The UPA-II government?s disinvestment programme was kick-started with hydropower major NHPC?s initial public offer (IPO) in August 2009. The issue got the government nod once the company fulfilled the Sebi listing norm of half of the board being composed of independent directors (IDs). Now that the IPO process is over, the company has only four functional directors ? two government nominees and two independent directors. This means it is short of two independent directors to comply with the Sebi norms for listed firms. The market regulator, however, is yet to take any action against the company for the lapse.
NHPC?s is not a one-off case. The practice of becoming lax about Sebi?s stipulation on number of IDs once the IPO or subsequent public issue is over is rampant among PSUs.
A more recent example is PowerGrid Corporation, which will be without any IDs on its board next month when the term of the sole independent director ends. PowerGrid came out with its follow-on public offer in November 2010 when it had 50% independent directors. Some of the other CPSEs which at present are not in compliance with the Sebi norm on IDs are Indian Oil Corporation, Hindustan Petroleum Corporation, Gail India and Mangalore Refinery & Petrochemicals. Of these, IOC, which has 17 members on its board with 7 independent directors, is on the disinvestment radar with its follow-on public offer slated for the fourth quarter this fiscal.
Ever since the norm on IDs has been made mandatory by Sebi for listed firms, it has been one of the most abused regulations. This can be blamed on the absence of a system to ensure that companies don?t fall out of compliance after public issues.
The purpose of mandating that half of the board should be manned by IDs is to maintain transparency in the company and ensure a high level of corporate governance standards. Many analysts say compliance with this norm is hardly enough to serve the intended purpose. Also, long association of IDs with particular companies/businesses makes them incapable of having a detached view of the proposals of promoters/functional directors.
In the case of public sector units, the PSE ministry short-lists the ID nominees and then the appointments are made by the Cabinet Committee of Appointments.
Even Department of Public Enterprises secretary Baskar Chatterjee points out that Sebi has no such mechanism in place to ensure that listed companies maintain the requisite (mandated) number of IDs. The official also added that the process of selection and appointment of IDs takes months to complete.
Under Clause 49, independent directors are required to have at least 50% representation on the board of directors of listed entities, including listed Central Public Sector Enterprises, in case the chairman is an executive member, or at least one-third in case the chairman is non-executive.
The procedural delay in appointing the IDs has already delayed the big-ticket public issue of ONGC, which is expected to mop up R11,500 crore. The offer was originally planned for the 2010-11 fiscal but was deferred to this year as the company did not have the adequate number of IDs.
