The Hindu Business Line : Small shareholders on company boards may be mandatory

SMALL shareholders have a cause for cheer. The Department of Company Affairs (DCA)-constituted Working Group on Corporate Governance is set to recommend that small shareholders should be compulsorily represented on the board of public companies. This measure is aimed at ensuring proper representation to shareholders.

Currently, the appointment of such a director is optional and can be made once in three years. Section 252 of the Companies Act provides that a public company having a paid-up share capital of Rs 5 crore or more, and having 1,000 or more small shareholders may have a director elected by such small shareholders in the manner prescribed. The working group is said to be of the view that the existing provision be made mandatory.

However, the recommendation may not find acceptance within India Inc. With competition blues gripping the marketplace and margins squeezed, insecurity and fears of industrial espionage are some of the ill effects of such a proposal, the industry argues.

According to the Federation of Indian Chambers of Commerce and Industry (FICCI), "This is not necessary and would lead to a lot of malpractices, which is best avoided. SEBI is already there to look after the interests of small shareholders."

Elaborating further, industry sources said, "Besides, steps have been taken under Company Law to prevent unscrupulous small shareholders from unnecessarily harassing the companies. This suggestion, if implemented, would play into their hands."

"Directors are privy to a lot of sensitive information including strategic planning which would be worth a fortune to a rival in today's increasingly competitive world - both domestic and foreign. Besides, in certain key areas even one director can veto the entire plans of the company. Under section 372 a resolution for making any inter corporate investment can be aborted by a single director," FICCI said.

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