Should the management of listed companies unduly worry about financial investors who seek to join the board? Certainly not, except in the case of rogues who seek to misuse inside information. The board presence of financial investors would deepen shareholder democracy. They can hold the company to account and demand better performance. The Companies Act provides the right to any person other than retiring directors to stand for director. Active shareholder democracy would bring in greater transparency and checks and balances in the system, boosting corporate governance. Shareholder activism is needed in the Indian context.
Banks are now saddled with bad loans, which have surged as many promoters paid off the political system, got loans sanctioned for inflated costs and harvested the excess amounts for themselves. Expert panels on corporate governance — the Kumar Mangalam Birla Committee and the Narayana Murthy Committee, 2003 — had recommended empowering shareholders. Rightly, the Companies Act mandates shareholder approval in major transactions that include managerial remuneration, inter-corporate investments, guarantees, securities and related party transactions.
It also provides for class-action suits against companies that do harm, and the threat of stiff penalties in case wrongdoing would deter harm. A shareholder can exercise her voting right to influence decision-making in the company, true, but her access to information is limited.
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