Last week, after nearly 12 years of debate, India’s parliament finally passed a sweeping new piece of corporate legislation. The 2012 Companies Bill replaces the previous 1956 law and introduces some major reforms to bolster corporate governance in the world’s largest democracy, which has faced questions about its potential for continued growth. According to Indian Corporate Affairs Minister Sachin Pilot, the law “aims at plugging loopholes in the system for a better… business environment,” and will “enhance transparency and ensure fewer regulations, self reporting and disclosure.”
Among other measures, the law defines the concept of “fraud” and empowers a new agency to investigate it; strengthens checks and balances in companies’ governance systems; makes board decisions more transparent; and seeks to increase the accountability of a company’s directors and auditors. The law also establishes that at least a third of directors should be independent, requires companies to rotate auditors, and tightens oversight of companies that take public deposits and of loans among a company and its subsidiaries.
At the same time, some of the reasoning behind other well-intentioned measures in the law is less clear-cut. For instance, certain classes of companies will now be required to have at least one woman board member. The overall goal here is important: to make boards more representative, thus building a more gender-equitable economy. Yet the effectiveness of such quotas has not been universally accepted, particularly because of the risk of creating “token” board slots.