Lack of Governance, Risk Management and Compliance (GRC) May Lead To Class Action Suit under The Companies Act 2013
Lack of governance, risk management and compliance (GRC) on part of a company may lead to a class action suit under The New Companies Act, 2013 thereby making the boards of companies more accountable, a top Corporate Affairs Ministry official said at an ASSOCHAM event held in New Delhi on 11th Sep 2013.
“The New Companies Act, 2013 could change landscape for corporates from legal point of view as it brings India laws to speed up with global practices,” Justice Dilip Raosaheb Deshmukh, chairman of the Company Law Board said while inaugurating the 2nd National Conference on ‘Governance, Risk Management & Compliance (GRC): Responsibility, Practice & Reward,’ organized by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
He further said that as per the New Companies Act the board members of companies will have to oversee judicious use of working capital, while independent directors will be responsible and liable for their action, and if the consent to fraud by the management, they will be held responsible.
Highlighting the significance of technology in making GRC program successful for a company, Justice Deshmukh said, “To make sure GRC, technology has to be fully integrated into the business and risk-management function has to be a company’s overall strategy.”
“The emerging requirements and new standards internally and externally are forcing the Board and management to rethink their roles, responsibilities and discrete relations between GRC activities and this will enable to keep pace with new legislation and stakeholder expectation,” said Justice Deshmukh. “GRC is a managerial intent to assure that entities are transparently governed, specifying culture for decision-making, accountability and integrity and establishing clear directions for an organization to achieve defined goals.”
“GRC relies on proactive due diligence and adoption of best practices for operations and management,” he added. “It assures that management decisions are implemented as intended, through effective controls and the performance is measured against pre-defined metrics and policies are enforced in true spirit.”
He further said that technological innovation, globalization, complex regulation and increased accountability at senior management and board levels have significantly changed the landscape of risk-management and emerging risks of e-business has only made it more complex.
Highlighting the importance of GRC in the present scenario, Justice Deshmukh said, “It is a process by which Board of Directors set objectives for an organization and oversee progress to achieve them and it also allows the organization to operate within parameters presented by the law.”
Talking about the various risks involved in financial business, he said that new and complex products offered by foreign financial markets or institutions can have cross-border risks as their distribution can bring in serious contagious risks across global markets.
Sharing his views on compliance, Justice Deshmukh said, “A Board of Directors of any financial institution should approve and oversee institution’s strategic objectives and set a compliance culture and the board should ensure that financial institution has adequate policies and procedures that enable oversight activities to be carried out on all business lines.”