Stakeholders Relationship Committee: Falling short on commitment

Stakeholders Relationship Committee has been underutilised by companies for dispute resolution

Last week, information technology (IT) major Infosys put the spotlight on a little-tracked board committee called Stakeholders Relationship Committee (SRC). In its annual report, the Bengaluru-based company, which had recently seen its founder NR Narayana Murthy raise various concerns, said it had adopted a charter for its SRC, laying out its responsibilities and authority the panel could wield within the company. It also strengthened it by appointing another independent director DN Prahlad as its member.

A few weeks earlier, former Sebi chairman M Damodaran had lamented the sorry state of affairs of SRCs mandated by the company law and Sebi regulations. In a signed piece that appeared in a newsletter of Excellence Enablers, a corporate governance focused organisation founded by him, Damodaran noted, “Even junior artistes have the privilege of being seen, albeit in crowd scenes, and sometimes getting to mouth a line or two. However, the Stakeholders Relationship Committee in one large listed entity is both unseen and unheard in an on-going corporate movie starring the board, the management, the chairs of the nomination and remuneration committee and the audit committee, a significant holder of grievances and a law firm. This clearly flies in the face of the provisions in the statute tasking the SRC with considering and resolving the grievances of security holders of the company.”

The SRC, a creation of the Companies Act, 2013, replaced the earlier shareholders grievances committee. It is also one of the mandatory board committees prescribed by the Sebi Listing and Disclosure Requirements Regulations, 2015.  According to the data provided by Prime Database, as many as 68 listed companies have not constituted an SRC. But a large majority of companies have done so and over a half of the members of these committees were independent directors. SRCs of some 1,247 companies were headed by independent directors, while 265 had non-independent non-executive directors headed them.  So, what do SRCs do?

In the days of physical share certificates and transfers done through the postal system, complaints related to share transfers would be numerous. “Everything is electronic today. What used to be the predominant shareholder complaint 10-15 years ago has gone down substantially,” says B Narasimhan, a fellow company secretary who has attended several such meetings in his capacity as a registrar. Narasimhan says with hardly any work, in many instances, the SRC meetings are reduced to meetings on paper.

Despite the name change, which seemed to expand its scope, SRCs in most companies have confined themselves to routine issues like share transfers and non-receipt of annual reports or declared dividends. While part of the blame should go to the people who drafted the law, companies have also not taken proactive steps to encourage these committees to look beyond the ordinary. According to Shailesh Haribhakti, founder and chief mentor, Baker Tilly DHC, directors have not fully appreciated the enormous value such committees can provide. “Stakeholders is a wide term and includes governments, regulators, employees, suppliers and customers. If all these economic interests are to be catered to effectively, this committee can play a pivotal role,” he says. 

A handful of companies that have gone beyond the routine items have obtained significant insights from grievances of shareholders, leading to systemic improvements, points out Damodaran.  Infosys, which has now joined this small club, could inspire others. Agrees Arun Duggal, an independent director: “Infosys’ board has done well by spelling out the charter of the SRC. These committees help the board discharge its responsibilities effectively and their charter, besides meeting statutory requirements, has to be expanded to deal with the changed circumstances of a company.”

Haribhakti feels if SRCs become more active, they could ease the burden of other overworked board committees.  “This committee can take up challenges from proxy advisors and other external challenges effectively if its remit is defined and it is fed the right kind of information,” he says.

Haribhakti suggests that whistle-blower complaints could be processed initially by this committee before being taken up by the audit committee.

However, there is also a need to ensure that the roles of different committees do not overlap and that SRCs follow an issue-based approach and avoid overreach.  As the importance of the matters being handled rises, the composition of the committee will also receive more attention, feel many directors. “I would recommend a blend of independent and executive directors,” says Haribhakti.

Perhaps a more proactive SRC could help boards identify issues and address them before they turn into a sensational newspaper headline.