Globally, including in India, women’s share in corporate leadership has been steadily rising. The ‘woman director’ mandate under The Companies Act, 2013 in India marked a turning point, requiring listed firms to have at least one woman on their board. Within a year, the percentage of listed firms without women on board plummeted from 53% to less than 10%. Despite this progress, a Deloitte 2022 Report shows that as of 2021, the average share of women on boards in India stands at 17.1%, lower than the global average of 19.7%, and much lower than the best-performing country, France, with 43.2%.
India also lags in the representation of women in middle and senior management roles. Global data from ILOSTAT (2024) show that the representation of women in these positions remains low, at just 17% in 2019. For context, this share is 32.4% on average for advanced economies, and 32.8% on average for the world. India is also lagging behind other emerging markets in Asia, which, at an average of 27.2% in 2019, are ahead of India by more than 10 percentage points. Still, starting from a low base, representation of women has increased by nearly 40% between 2010 and 2019.
Our study
In our research, we combine personnel-level data from National Stock Exchange (NSE)-listed firms in India with firm performance indicators to study the relationship between female leadership and firm performance. First, we study the changes in board composition (in terms of gender composition, and other director characteristics, like age, education, number of other directorships held, and share of meetings attended) following the enforcement of the Company’s Act and track any positive spillovers to top management teams. Second, we exploit the enforcement of this Act as an ‘exogenous’ shock to the hiring behaviour of listed firms in India and quantify the relationship between the presence of women on boards and firms’ financial performance, including profits, returns on capital, and financial stability. Third, we study the association between the share of women on boards and firm culture. We measure culture by using employee ratings and sentiment scores assigned to text reviews left by employees on an online company review platform. By showing the benefits of hiring more women in leadership positions for firm outcomes, we make a business case for encouraging gender diversity in corporate leadership, which could also help in changing cultural norms.
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Past research has identified several channels through which higher shares of women in corporate leadership can lead to better firm performance and organisational culture. First, having mixed-gender boards can lead to greater diversity of thought, which improves the quality of corporate governance. Second, in many cases, there may exist some (conscious or unconscious) hiring biases against women. In these cases, the higher standards set for women directors due to these hiring biases may lead to more qualified women being hired, which in turn improves corporate governance and firm outcomes. Third, being present on multiple boards following the mandate led to higher network centrality for women. Higher director network centrality for women has been found to facilitate the transmission of information and corporate strategies among firms, which has a positive effect on firm outcomes. Fourth, boards with increasing shares of women are more likely to enact human capital development policies benefiting firm employees, thus potentially improving employee welfare and organisational culture.
The study contributes to the existing literature on female leadership in corporate boards and firm performance in two significant ways. First, we establish a causal relationship between female leadership and firm performance by exploiting the exogenous shock introduced by the mandate for woman directors. This is not an easy task, as the relationship between female leadership and firm performance can be endogenous, as women and men may select into different type of firms based on factors correlated with firm performance. For example, better performing firms may attract more women. If that were the case, we would spuriously attribute better financial performance of firms to the large presence of women. This mandate allows us to differentiate between ‘policy-responders’ and ‘policy-unaffected’ firms based on their pre-existing board compositions, thereby alleviating endogeneity concerns. Additionally, our use of a large number of firms enhances the relevance of our findings for national policy and enables us to differentiate the responses of firms of different sizes.
Second, for the first time, to our knowledge, we use a widely used employee review database (AmbitionBox) to examine the association between the share of women on boards and firm culture. This offers insights into how female leadership influences organisational culture. We do this by processing the rich text information from 400,000 employee reviews to measure different aspects of firm culture, to quantify the impact of gender equity in leadership on firm culture. This exercise sheds light on additional policy efforts needed in this area.
Establishing stylised facts
Although the Companies Act was officially implemented in 2013, the deadline for meeting the woman director mandate was set for 1 April 2015. The left panel of Figure 1 shows that there was a jump in the share of women in boards in 2015. However, we find that this positive trend in female representation on boards following the mandate was not replicated in top management teams (the C-Suite – that is, a company’s senior management positions such as Chief Executive Officer or Chief Finance Officer). The rate of increase for the latter is very low and plateaued around FY2016-17. In fact, in FY2022-23, more than half of the NSE-listed firms in our sample did not have even one woman in their top management teams, and about 10% of firms had exactly one woman.
Figure 1. Share of women on boards (left) and in top management (right)
Source: PRIME Database. Note: The dotted red line indicates the deadline for the mandate to have a woman director.
