Parliament last week replaced the 57-year-old Companies Act 1956 with the passing of the Companies Bill, 2012 which ‘seeks to bring in more transparency and governance in corporate bodies.’ The Bill was initially tabled in 2009 and with key amendments incorporated in it, has several new provisions for investor protection, better corporate governance and corporate social responsibility.
The two major components that have been incorporated in the Companies Bill, 2012 are the appointment of woman directors in corporate board and the mandatory two per cent spending on corporate social responsibility (CSR).
According to the data provided by Center for Talent Innovation, about 5 per cent of corporate boards in India have women representatives, which is significantly less than Norway where the figure is 35 per cent and America where it is 15 per cent.
The factor that attributes for this shortage is the high drop-out rate among women at the mid-level, the reasons for which are pressure to take care of children or hostile work environment, which at times force the women to leave the organisation.
However, studies in the past have indicated that presence of women in the workforce leads to better productivity in the company. In fact, a 2011 study of Dutch companies by M Luckerath-Rovers of Nyenrode University, showed that companies with women directors performed better than others. Though it may still take time for women to find their space in the top brass of multi-nationals, the Companies Bill, is indeed a step in the direction of empowering women in the country.
The other major provision in the Companies Bill, is the mandatory CSR spending by companies which have a net worth of Rs 500 crore or more, turnover of Rs 1,000 crore or more or net profit of Rs 5 crore or more. Companies which fulfil these criteria have to spend at least two per cent of their average net profits every year on CSR activities.
There are a total of 10 activities that fall under the CSR programme, some of which are promoting gender equality, promotion of education, eradication of hunger and poverty and healthcare of mother and child. However, one provision that defeats the purpose of CSR is the contribution to the Prime Minister’s National Relief Fund or any other notified fund.
The contribution to the Prime Minister’s Relief Fund should not turn out to be an easy way out for corporates, that instead of making an effort towards improving the society, hand out large cheques every year just to fulfil the norms of the Companies Bill.
Taking a lession from the Satyam fraud of 2009, the Companies Bill has put emphasis on protection of shareholders and has ensured that the auditors of the company are responsible for the scandal in the company. The Bill provides tort action and class actions suits, in which a group of shareholders can come together to fight for their rights.
While Satyam settled lawsuits in US and UK, investors in India were left with nothing, as the Supreme Court refused to pay Indian shareholders saying the law did not provide for class action suits.