While Prime Minister Manmohan Singh last week encouraged public sector enterprises to get listed on the stock exchanges to unlock their true value and improve corporate governance standards, nearly a third of all listed central public sector units (PSUs) don’t have the stipulated number of independent directors on their boards, thanks largely to the apathy of their administrative ministries.
?Our country has become one of the very few countries in the world, which has implemented a code of corporate governance for its public sector enterprises,? the PM said. But over three years after the Securities and Exchange Board of India (Sebi) made it mandatory for listed firms to have at least a third of its board members as independent directors, PSUs are still to comply and could face delisting if exchanges follow the Sebi norms. As per the norms mandated by Sebi since January 2006, under Clause 49 of the Listing Agreement, any listed firm must have at least half of its board constituted by independent directors or non-executive directors, if the chairman is an executive. In case the chairman is non-executive, the rules demand that at least one-third of the board should comprise of independent directors.
As per analysis of listed PSUs’ board compositions by FE, almost a third of all listed CPSEs do not have the required number of independent directors on their board. These include Power Finance Corporation (PFC), Oil & Natural Gas Corporation (ONGC), State Trading Corporation (STC), Steel Authority of India (SAIL), MMTC, Bharat Earth Movers Ltd (BEML), Mahanagar Telephone Nigam Ltd (MTNL), Bank of India, Punjab National Bank and Mangalore Refinery and Petrochemicals. Sick firms Hindustan Cables, Hindustan Photofilms and ITI are also not following the rules.
PFC does not have even a single independent director on its board since the last five months. Commenting on this, a PFC official said, ?The entire public sector is suffering from the shortage of independent directors because the government is slow in their appointment. The search committee generally takes at least 7-8 months in appointing one?.
?The last independent director in our company retired around six months ago and we had written to the government even before his retirement. If Sebi takes any action, we can produce the same letter.? he added.
ONGC has only four non-executive directors out of the 14 members on its board. There were eight independent directors as on March 31, 2009, but the tenure of four concluded on June 25 and one independent director resigned effective June 24. Subsequently, the government appointed one independent director with effect from August 5. At the end of September, the company was left with four non-executive directors against requirement of nine. ?The matter of appointing remaining five independent directors is under government consideration ,? ONGC official said. STC’s board has less than one-third members as independent directors, while only one-fifth of SAIL’s board is constituted by non-executive directors. In case of MMTC and BEML, independent directors form less than one-third of their respective boards.
The boards of Bank of India and PNB have less than one-third and one-fourth members as non-executive directors, respectively. MTNL, whose chairman is an executive director, has one-third members of the board as independent directors. While MMTC failed to offer any comments, other firms could not be reached.
Interestingly, Standing Conference of Public Enterprises (SCOPE) feels the number of independent directors and their performance should be reviewed. ?It has been more than four years since the Sebi norms on independent directors have come in place. But whether the number of these directors is effective or not has not been reviewed. Sebi and the government should also do a thorough appraisal of the performance of these non-executive directors,? SCOPE director general UD Choubey said.