No Tears for Managing Agencies

LONG STORIES must end sometime, even if the end is a long time coming. More than 10 years after the passage of the Companies Act, nearly 50 years after the report of the Indian Industrial Commission, and threequarters of a century or more after the first stirrings of protest in Bombay, the Government has decided to terminate the Managing agency system in five industries from 1970. The industries are cotton, sugar, cement, jute and paper. Notice has also been given, in effect, that abolition in other established industries will follow soon. This decision has been taken after what in common officialese is described as "consideration at the highest level". Even at this level there was cause enough for delay: the I G Patel Committee, which was appointed to look into this question, and the Company Affairs Department (which has been under the Law Ministry since the beginning of this year) had suggested prolonging the goslow policy which has been pursued since 1956, moderate hastening of the pace only in cotton, sugar and cement, and continuance of the policy of unitwise rather than industrywise rejection of applications for appointment and re appointment of managing agents At the highest level, the urge to make a display of continued adherence to "leftist policies' was, of course, an important consideration but that was not the only impelling force. The choice now lay between a straightforward industrywise abolition and tortuous unitwise rejection of managing agencies. The first eliminates or at least reduces uncertainty among applicants and cuts through the wide area of administrative discretion which, after recent events in Parliament, nobody is eager to take on at his own risk. The second might appear more fair and rational but it is heavy on time and reputations. Discouragement of the managing agency system was accepted by the Government as a policy objective during the parliamentary debates on the Companies Act 1956. The cabinet has acted wisely in adopting the straightforward alternative.

No tears need be shed over the impending departure under official auspices of the managing agency system. Equally, there is no cause for rejoicing. Most of the abuses or evils of this system are inherent in corporate finance and management; these will not disappear with Its abolition. Regulation of corporate management in the interests of the general public and of shareholders is a continuing struggle against the evolving manifestations of financial genius. That struggle is an integral part of the rule of law and the public interest and is quite independent of particular forms of management. The gradual abolition of managing agents is aimed not at elimination of private control over management but at hastening the professionalisation of management, rationalisation of managerial hierarchies and relating remuneration to performance of specific functions. These objectives are not achieved overnight or within three or four years; one can only move rapidly towards them. If this reform is to serve its purpose, it must be followed up by reducing the number of directorships which an individual can hold from 20 (in public companies only) to an overall maximum of 10 (public and private companies), and by requiring every company to have at least one managing director who can be held responsible for the management of its affairs. Multiple directorships encourage prestigious dilettantes andthe absence of a managerial person, as defined under the Companies Act, facilitates the avoidance of responsibility.