India’s new Companies Bill, 2012 will likely have both immediate and long-term repercussions. Although it is bound to strengthen the country’s corporate sector and enhance growth, it will also force corporates to adopt new strategies and overcome a number of hurdles. The key concerns include new stringent rules on board composition, requirements to hire more women for top leadership positions, the possibility of more merger and acquisition (M&A) activity, and mandated spending on corporate social responsibility (CSR).

Talent implications:

• Boards of directors: The new Companies Bill has introduced new quotas on boards of directors – at least one-third of the boards of listed companies and other specific classes of companies (to be prescribed by the government) should comprise independent directors. In addition, the maximum number of directors in private companies has increased from 12 to 15. The new rules governing membership and gender diversity will further affect the composition of boards of directors across thousands of companies. Corporates will be faced with a challenge – where will they find enough talent to meet the new requirements for independent directors?

“During this time of significant transition, Heidrick & Struggles believes that maintaining the quality of the new board members in India is just as crucial as meeting the new requirements. Indian corporations should therefore be able to diagnose benchmarks and assess a board’s composition and contribution”, says Arun Dasmahapatra, Chairman and Partner in-Charge of Heidrick & Struggles in India. Heidrick & Struggles’ CEO & Board of Directors Practice can help businesses overcome the challenges and guide them to the next stage of growth through creating effective boards, and by helping to institute suitable skills, competencies, and relationship and leadership behaviors.

• Gender diversity: There is currently a gender imbalance at the corporate level in India. Women constitute only 14% of senior management positions in India, against the global average of 24%, while only 5.3% of directors in India are women, which is substantially less than the 7.2% average in the developing world. To address this inequity, the Companies Bill will require that a certain class of companies (yet to be defined) have at least one female director on the board within a year. This could mean that two-thirds of companies on the BSE 500 will have to appoint at least one woman director to meet the new legal requirements. Preeti Malhotra, who helped draft the law, estimates that this could mean that as many as 6,000 women directors will be needed to fill board seats.

“In fact, the attempt to increase the presence of women directors in India is a radical move; the new regulations will not only expand the pool of qualified individuals for board positions in India but will also promote overall gender diversity in the workplace in this emerging market,” says Robbie Knight, Managing Partner of the global Chief Executive Officer & Board of Directors Practice for Asia Pacific at Heidrick & Struggles. “It’s not about filling the quota – organizations need to evaluate the DNA of their boards, find out what the gaps are and close the gaps accordingly.” In the long run, Indian businesses will need to identify and develop a talent pool of female employees to ensure a stable pipeline of potential women directors. “Corporates across India will face significant challenges meeting all the requirements of the new legislation but we are confident that they will emerge stronger and more globally competitive because of it,” Robbie Knight added.

• M&A: Thanks to new provisions in the Companies Bill that make it easier for deals to be done with a number of jurisdictions, a surge in cross-border M&A activity is expected. Although according to KPMG, three-fourths of the acquisitions made by local Indian firms have failed to create substantial value from the deals and 59% of the acquirers have actually destroyed value within a year of closing, the new rules should help Indian companies grow despite the potential obstacles. Generally speaking, any M&A activity will require companies to reconsider their organizational design of combined entities. The headcount may multiply and the demographic profile of the employee base may undergo dramatic changes. In addition, the broad and complex nature of this change could mean that companies have a lack of direction and that employees across all levels are unsure of their role expectations.

Heidrick & Struggles can help. As the Indian Government plans to make the M&A environment more hospitable, the Heidrick & Struggles Leadership Consulting team can help prospective companies in pre- and post-M&A services, including planning and supporting mergers and acquisitions, pre-employment support, M&A effectiveness, due diligence, cultural assessment, integration and team development, transition consulting, and onboarding services. Indian businesses should be prepared – since more M&A activity is likely to be a by-product of the new Companies Bill, the need for cross-border placements and rotation of top talent is likely.

• Governance and CSR: Corporate governance and CSR issues feature prominently in the Companies Bill, with organizations facing strict new requirements, particularly in the wake of high-profile scandals. The Bill makes CSR investments a legal requirement for any company with a net worth of Rs. 500 crore (US$83 million) and turnover of Rs. 1,000 crore (US$166 million), or profit of at least Rs. 5 crore (US$0.8 million). This could affect as many as 8,000 companies. Organizations will be required to hire capable program directors and project managers to conceptualize, monitor and successfully execute well-directed CSR initiatives. Companies traditionally like to invest in education as part of their philanthropic efforts, and this will likely encourage renowned schools and universities to set up their Asia hubs in India, thereby placing top education talent in high demand.

Upcoming activity

In March 2014, Heidrick & Struggles will be bringing together a high-level panel. This prominent group, which will include accredited scholar, senior board of director from respected company and lawyer, will discuss the changes and challenges brought on by the Companies Bill, 2012, and share their pioneering insights into how companies should respond to these changes.

Heidrick & Struggles’ consultants

·         Robert Knight is Managing Partner of the global Chief Executive Officer & Board of Directors Practice for Asia Pacific, based in Hong Kong. He has more than 25 years of board, CEO and international business leadership experience in the UK, Germany and Asia.

·         Arun Dasmahapatra is Chairman and Partner-in-Charge of Heidrick & Struggles in India, and Regional Managing Partner of the Industrial Practice in Asia and the Middle East. Arun has 30 years of experience in business and executive search, with 20+ years at Heidrick & Struggles.

 

 

 

·         Gareth McIlroy is the Regional Managing Partner responsible for the Leadership Consulting Practice in Asia, based in the Singapore office. His key area of expertise is in the design and implementation of senior executive initiatives which address internal development needs, whilst supporting the business to deliver superior results.

·         Gauri Padmanabhan is a Partner in Heidrick & Struggles’ New Dehli office, where she leads the firm’s focus on consumer markets and education & social enterprise in India. Gauri focuses on leadership searches at the board and c-level and other functional roles, working with large multinational and Indian corporations in the consumer, retail, luxury, hospitality and leisure and OTC sectors.

·         Sandeep Surana is a Partner at firm’s Asia Pacific Financial Services and global Private Equity & Venture Capital practices, focusing on senior level searches in banking and financial services across India. He has years of specialist experience in global markets, commercial banking, private banking, asset management, investment banking, and private equity, including real estate and infrastructure.

Source: Sachin Murudeshwar