India Inc may heave a sigh of relief with the corporate affairs ministry unlikely to make it compulsory for companies to spend 2 per cent of their net profits towards corporate social responsibility as recommended by the Parliamentary standing committee on finance. It is also veering around to the view that for facilitating mergers and acquisitions and restructuring, it might be necessary to let companies have subsidiaries of subsidiaries.
Corporate affairs minister Salman Khurshid told The Indian Express that the corporate sector, on its own, does a lot of CSR. If it is made mandatory, it will require policing. “If companies have not spent 2 per cent of their profits on CSR, then what are we going to do about it? Send inspectors?” he quipped. According to the minister, if it is impractical, the government will point out the difficulties to Parliament. “The main thing is that we can’t simply make it mandatory. Their (corporate sector’s) main reluctance is about policing. And rightly so,” he said.
While the ministry is likely to give a long rope to India Inc on subsidiaries and independent directors, it sees merit on capping CEO remuneration in loss-making companies and rotation of auditors. Khurshid said that the standing committee’s recommendations gave his ministry enough leeway to make modifications such that the corporate sector’s major concerns are addressed.
On the issue of rotation of auditors, the standing committee has recommended that it should be “addressed by way of delegated legislation. The principle of rotation of auditors should be enshrined in the statute itself and not left to be covered under rules”.
Corporates have been making a case for retaining the same auditors. They argue that for preparing a consolidated statement of a group, the same set of auditors are required. Having different auditors would make the work complicated, they contend. Khurshid such issues would be taken care of in the Companies Bill, 2009.
However, with regard to remuneration, the minister said it would not be wise to allow loss-making companies to give higher remuneration “because they will get into trouble”. “In fact, it is good that we are the whipping horse because they will get in trouble if we don’t (keep a check on remuneration). If your company is making losses and you want to give high remuneration, what do you expect? All we do is that if you make losses we say we will keep your remuneration at last year’s level. We help them. I don’t think it is a major issue,” he said.
Though the standing committee has been more stringent in making corporates responsible in the way they conduct business, the ministry has been maintaining that the recommendations of the panel would be considered. However, the ministry is flooded with suggestions seeking dilution of certain provisions of the Bill. He said the ministry will not “depart from the basic concept of the recommendations of the panel”.
“There is a broad agreement on things. Parliament has left some leeway but the basic concept is that we can’t depart. Like rotation of independent directors, audit firms…what you can do is you can play with five years or nine years but you can’t remove it. This is a report of Parliament, not something we are recommending,” he added.
