The new Bill, which is likely to come up in the Budget session in 2010, proposes no cap on the remuneration of CEOs, letting the shareholders decide the issue. Thanks to the Companies Law Bill 2009, the expression ‘shareholders’ democracy’ is gaining in popularity. The Government argues that shareholders should have a say in deciding the managerial remuneration. But what does shareholders democracy actually mean?

This question led to an interesting discussion at the 37th convention of Institute of Company Secretaries of India (ICSI) here on Saturday, with a senior member questioning the very idea of shareholder democracy. If the norm of ‘one share-one vote’ comes into the picture, the promoters and friends with maximum number of shares would win the vote.

Defining the term

Participating in an animated discussion after Ms Renuka Kumar, Joint Secretary in the Ministry of Corporate Affairs, made her remarks on various issues in the Bill, Mr J. Krishna Murthy, a senior ICSI member, wondered what defined a person as a shareholder.

Stating that promoters as investors held sway, he said when a promoter puts up his hand (in the annual general meetings) the resolution is passed and when he puts it down, the resolution gets turned down.

Modifying Rights

The best way to change this could be curtailing or modifying the voting rights. “But it is a right pertaining to property protected by the Constitution,” he said.

Some other member suggested that as interested parties, the promoting executives should opt out of the meeting when the remuneration issue comes up for discussion.

Ms Renuka Kumar said it would be long before shareholder democracy takes root in the country. The provision for class action suits, giving the shareholders the right to decide the remunerations, broadening the scope of disclosure norms — would certainly help grow the idea of fledgling shareholder democracy, she said.

On the remuneration issue, she regretted that directors sought a three-fold increase in salaries when their companies were in the red.

Another member suggested that there should be guidelines for appointing directors. “They interview and appoint the best people for important positions. But unfortunately, there are no qualifications laid down for themselves,” he said.

Another ICSI member, however, protested at the views that showed the promoters in poor light. “They are the investors in the company. It is shareholders that don’t have a permanent stake in the company. They can sell their shares tomorrow and walk off. But promoters will not. Don’t consider them crooks,” she pointed out.

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September 2021