OIL AND Natural Gas Corporation Limited (ONGC) has urged the Securities and Exchange Board of India to exempt it from corporate governance rules pertaining to the appointment of independent directors to its board. According to an official, ONGC is one among the many public sector enterprises (PSEs) that had sought this exemption, as the power to appoint independent directors to PSEs rests with the government.
The Listing Obligations and Disclosure Requirements (LODR) require that any company without a non-executive chairman have a board of directors, comprising at least 50 per cent independent directors. At present, on ONGC’s board of 12 directors, only two are independent.
“It is not ONGC or any other public sector unit which is at fault, as the company is not able to appoint independent directors,” said the official, adding the LODR were set keeping mostly private sector organisations in mind, and that rules had to be different for public sector companies. Companies found to be in violation of the LODR are liable to face fines or even suspension in trading on stock exchanges.
Experts agreed that PSEs were not at fault for violations in the requirement for appointment of independent directors, as that power rested with the administrative ministry of the PSEs.
“This is a reasonable demand by PSEs. As the control is with the government, the company is not at fault,” said Ankit Singhi, partner at law firm Corporate Professionals, noting that there was a huge vacancy for independent directors at public sector undertakings. Singhi added the government should consider empowering public sector units to appoint independent directors themselves.
An expert, who did not wish to be quoted, said the low number of independent directors at public sector enterprises was a cause of concern regarding corporate governance. He added government nominee directors, who were bureaucrats, would be less likely to raise objections on governance than independent directors.
The Parliamentary standing committee on industry has also previously recommended that PSEs be empowered to appoint independent directors, noting in a 2018 report that not even 50 per cent of listed CPSEs were compliant with the provisions on independent directors on the boards of central PSEs.
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