Khurshid moots ‘trained’ directors

With the Satyam scam triggering a debate on the role of independent directors and issues of corporate governance, the government may propose to cap the number of directorships a person can hold.

Corporate affairs minister Salman Khurshid gave indications about certain provisions likely to be included in the new Companies Bill regarding directors, their role and the number of directorships.

“I think we should move towards a system where nobody becomes a director without a certain amount of familiarisation and training. This should also be followed by a declaration about their familiarisation. The number of directorships obviously need to be restricted.

We do not have superhumans who can attend to 20 or 25 companies, read everything and give a responsible reply. But there might be some special circumstances for which we need to keep our window open for extra number of directorships. The industry and ourselves will have to arrive at a consensus on the humanly possible number of directorships a person can hold. Let us not surprise upright and decent people with the culpability,” he said, while speaking at the Institute of Directors.

Khurshid said the government has begun a process of demystifying corporate governance.

Equating the rights of minority shareholders in a company to fundamental rights in the Constitution, he said, “Protection of minority shareholders has become, for us, the most important part, quite like fundamental rights in the Constitution.

The right of minority shareholders has to be protected through rules, regulations and practices of corporate governance. The future of industrial democracy must have a very important role for corporate governance. It is another matter that corporates are able to influence choice in a democracy or the government.”

The minister also gave a preview into the new Bill. It is likely to be more simpler than the existing version, with about 400 provisions against about 600 currently.

“There are some new ideas in this Bill. One idea speaks of things that could go wrong. As the prime minister had earlier said while replying on an issue about Pakistan, we believed in “Trust, but verify”.

That’s the attitude we have towards Indian corporates. We want to trust you. You verify us and we verify you. But, it’s not blind trust. It’s a prima facie trust. There are people who go wrong. Not just the huge frauds like in Satyam but, even with the smaller vanishing companies, there are things that go wrong. But, for every wrong, there is some much right that is done. We do want to begin with the prima facie trust. Still, if it goes wrong, there will be a clear system of imposing sanctions. This is where discussions are going to play a key role,” Khurshid said.

Following its experiences with Satyam, the government is also likely to focus on measures for a warning system in case things seem to be going wrong in a company.
“We are looking at prophylactic approaches.

Early warnings on things going wrong will have to be looked at. Since there is digital information available, we need to look at flagging things when they tend to go wrong. But, most important is the aspect of attitude of people involved in these situations,” he said.