PSUs to get leeway in independent directors’ selection

NEW DELHI: The government is considering a proposal to give more autonomy to state-owned companies in the selection of independent directors, as it prepares them for listing on the stock exchanges.

“The proposal intends to encourage better corporate governance among public sector undertakings (PSUs). Also, it will benefit all the PSUs looking for early listing,” said the DPE official who did not wish to be named.

The government is looking to bring out public offers of more than 50 unlisted public sector companies and needs to meet the Clause 49 regulation of the Securities and Exchange Board of India (SEBI).

Clause 49 of the listing agreement requires 50% of the board members should be independent directors. “Independent directors should help the PSU grow and if there is any criticism it should be constructive,” the DPE official said.
The department has also prepared a pool of independent directors, comprising ex-PSU chairmen, senior government officials and renowned academicians.

A greater role to the PSUs in the selection of independent directors will restrict the role of administrative ministries in the appointment of the independent directors.

Currently, administrative ministries recommend names of three candidates for the post of an independent director. A search committee is then constituted, which includes, secretary of the concerned administrative ministry, secretary DPE and chairman of the public enterprise selection board (PESB). The administrative ministries thus indirectly control appointment of independent directors in their respective PSUs.

As per the disinvestment department, there are 50 unlisted PSUs that meet the selection criteria of positive net worth for them to be eligible for listing. The government further aims to give more functional and financial autonomy to the PSUs and has already created a new category of Maharatna PSUs.

“It may be prudent to empower the search committee to both select and appoint a candidate and restrict the role of administrative ministry as a consultant,” the official said.

According to U D Choubey, DG, SCOPE, there is a need to strengthen corporate governance in PSUs. “But this also needs to be extended to the corporate sector. In fact, independent directors should be held accountable, and their performance should be reviewed,” he said. SCOPE is a professional organisation representing the central government public enterprises.