directors: The provision to make companies have one-third of their board
members as independent directors is fine in principle. Independent directors (IDs) are also more stringently
defined, and their tenures will be limited to two terms adding up to 10
years. IDs can also hold a maximum of 20 directorships.
2: Corporate social responsibility: Sure, the Bill does not make 2
percent spending on CSR mandatory, but it comes close. The only obligation is to earmark the
funds, form a committee, formulate a CSR policy, and spend the cash. If
you don’t spend the money, you have to explain why in the annual report.
3: Excessive bureaucracy: In order to make directors accountable, the
new Companies Bill mandates that every director shall register himself
or herself with the government and obtain a Director Identification
Number (DIN). Like the UID, which is supposed to give every Indian
resident a unique identity and prevent fraud, the DIN will enable the
government to monitor the number of directorships any person holds and
also his track record.
4: Women directors: It is important for corporate boards to ensure
gender diversity, but before that happens, a supply of women eligible
for board positions needs to be created. According to GMI Ratings’ Women
on Boards Survey 2013, even on the world’s best-known companies,
women account for only 11 percent of total directorships.
5: Class action suits. Perhaps the best new provision in the
Companies Bill is the enabling of tort action and class action suits.