How new company law can be a boon to the CEO and Company?

How new company law can be a boon to the CEO and Company? By CA Santhanakrishnan THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ICAI Bhawan, Indraprastha Marg, New Delhi – 110 002

That’s not how we think, right? • We all know change is the only permanent thing • So why keep cribbing? • Why not act? • Now that we do have the Company law, how can that be used to maximum advantage?

CSR –the great goodwill creator • We should thank MCA for giving us a great tool to increase goodwill, create brand awareness, get the friendship of the local areas we operate from and generally be part of Nation building • Who are we talking about in the local area • Many contractors and their families • Own employees and their families • Many suppliers/ sub suppliers and their families • Many people whose livelihood depends on your office or factory

Improve the livelihood of the neighborhood • What ever you do for local community will come back to benefit you • Look what one Jamshedpur has done to Tatas and how much Tatas have done for Jamshedpur –it’s mutual • My take is that • If all industries had spent 2% of project cost on CSR they would have never faced any trouble from locals

Use CSR for maximum benefit • Use your funds judiciously • Use it to improve overall carbon footprint • Use it to improve hygiene, health, education in the area surrounding • You will end up with more customers! • Make all group companies join together to arrive at a sizeable amount which can make real change • Connect with employees who already have good projects or are thinking of one and make them the champions • Your employee morale will also go up

Use technology for CSR • Use latest technology to do revolutionary changes in the lives of people around you • Just take one technology- 3D Printing or 3D Layering • You make 3D printers available locally so almost all needs can be met locally • As we speak , 3D printers that make Pizza are being made • You have the chance to really eradicate hunger –literally!

Woman Director • Great women, unfortunately, have come to surface only when their father or husband had expired or gone out of action • Think of Anu Aga and how many AnuAgas are hidden from public eye • Indian women are now in great positions • AartiPrabhakar heads Military technology in DARPA for the US army • Indira Nooyi became the most powerful woman on earth

Go get the best woman on your board • As a co director of great women like Irina Vittal, MallikaSrinivasan I know the contribution women can make in the Board room • This is the single best thing to happen to India Inc. in a very long time • Get the smart , intelligent, participative woman director you deserve and • see how they change/transform your business for the better

Deposits • Worried you can’t accept deposits? • Good for you • Who wants to deal with fickle minded unprofessional jittery retail investors? • Ask anyone who has faced the wrath of unpaid deposit holders • Your banker will understand what downturn and CDR mean; your average depositor will arrange a run on your company. • Good riddance

Related party transactions • If you want to purchase good exceeding 25% of your Turnover and they are not at arm’s length! • It is but fair that you explain to your minority shareholders why you think it is fair! • I do not know why some people crib about this also!

Isn’t it great you don’t have to deal with babus • India Inc has to raise as one man and salute MCA for removing (their own powers) all those Central Government approvals which took ages and which were a pain and lot of expenditure • It should be a great feeling that you will be dealing with your co-shareholders and not some Babus in Delhi to explain your business and why the approval is necessary

Think of all the vanishing Cos • Yes, many of us are honest • But how do we deal with those black sheep that get away, which bleed all stakeholders dry? • Was it fair that Satyam shareholders in USA got compensated but Indian shareholders were left high and dry? • Some deterrent was needed to rein in people who thought they could away with murder.

Yes we need to work hard • This is not to say there are no pin pricks • But pinpricks will be there in whatever we do • MCA has proved that they can and will listen –as proved by so many amendments –some even beyond law! • If you have a problem take it to them • It will get a fair hearing.

A REVIEW OF SOME KEY AREAS

Relatives • Category of relatives come down from 24 to 11 • 16 categories of relatives dropped • New Relatives added - Step Father, Step Brother, Step Sister • Previously step daughter was a relative but not step father who is now a relative. Shows times have changed • Even in new Rule 4 in Chapter 1 under S 2(77) of the new act, would be better that only dependents are included under relatives. Though it will be a sweeping change, that would ensure to make this improvement to include only dependent Brother and sister

Related Parties • Not complicated, contrary to general belief • Major changes: • Various clauses in various sections for different regulatory purposes – consolidated into one place for all transactions – “Related Party” is referred only in 4 sections • Disclosure requirements have gone up substantially • Compliance with Related Party requirements significantly reduced by • Excluding companies with Paid up share capital less than Rs. 10 crores • For companies above this limit – substantially higher transaction limit prescribed in rules, considering Materiality.

Key Managerial Personnel • Clubbed positions of CEO /MD / WTD Manager / CEO and CS as under the old Act and added CFO and treated them as KMP • No new additional responsibilities • No qualification requirements for CEO/ CFO • Could become an overload in small Private companies • To explore possibility of CG prescribing any one person as KMP • Theme is to fix responsibility in the event of any issue – otherwise, these positions are just similar to directors and there is no new material impact arising from this

Special Resolutions • Definition same as 1956 Act • Except that In Related Party transaction, related parties cannot vote • 75% voting from non related parties for Related party transactions • Majority approval from minority through special resolutions - Operational difficulty, possible loss of objectivity • Member approval instead of CG approvals

Issues concerning the profession • NFRA • Penal Provisions on the Auditors • Rotation of Audits • Limit on number of audits • Fraud reporting • Related Parties (for the purpose of audits)

THANK YOU

How new company law can be a boon to the CEO and Company?