NEW DELHI: With two-third of companies in the country being family-owned, independent directors and minority investors need to play a stronger role in ensuring good corporate governance, Corporate Affairs Minister Sachin Pilot has said.
“We as a government can only provide the regulatory mechanism. We can only give an environment where good corporate governance takes place,” he said.
“Today, we have about 8.5 lakh companies and about two-third companies are family-owned. So, the role of independent directors become all the more important. The companies are large and public funds are invested and independent directors play a crucial role,” he said.
Noting that good corporate governance has become a requirement of the day, Pilot said that minority shareholders also need to be given a say in the board decisions, as their money is as well invested in the company.
Speaking in detail about the new Companies Bill, which has been cleared by the Lok Sabha, the minister said that it is a comprehensive legislation that would replace rules that are nearly 60 years old.
The first Companies Act of the country was made 99 years ago in 1913, while a committee was set up in 1950 to amend those rules. Nearly six years after this committee was formed, the present Companies Act was enforced in 1956. Since then, numerous amendments have been made to this Act.
“We must have a comprehensive, forward looking Companies Act and law that reflects today’s India’s economic reality. Some of the existing provisions are really outdated and they have to be comprehensively reviewed,” Pilot said.
Among various provisions, the minister said, the new Bill defines what is independent when it comes to people on the board of the companies.
“You really can’t have someone who is a first cousin or second cousin as independent director.
“… We also have escape route for minority shareholders. So, if some minority shareholder is unhappy with a board decision, the person is not stuck with that and can get out if he/she wants. It has been made optional for a company to have one director who represents the minority shareholders,” he said.
Pilot said that the new Bill also makes it mandatory for certain class of companies to have at least one woman director.
“This should be a welcome step because we have seen that a lot of companies having women at the higher management levels perform better,” he added.
The Minister said that the new Bill gives a “picture of transparency of governance in the corporate sector”.
“I think that is the mainstay of what the Bill should provide, satisfaction and confidence to the Indian investor and foreign investor and make sure that Indian companies’ acts and laws meet best standards globally,” he added.