Using personnel-level data from NSE-listed firms, first, we explore the age and education levels of female directors compared to male directors. We find that women on boards were much younger than their male counterparts, both before and after the enforcement of the Act. This age gap widened significantly after the enforcement, indicating that new female hires were also significantly younger than the older cohort of women directors (Figure 2, left panel). In addition to being younger, they were also more educated. Although the average education for women on boards had already surpassed that of men in FY2012-13, this difference (conditional on age) became statistically significant in the years following the mandate’s enforcement (Figure 2, right panel).
Figure 2. Average age (left) and minimum years of education (right) of directors, by gender
Source: PRIME Database. Note: The dotted red line indicates the deadline for the mandate to have a woman director.
Further, we find that women from the pre-existing network of directors held a greater number of directorships after the mandate, while few ‘outsiders’ were appointed (Figure 3, left panel). These demographic characteristics of the gender gap are noteworthy, reflecting underlying challenges that may persist at the level of hiring – in terms of plausible hiring biases from the demand side, or the lack of supply of qualified female candidates, or both. We also establish that in the years following the enforcement of the mandate, the gender gap in attendance of board meetings reduced, as the attendance for women rose faster than that of men. By 2020, the average share of meetings attended by women and men was approximately equal (Figure 3, right panel). This may be reflective of a more open environment, allowing women to attend board meetings more regularly and meaningfully contribute to decision-making, following the rise in the number of women on boards due to the mandate.
Figure 3. Average number of other directorships held (left) and share of board meetings attended (right), by gender
Source: PRIME Database. Note: The dotted red line indicates the deadline for the mandate to have a woman director.
Gender composition of board and firm performance
To study the relationship between financial performance and the presence of women on boards, we build a firm-year level panel dataset for 1,402 NSE-listed firms over a period of 15 years (FY2005-06 to FY2019-20), by combining personnel data on directors with firm performance data collected from annual financial statements. We measure financial performance in terms of profit after tax, returns on net worth, and financial stability (indicated by the debt-to-equity ratio. Our empirical analysis indicates a strong relationship between the presence of women on boards and financial performance, but only for large- and medium-cap firms.
For these firms, the improvement in financial performance persisted over time, but not for small-cap firms (where the positive effects are not statistically significant). Specifically, we find that having at least one woman on board is associated with higher economic performance and lower financial risk, and this effect is large and statistically significant for large and medium-cap firms, but not for small cap firms.
Women in leadership and firm culture
To measure the association between women in leadership positions and firm culture, we web-scrape employee ratings and text information associated with these reviews from an online employee review platform. Using a natural language processing algorithm, we quantify employee review information into sentiment polarity and quantify firm culture across four broad aspects: employee sentiment, work culture, employee growth, and work security. We study the association between these metrics of firm culture and the average of current and previous shares of women in boards, under the assumption that continuous representation of women is more likely to influence present culture. We control for firm characteristics like size (based on the estimated number of employees), age, and industry, and review characteristics like seniority of the employee completing the review.
We find that higher shares of women in board positions correlate positively with employee ratings and sentiment scores, and this association is economically and statistically significant for firms with at least one woman in top management. In other words, employees are more likely to give higher ratings and use positive language to describe the culture of their workplace in firms with a higher share of women on boards, especially if the firm also has at least one woman in their top management team.
Summing up
We document the status of gender-inclusive corporate leadership and leverage the ‘woman director’ mandate in the Companies Act, 2013 to study its relationship with firms’ financial performance and corporate culture in India. We find that firms, on average, were appointing more women than mandated by the Act, suggesting the favourable impact of the government’s signal to foster women-led development, as well as the positive business experience gained by firms by hiring more female directors. At the same time, newly appointed women were younger and more educated than their male counterparts and their average number of directorships – the ‘stretch factor’ – increased significantly compared to men.
Second, we find that having at least one woman on board leads to better economic performance and lower financial risk for the large- and medium-sized firms. Additionally, using almost 400,000 employee reviews scraped from a company review platform, we find that higher share of women in board positions is positively associated with employee ratings and sentiment scores, but the relationship is significant only when there is at least one woman in top management. This underscores the business case for appointing more women on boards and C-Suite positions in corporate India.
Ratna Sahay is an Honorary Professor at the National Council of Applied Economic Research (NCAER) and a Non-Resident Fellow at the Center for Global Development in Washington D.C.
Navya Srivastava is a Research Associate at NCAER.
Mahima Vasishth is a Non-Resident Associate Fellow at the NCAER and a Postdoctoral Scholar at the Laboratory for Effective Anti-poverty Policies, Bocconi University.
This article was first published on ‘Ideas for India’, based on research presented at NCAER’s India Policy Forum 2024.
