improvement

The independence of board members is another area where Indian companies lag behind their global peers. Within the top 200 companies, only 53% of directors are independent. This is significantly lower compared to markets like Singapore (64%), the UK (74%), and the US (86%). Regulations in India require at least 50% independent directors if the chair is an executive and one-third if the chair is non-executive. However, these requirements are less stringent than in the UK and the US, where a minimum of 50% independent directors is required, regardless of the chair's status.

Despite SEBI's initial push to separate the roles of chair and CEO, this remains a voluntary requirement, and only approximately 28% of the top 200 companies have an independent chair. Sectors like industry and healthcare are lowering this average. Ensuring a truly independent board is crucial for effective governance and oversight, as it prevents undue influence from management and promotes objective decision-making.

Moving Forward

To achieve meaningful diversity and independence in Indian boardrooms, several steps can be taken:

• Broaden the talent pool: Companies should actively seek out candidates from diverse backgrounds, experiences, and sectors, rather than relying on traditional networks.
• Implement structured succession planning: Establishing clear pathways for board member succession can help ensure a continuous influx of new perspectives and skills.
• Set diversity KPIs: Defining and tracking key performance indicators (KPIs) related to diversity can help organizations measure progress and identify areas for improvement.
• Provide comprehensive onboarding: New board members, particularly those from non-traditional backgrounds, should receive thorough onboarding to equip them with the knowledge and context they need to contribute effectively.
• Promote a culture of inclusion: Creating a boardroom environment where all voices are heard and valued is essential for leveraging the benefits of diversity.

While Indian companies have made progress in corporate governance, a genuine commitment to diversity and independence is needed to unlock the full potential of their boards. By embracing these principles, companies can improve decision-making, enhance governance quality, and better respond to the evolving needs of the market.