The NDA government would soon be directing all ministries not to appoint independent directors, who were selected by the previous UPA regime, in the boards of central public sector enterprises (CPSEs). Cabinet Secretary is holding a meeting on this issue on Monday to approve the proposal, said sources.
The NDA’s earlier strategy was that past selections should not be ratified by shareholders in the annual general meetings so that the selected persons — currently functioning as additional directors in the board — would have to discontinue and the post would fall vacant for re-selection by the Appointments Committee of the Cabinet (ACC).
However, since this would be a time-consuming process with each CPSE holding their AGM over the next 2-3 months, a decision was taken at the highest level to guillotine the entire previous selections through a directive so that the ACC could quickly approve fresh names for appointment by September-end.
New corporate governance norms that kick off from October 1 require at least one-third of the board should comprise independent directors where the Board chairman is a non-executive director and at least half of the board in case the company doesn’t have a regular non-executive chairman.
Non-compliance with the new provisions would delay the listing and disinvestment of government equity in some of the targeted CPSEs until the vacancies are filled. It could also result in some CPSEs getting downgraded from their present status of maharatna and navaratna, said sources.
They said the October 1 deadline was being used as a pretext for getting the Cabinet Secretary to issue the diktat to axe the past appointments and provide a route to the NDA government to fill up these vacancies with their nominees.
Independent directors are drawn from public men, technocrats, management experts, consultants and professional managers in industry and trade with a high degree of proven ability. New norms require that the criteria for their selection would have to be disclosed in the annual report.
The market is considered the largest cloth market in Asia and it houses a number of textile units and factories.