To cut delays, lax ministries may be bypassed for naming of independent directors

Faced with the problem of many central PSEs, which are up for disinvestment, lacking the requisite number of independent directors (IDs) on their boards, the government has established a process to fill ID vacancies in CPSEs well in time. As per this, the administrative ministry concerned has to start the process of appointing an ID six months before an incumbent?s term ends.

If the ministry fails in doing so and giving its final views on the candidates shortlisted by the Public Enterprises Selection Board (PESB) in a time-bound manner, it could well be bypassed and IDs could be appointed.

The Securities & Exchange Board of India?s listing agreement stipulates that the IDs should man 50% of the board of a CPSE, if it has an executive chairman, and 33% of the board if the chairman is non-executive. As of now, nearly 300 posts of independent directors lie vacant in CPSEs.

The government targets to collect Rs 40,000 crore by selling its stakes in CPSEs during 2011-12, almost double the revenue it earned from disinvestment in the last financial year. Equipping the CPSEs with the required number of IDs is key to expediting the disinvestment process as and when the markets look up.

The new process for selection of IDs would mandate that the administrative ministry suggests a few names to the Department of Public Enterprises (DPE) six months before the incumbent?s term ends. The DPE, in turn, would inform the PESB about the same. In case, the administrative ministry fails in giving the names, DPE will do so on its own.

The PESB would then shortlist candidates and revert to the administrative ministry, which has to give its opinion within a month. Again, if it fails to respond within this period, DPE will independently recommend the names to the Cabinet Appointments Committee for its nod.

?Generally the administrative ministries delay the process as they don’t want the listed people to be placed on the boards of CPSEs. So they dump the file. Now, as we would come in play if the files don’t move in time, it is expected that the process will be expedited. Also, the respective ministry has to give reasons if it doesn’t want someone, who has been found suitable by PESB search committee, on the board. This has made the process more credible,? DPE secretary Bhaskar Chaterjee told FE. As of now, administrative ministries take a long time, in some cases even years, to suggest names of suitable candidates for appointment as independent directors. This is what had happened in the case of Coal India Limited, which could not list its shares for more than a year, due to shortage of independent directors on its board. The follow-on offer of Oil and Natural Gas Corporation (ONGC) has also been postponed to the current year for want of adequate non-official directors. The government is also looking to dilute its stake in Power Finance Corporation and Steel Authority of India.