There is major change brewing for the boards of private sector companies. The government has proposed that chiefs of state-owned banks and financial institutions (FIs)?including state-owned insurance companies?should not sit on the boards of private sector companies.
A recent proposal by the ministry of finance, communicated to all public sector banks and financial institutions, has suggested that instead of the chairman & managing director (CMD), an executive director or general manager can now represent their institutions on the boards of private sector companies wherever the need arises to safeguard their investments.
The finance ministry, through this new initiative, wants the chiefs to concentrate on growing the business of their respective bank or FI, rather than spend time on other companies. This move is expected to lead to a major shake-up on the boards of several frontline blue-chip companies, where state-owned banks and FIs have CMDs as nominee directors. However, this new proposal would not include arrangements whereby the chiefs of state-owned banks and FIs sit on each other?s boards.
Top officials of General Insurance Corporation (GIC) and Life Insurance Corporation (LIC) confirmed the development to FE and said they have already given their feedback to the government on the issue. In fact, GIC has already implemented the move by withdrawing its chairman from the board of ICICI Bank, the second-largest bank in the country. However, one of the country?s largest institutional investors, LIC, is yet to take a final decision on the proposal and is awaiting a formal policy announcement on this from the government.
?We have already conveyed to the government our decision and are waiting for their final instructions on the issue,? said a top LIC official. Sources explain that the move to withdraw chiefs of banks and FIs from private sector boards is part of the government?s efforts to make these public sector units more efficient at a time when competition from their private sector counterparts has increased.
Of late, there has been resentment from the chiefs of the public sector banks and insurance companies, who say they are overburdened with such board responsibilities, which have no bearing on their own companies. As a result, the chiefs of state-owned banks and insurance companies are sometimes unable to find time to attend board and important meetings of private sector companies where they are nominee directors.