It is well known although not well understood that stakeholders are the most indispensable part of  a company’s functioning. They drive the wheels of a company’s performance by investing in shares, stocks, debentures and various other projects. Needless to say, protecting the interests of stakeholders should be the paramount responsibility of any organisation. These are the entities who have pecuniary as well as general involvement in the company’s activities. Fulfilling their expectations is vital for achieving the objectives of the company.

We have the mandatory provision for setting up a Stakeholders Relationship Committee (SRC) in Section 178 of the Companies Act, 2013. The Board of Directors of a company which consists of more than one thousand shareholders, debenture holders, deposit holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee. The predicament with this clause is that it does not take into account ‘all’ the stakeholders involved in a company. It limits itself with the people who have pecuniary relation with the company, predominantly, the investors.

We need to realise that stakeholder is anyone who is effectively involved with the workings of a company. They are the ones who are both positively and negatively affected. Customers, contractors, project team members, suppliers, managers of various departments, all of them fall under the category of stakeholders. There should be a measure to include all of them as stakeholders in a company when constituting the Stakeholders Relationship Committee (SRC). Consequently, there should be a provision in the law giving all these people a say in the crucial decision making process which affects them in anyway. This committee has a primary function of dealing with the grievances of security holders of the company. It was conceived for improving corporate governance in all listed companies. Also, helps in examining, reviewing investor complaints and its timely and speedy disposal.

SRC should first try and prioritise the grievances to deal with and a fixed time limit must be given for each of them. A penalty shall be allotted for the non compliance with this rule, or a statutory provision binding the company to settle the matter must be formulated. Moreover, a conventional framework could be designed for the resolution of the complaints of the investors. In many companies, SRC is just for the namesake, as in, practically it is not proactive in terms of its functioning. It should identify issues with stakeholders suo-motto, before they are even converted to full fledged grievances. The companies should make these committees stronger by giving them responsibilities beyond what is prescribed in law, as long as it concerns the complaints of stakeholders.

Finally, Independent directors can play a crucial role in protecting the interests of the investors/stakeholders. There are provisions for compulsory appointment of independent directors on the board of companies. But since they are not involved in the day to day management of company’s affairs, they are kept away from issues of commercial decision making. Independent directors are not apprised of hassles such as labour disputes for wages, Employee stock ownership plan (ESOP) and other commercial issues. The role of these directors need a second look as the mandate of protecting the needs of different stakeholder are getting defeated as they have a limited say in the commercial decisions of a company. Independent directors must be made a pre-eminent part when making decisions concerning the stakeholders.

Author: Sneha Sagar

Disclaimer: THE STATEMENTS HEREIN REPRESENT THE CURRENT OPINION AND BELIEFS OF THE AUTHOR ONLY AND NOT THE ASSOCIATION OF INDEPENDENT DIRECTORS OF INDIA (AIDI). UNDER NO CIRCUMSTANCES SHOULD ANYTHING IN THIS POST BE CONSTRUED AS INVESTMENT, LEGAL, TAX, REGULATORY, FINANCIAL, ACCOUNTING OR OTHER ADVICE.