Millennium Post

Changing rules of engagement

The new company law, passed by Rajya Sabha past Thursday, is clearly more in tune with the current times than the previous version. The Companies Act, 2013, now formally notified into law, will change several parameters for the Indian business and corporate sector, particularly at the highest decision making level. For example, the move to have about a third of their members as independent panelists, to include more women in the board, to have an overhaul of auditors after every 10 years, as well as making corporate social responsibility (CSR) mandatory for companies above a minimum size and profit-making capability, and instilling the culture of accountability within the sector – all amount to positive changes that are likely to make Company law more accessible and people-friendly. 

Moreover, the new law is also considerably shorter with 470 clauses, a sharp reduction from the previous 700 (often mutually conflicting clauses), thereby making corporate governance substantially easier to implement. Further, the new law also enables minority shareholders and depositors in a company to file class action suits against the powerful management, thus helping guard their interest even when they are outnumbered in the boardrooms. However, there exists a yawning gap between the intentions behind the reengineered company law and the ground level realities of boardroom stratagems that are deployed to maximise profit at the expense of other factors such as ensuring adherence to labour laws, following environmental and safety protocols, among others. In addition to the issue of proper implementation of the new law, other factors also need to be scrutinised before cheering uncritically for the new act in place. For example, it is not clear how the Act defines its ‘independent directors’, since they would have limited tenures of two terms of five years each, but the mechanism of their appointment has not been adequately spelled out, thus leaving enough room for backchannel negotiations to carry on and influence both the appointments as well as the decisions taken by the company boards. 

Further, the issue of mandatory corporate social responsibility looks like paying lip service to superficial work rather than embedding the business sector within the social change-making processes. Since donating paltry sums to morally high sounding projects does not really bring about tangible socio-political change, or make real difference to the lives of the poor, the CSR clause needs more understanding, with its legal as well as critical scopes duly expanded. Hence, actual result-orientedness rather than counting the funds earmarked for CSR, would be more in tune with not only the spruced up law, but also will suit the requirements of the new century better. Moreover, what we need is enough regulation to ensure that the labour norms are not flouted and the workers don’t suffer under bad working conditions or don’t get paid their minimum wages. It remains to be seen if the new law would ensure that just the promoters and management of companies don’t fatten their pockets, while the minority shareholders remain neglected and have their grievances unaddressed. What is therefore required at this juncture is to make sure that corporate governance reaches a critical peak, with bolstered edifices of necessary regulation, without burdening the business sector with unnecessary stymieing of growth incentives.

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