Its indecision has apparently held up the finalisation of the new Companies bill. Underlying the proposal for mandatory representation, let us face it, is a distrust of corporates or rather of the controlling interests who call the shots. The saying goes on Dalal Street that companies become sick but their controlling interests enhance their wealth. Not just trade unions but banks will concur with this view.

Given the widespread distrust, the small shareholder, it would seem, needs a measure of protection. But the particular mode of protection proposed has been opposed on legal grounds. This will create a new category of shareholders. Equity owners are equity owners, big or small. Ficci has opposed discrimination. Its argument is not without merit.

In any case, it is an open question what good a director elected by small shareholders will do. He will always be in a minority. True, as a watchdog, he can bark. This will do some good to the extent he gets the support of the financial institutions (FI) which have nominees on numerous corporate boards. Note that FI nominees are required to act in the overall interest of shareholders; their role goes beyond protecting FI loans. However, even FIs may not always be effective.

The short point is that leashing in wayward controlling interests is beyond the capacity of a single representative; nor need shareholder protection be confined to the board room. What is required is powerful systemic check. The single most institutional watchdog today is SEBI. It has its nominees on the stock exchanges. It has prescribed, inter alia, disclosure and takeover norms. Another important watchdog are the auditors, including propriety auditors. This tribe must be made legally accountable. The supportive role of FIs and banks which are trying to reduce NPAs - and hopefully take preventive action against new NPAs - should not be discounted.

Consider also the changed context of equity investment. The big players with moneys from small investors are the mutual funds (MFs). Especially the better-managed MFs are a wary lot. Their demand for transparency and information is insatiable. They keep their ear to the ground; a slight noise triggers sales by MFs. This puts controlling interests on the mat. They have also to reckon with powerful foreign portfolio investors, who now have a substantial equity stake in many companies. Finally, the controlling interests have to look over their shoulder for possible take-over threats.

Thus, the environment in which corporates operate today forces them to give primacy to shareholder value. Even so, there are slips between the cup and the lip. If Sebi had been alert to the de facto take-over of ACC, the ordinary shareholder would not have been left with lemons. Effective institutional watch-dogs are at the heart of controlling corporate cupidity.

Address the shortcomings in this regard to protect the shareholder.

Beyond this, since equity cannot be risk-free, investors, especially the smaller among them, must learn to assess risk and gains: shares of few companies, if any, are nest eggs.