The Hindu Business Line : Boardroom power plays

Corporate governance is the theme of many a conference and seminar. Yet, a common perception may be that good corporate governance is more an exception than a rule. Which, perhaps, explains why the Institute of Company Secretaries of India (ICSI) has annually been announcing a national award for excellence in corporate governance.

"Investors are happy as long as they get dividends and bonus shares. And, very often, big companies take the shareholders for granted," rues Mr D.B. Saxena, a corporate lawyer and a former president of the ICSI. One of the ways in which corporate governance can take a hit is when wide powers are conferred on the board.

"There are everyday examples of companies passing general resolutions of shareholders giving omnibus powers to the board of directors where consent of shareholders are required, including special resolutions," says the veteran company secretary, who retired as whole-time Director of Kothari Industrial Corporation Ltd in 1997.

Examples that Mr Saxena cites are where consent is required for situations such as selling assets under Section 293(1)(a), making Section 372 investments, and issuing further capital (Section 81).

"The Companies Act, 1956 specifies what the Board can do, where the consent of the shareholders is required, and where the approval of the Central Government is required," he explains. "In cases where shareholders are required to approve the proposals, wide powers are conferred on the Board under the guise of shareholders delegating their powers."

How does that happen? Here is an example. Suppose a company wishes to divest its assets. Powers delegated to the board may be wide, including the fixing of a price, determining purchasers and so on. "Sometimes no minimum price is indicated."

The same obtains for approval required under Section 372A where a 60 per cent limit is fixed for loans, guarantees and investments, notes Mr Saxena. The limit can be exceeded by a special resolution of shareholders, but again resolutions may confer wide powers on the board, without specific details.

Section 293 is titled `restrictions on powers of board'. And Section 293(1)(a) is about selling, leasing or otherwise disposing `of the whole, or substantially the whole of the undertaking of the company, or where the company owns more than one undertaking, of the whole, or substantially the whole, of any such undertaking.'

There can be more serious governance issues too, where despite shareholders voicing grievances the companies may not address the same. An example that Mr Saxena mentions is of a company where shares lodged by purchasers had been forged and transfers effected in favour of third parties.

"When the real owners lodged complaints with the company and the registrars, no reply was sent to the complainants, but to the market regulator a false statement was made to say that the matter had been resolved."

In the ultimate analysis, corporate governance means transparency and being fair to shareholders, consumers, creditors and the general public, insists Mr Saxena. Tough criteria, these may be, when trying to identify companies for conferment of good corporate governance awards.

E&OE@TheHindu.co.in

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