The wait may be worth it if we get better boardroom behaviour at the end of this. The role of independent directors, often a weak spot in detecting fraud, has been defined better as are the obligations of auditors. Tighter rules now govern companies seeking to raise money from the public. The quantum of employee compensation is defined if firms want to wind up. Class action suits empower minority shareholders. The recently set up Serious Frauds Investigation Office gets its mandate to look into financial crimes. Besides the policing provisions, the bill also tries to instill a value system within India Inc. This comes through in directions on managerial compensation, holding structures of firms, affirmative action for women and statutory spending on social responsibility. The last, while aimed at nurturing the ecosystem from which companies derive their profits, is contentious but the government has tried to limit its impact to those at the very top of the corporate food chain.
A single piece of legislation will not lead India into an era of shareholder capitalism that can sustain prolonged growth. The economic environment, too, must be conducive. Indian companies face a fragmented market for goods and services and a rigid labour market that discourages mobility. The equity cult is still feeble among the broad mass of Indian savers and managerial talent is hard to come by. Despite these odds, and a rickety law, companies have been putting up an impressive show: the private corporate sector raised its savings from 6.6% of the gross domestic product in 2004-05 to 9.4% in 2007-08 before sliding to 7.9% in 2010-11. Indian companies chip in with every fourth rupee invested in the country. After corporate governance, the government must look at the ease of doing business.