Companies Bill Sets Global Benchmarks By E Balaji

 
By E. Balaji

The enhanced role for women and independent directors on the board is welcome.

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The new Companies Bill is a landmark in the history of Corporate India. The Bill, awaiting the President’s approval, will be formally promulgated as the Companies Act, 2013, replacing the Companies Act, 1956.

The 1956 Act was passed in the first decade of Free India; the business landscape has changed radically the last 60 years.
Women Directors

The new Act stipulates at least one woman director’s appointment on the Board of a company. This is a step in the right direction. The world over, many women professionals have succeeded in eliminating the invisible glass ceiling — and Indian women are not far behind.

Women constitute 24 per cent of the Indian workforce. The 1980s and 90s witnessed increasing number of women enrolling in engineering and management institutions in India. Many of these graduates find employment in software, banking, consulting, telecom, hospitality, even entertainment. In some B-schools, women outnumber men in class strength.

Today, we have women CEOs in banking, IT, media and hospitality industries — and yet this is more the exception than the rule. The number of women reaching top management positions is still low. Women constitute only 14 per cent of senior management positions in India, against the global average of 24 per cent. This number falls to a paltry 5 per cent when it comes to top management or board positions.

Research studies indicate a more representative Board enhances governance, ethical behaviour and shareholder value.

There are valid arguments for and against quotas for women. “I don’t like quotas, but I like what quotas do,” remarked Viviane Reding, the European Union’s justice commissioner in an interview to The Economist on quotas for women in the European boards.

Though not a member of the EU, Norway is one of the first countries to have a quota for women directors; now, women occupy a third of the Board positions. Italy and Belgium mandate a minimum of one-third representation. France has a law which reserves 20 per cent of the board seats by 2014 and 40 per cent by 2017.

Compared to the stiff quotas in the Europe, the norm proposed in India is a modest, yet important, beginning.
Independent directors

The new Bill mandates that one-third of a company’s Board must now comprise independents, with no financial interest in the company. This will, to a great extent, curb nepotism in many Boards. Hitherto, independent directors’ appointment was a perfunctory affair.

Now, they would be expected to pose those sharp, uncomfortable questions to safeguard the interests of shareholders.

India has more than 8,000 listed entities, which means there will be a demand for men and women with high integrity, competence and ethical standards to become independent board members.

We will hopefully see fewer incidents of an individual sitting on dozens of boards, and merely hopping from one Board meeting to another without adding any real value in the process.
CSR issues

One of the most challenging aspects of the new Bill is the proposal for companies to set aside a percentage of their profits for CSR activities. This proposal is arguably the first of its kind anywhere in the world.

The proponents are of the view that it is only fair for businesses to give back to society. The opposite camp argues this as a case of abdication by the government of its core responsibility.

The world of business witnessed increased awareness of safety and health of employees in the last three decades. There was also an additional dimension of being an environmentally sensitive corporate citizen.

All these resulted in the emergence of SHE (Safety, Health and Environment) professionals in many organisations. Today, this process has evolved further into sustainability where there is equal focus on all 3 Ps (People, Profit and Planet). Many progressive organisations have CSOs (Chief Sustainability Officers) in the top management team reporting directly to the CEO or to the Board.

The CSR clause of the Bill will require companies to hire programme directors and project managers to conceptualise, monitor and successfully execute well-directed CSR initiatives. Social work is no longer confined to non-corporates.
Company Secretary

The new Bill elevates the role of the company secretary to management level. In many organisations, a company secretary is viewed as a mere record keeper who mechanically interfaces with external stakeholders such as the stock exchange, Registrar of Companies, among others. Organisational power is wielded by chartered accountants, lawyers, cost accountants, etc.

The new Bill will lead to many aspiring students taking up company secretaryship as a career choice.

The new Companies Act, 2013, will lead to emergence of new kinds of jobs. Companies who can promote interests of all stakeholders will emerge winners.

(The author is former CEO, Randstad.)

(This article was published on August 22, 2013 in Business Line)