The government’s norms for selection of directors and other senior PSU executives are increasingly proving to be lacking when pitted against the demands for professional acumen and domain knowledge in these companies.
Losing their protective veils fast in a competitive market economy, most PSUs are struggling with a human resource crunch that often stymies their performance and undermines growth. The appointment process for these firms — through the Public Enterprises Selection Board and often under political, rather than professional influence — is yet to mature.
Notably, the new Companies Act has redefined the role of independent directors (IDs) by giving them more powers and immunity. The Act has a provision that allows corporates to have a third of their board members as independent directors; Sebi’s strict implementation of its listing norm requires half of the board to have such directors. But in the absence of professionals with domain knowledge, this is creating a situation where PSU boards get filled with financial experts and generalists.
A telling example of this is the state of affairs in exploration firm ONGC, which continues to be burdened with much of India’s energy security programme, but is hamstrung by a paucity of top personnel with
experience in the hydrocarbon industry.
On December 2, the government appointed two additional directors without a background in the oil and gas industry to the board of the public sector major. This, at a time when its rank of independent directors is already swollen with accountants and bankers. “None, except one of our independent directors, have a background in oil and gas and these officials are highly paid. What value will this add to us?” asks a senior ONGC official.
At present, ONGC has six independent directors, with only one of them — D Chandrasekharam, an academic in resource engineering with experience in IIT, Mumbai — having a background in geology. The remaining, which include former SBI chairman OP Bhatt, have a banking and/or capital markets, finance, and accounting background.
At a time, say ONGC officials, when the company has been troubled by ageing fields and stagnating production, neutral and well-informed strategic advice can help the company address some of these challenges. The independent directors are government nominees with ONGC having little say in the appointments, say company officials.
An official from an MNC audit firm, however, says considering ONGC’s operations are of national importance, it is important to have directors