Business Today

The Directors Cut

Disqualification of 2,00,000 directors looks like an extreme step. Let governance and discipline be enhanced through other means
Shailesh Haribhakti   New Delhi     Print Edition: November 5, 2017
The Directors Cut

Corporate India has been hit by an unprecedented tsunami: over 2,00,000 directors have been disqualified from holding the position of director in any company for five years. Even the National Stock Exchange is not certain whether this will affect continuation of such directors on positions they hold at present. If this is indeed the implication of the initiative, a massive search for new directors will ensue. The transgressions for which this radical, unprecedented and, in some instances, not wholly fair step has been taken are indeed serious! Non-filing of accounts and non-repayment of deposits.

While this will make all directors more vigilant and bring about a discipline in corporate affairs, it may result in a grave aversion to accepting directorships and shortage of directors, particularly in impaired companies. The step has been taken without giving the directors concerned a chance to defend their position. In some circumstances, this may prove patently unfair. I know of prominent, diligent and responsible individuals, including women, who will suffer the unfairness of being deprived of genuine board positions.

Mitigating circumstances may arise in abandoned initiatives which did not access any public funds. Cases in point are start-ups that do not take off and where, after incorporation, the business does not start at all. Often, such private enterprises can be commenced with great fanfare and prominent people may agree to join the board as they know the protagonist. While non-filing of accounts is certainly negligent, in these circumstances, the non-promoter directors may have a case to be let off with a strict no tolerance to future transgression warning. It is also important to ensure that the updating of self-served notices of resignation happens automatically. Nobody can be held responsible after a notified resignation. It is, therefore, in the interest of fairness that the facts and circumstances of each case be examined afresh and a more comprehensive and effective registry be established.

While corporate discipline can never be sacrificed, there appears to be a genuine need for director education and a bit of caution before the radical step of disqualifying directors is taken. Let governance and discipline be enhanced through education and strict warning. This will promote both ease of doing business and encourage the start-up ecosystem. This is a wake-up call for all directors. Equally, it should be a rallying point for cooperative enhancement in corporate practices that are conducive to growth and innovation.

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