Companies Act 2006: A Panacea to Stakeholders’ Struggles and Socially Responsible Firms, or a Mechanism to Enrich Already Rich?

Abstract

Much has been said about the shareholders’ interests in organization they invest, with focus on the wealth maximization and directors’ remuneration that continues to rise faster than the shareholders’ values. Traditionally, investors are inclined to invest in organizations that project viability for growth and profitability. However, various scandals and mishaps across many organizations have left the investors in awe, wondering how institutional interests can be aligned the directors’ objectives to achieve their wealth maximization objectives.

Jensen & Meckling (1976) suggested that the failure to meet this objective can be rectified by corporate governance mechanisms, which ensures on one hand the enhancement of shareholder wealth and on another, the alignment of the interests of management with shareholders. Social responsibilities have been declared a core component of a good corporate governance. Corporate social responsibility (CSR) is a model of corporate governance (CG) extending fiduciary duties from fulfillment of responsibilities towards the firm’s owners to fulfillment of analogous fiduciary duties towards all the firm’s stakeholders. (Lorenzo Sacconi, 2012). This paper intends to critically analyze the impact of Companies Act, 2006 on safeguarding the interest of all stakeholders, including the socially responsible firms.