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Festina Lente: Institutional Investors and the Quest
for Boardroom Diversity in India

Anik Bhaduri and Rudresh Mandal

Gender diversity in the boardroom is espoused in corporate law literature for two main reasons first, equality between the genders; and second (and more contentious), the ‘business case’, that is, the idea that gender diversity improves business performance of the company. In 2013, India introduced a gender-based quota aimed at ensuring at least one female director on the board of a listed company, which yielded little success in the quest towards substantial gender diversity. This paper argues that there is a new phenomenon in Indian corporate governance that may help bring about the much-desired gender diversity – institutional investor activism. Institutional investors have a two-fold incentive to push for gender diversity in their portfolio companies. First, as minority shareholders institutional investors are vulnerable to being exploited by the management, and the increase in monitoring brought about by gender-diverse boards safeguards their interests as shareholders. Second, the rise of ESG investing focused on gender equality impels index funds to strive actively towards ensuring boardroom diversity in their portfolio companies with a view to distinguishing themselves from their competitors. Taking into account the increasing potential of activist funds to bring about meaningful change in corporate governance practices, this paper argues that market-driven measures such as the disclosure of stewardship activities and the enforcement of the Shareholder Stewardship Codes may be much more successful than the quota-based laws in driving India Inc. to substantial gender diversity. 

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