No CMDs in PSUs

ASEBI-constituted panel’s proposal to separate the post of the chairman from that of the managing director for listed public and private sector companies is welcome, for it should improve corporate governance. However, public sector undertakings ( PSUs) have taken objection to the proposal, on the ground that it would only serve to foster delays.

They have a case. Having the same set of norms for public and private sector company boards would make sense only when public enterprises are run by their boards, and the board members are chosen on merit rather than political expediency. Foisting a political flunky as chairman would defeat the very purpose of improving the quality of corporate governance.

Similarly, the present practice of the government nominee on the board virtually dictating terms, when the ministry doesn’t directly tell a company under its charge what to do when, makes it immaterial whether a public enterprise chairman is also its CEO of if the two are distinct entities. Sure, chairmen-cum-managing directors ( CMDs) of public sector companies are under the gaze of the Comptroller and Auditor General (CAG), Central Vigilance Commission (CVC), government audit and Committee on Public Undertakings of Parliament. However, this cannot be a valid ground for stalling bifurcation of the two posts.

Expert committees on corporate governance have suggested separation of the two posts to promote balance of power. The role of chairman is distinct from that of CEO in the US, the UK and France. The ministry of corporate affairs , in its voluntary guidelines on corporate governance, back the recommendation. The norm, if adopted, will lead to a major overhaul of the board structure of most listed companies in India.

More importantly, it would bring in greater accountability. It will also mean a clear demarcation of the roles and responsibilities of board members. Independent directors on the board are likely to discharge their intended function better, as well, when the chairman is separate from the CEO.