Corporate Social Responsibility: Issues & Development

[op-ed snap] Reset the boardroom

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Corporate Governance : Tata Boards decision

Context

Three years after being abruptly unseated, the National Company Law Appellate Tribunal (NCLAT) ruled that the sacking of Cyrus Mistry in 2016 and the appointment of N Chandrasekaran was illegal.

Impact

  • It could have a destabilizing impact on not just the companies in the over $100 billion diversified group but also on markets and investors.

Decision

  • The manner in which Mistry was suddenly removed, the absence of any discussion at the board meeting and his subsequent removal as a director in group companies is prejudicial and oppressive action.
  • It has ordered that Mistry be reinstated as director of four Tata companies.
  • It has set aside the decision to convert the company from a public to a private firm. 
  • The tribunal’s verdict will become operational only after four weeks with a window to appeal to the Supreme Court.
  • Irrespective of the final verdict, there are some larger issues that need to be addressed by corporate India.

Corporate Governance

  • Issues related to corporate democracy or democratic behavior in listed corporate firms, either in promoter-driven companies or professionally managed companies need to be answered.
  • Appropriate governance structures including independent boards remain in question.
  • It is important in a public corporation to make a clear distinction between decisiveness and arbitrariness. 
  • Corporate governance in any country may be shaped by several factors, including the cultural backdrop, it should also be about ethical values, integrity standards and following the spirit of the law. 
  • At present, many Indian companies are struggling to manage their balance sheets. This ruling poses a deepening of the distrust of corporates by many investors hurt already by events in many firms over the past few years. 
  • That could be a dampener for long-term investment in India and for companies and entrepreneurs looking to bet on projects here. 

Conclusion

The Supreme Court should ensure an early closure to this corporate feud, and direct behavioral change in India’s boardrooms over the next few years.

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