The paramount responsibility of any organization should be to protect the interests of the stakeholders as they are one of the most indispensable part of a company’s functioning. A stakeholder can be described as a person, a group or an organization that has some interest or concern in an organization. Fulfilling their expectations is vital as they can affect and be affected by an organization’s actions, objectives and policies. Examples of some key stakeholders are: creditors, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community through which the business derives its resources.
Section 178 of the Companies Act, 2013 provides a mandatory provision for setting up a Stakeholders Relationship Committee (SRC). According to the section 178, the Board of Directors of a company that constitutes of more than one thousand shareholders, debenture holders, deposit holders and any other security holders at any time during a financial year should establish a Stakeholders Relationship Committee to improve the corporate governance in all the listed companies. The primary function of the committee is to deal with the grievances of security holders of the company. It also helps in examining and reviewing investor complaints and ensures their timely and speedy disposal. However, the predicament with this clause is that it does not take into account ‘all’ the stakeholders involved in a company i.e. it limits itself to people who have pecuniary relation with the company, predominantly, the investors.
Since the stakeholders are effectively involved within the workings of a company and can both positively and negatively be affected by the operations of the company, there is a need to include a measure that encompasses all stakeholders i.e. the customers, contractors, project team members, suppliers, managers of various departments while constituting the Stakeholders Relationship Committee (SRC). There should also be a provision in the law granting all these people a say in the crucial decision-making process that affects them in anyway. The Committee should try and prioritise the grievances and a fixed time limit must be decided to deal with each of them. A penalty shall be allotted for non-compliance with this rule, or a statutory provision binding the company to settle the matter must be constructed. Moreover, a conventional framework could be designed for the resolution of the complaints of the investors. In many companies, SRC is not proactive in terms of its functioning. The companies should make these committees stronger by giving them responsibilities beyond what is prescribed within the law, as long as it concerns the complaints of stakeholders.
Finally, Independent directors can also play a crucial role in protecting the interests of the 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 needs to be revised as the mandate of protecting the needs of different stakeholder are getting defeated due to their limited say in the commercial decisions of a company. It would be fitting to conclude by stating that Independent directors must be made a pre-eminent part of the decision-making process 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.