Satyam lessons for PSU independent directors

To avoid Satyam-like accounting frauds in state-owned entities,the government is planning to train more than 300 independent directors...

Written by Gunjan Pradhan Sinha | New Delhi | Published: February 16, 2009 2:07:51 am

To avoid Satyam-like accounting frauds in state-owned entities,the government is planning to train more than 300 independent directors of over 200 public sector undertakings (PSUs). Officials say the training is aimed at making them “ask the right questions at the right time”. In fact,a proposal is being considered by the Department of Public Enterprises (DPE) which may make it mandatory for all independent directors to get trained from the Institute of Company Secretaries of India (ICSI). The move comes close on the heels of another initiative taken by the department in association with consulting and accountant major KPMG last month to train PSU employees towards adopting the more transparent international financial reporting standards. The government wants PSUs to adopt these standards by April 1,2011.

The training programme for independent directors being prepared by the ICSI will deal directly with their role and responsibilities. “Being independent and not employees of the company,they can serve the purpose of a vigilance audit and nip the problem in the bud,” a senior government official told The Indian Express.

“Most independent directors know absolutely nothing about accounting. PSUs have been sending them on training courses and there is improvement but they remain largely dependent on the information that the chartered accountants feed them,” said B D Narang,former CMD Oriental Bank of Commerce.

“A large number of PSUs are listed on the stock exchange and have a direct impact on the shareholders’ money. There is already an internal audit and vigilance system in place in most large organisations as tax payer’s money is also involved in the functioning of the PSU,” the official stated. The government wanted more transparency and vigilance and audit at all levels of the organisation,and therefore the training was being introduced soon after the IFRS initiative,the official added.

“Most independent directors are actively involved in commercial decisions in my experience. They are aware of the financials but are not able to ask insightful questions though. However,in RINL,agenda was circulated 15 days before meetings,so ample time was given to them to be prepared for the meeting,which did help in the board meetings,” said Y Siva Sagar Rao,former CMD of Rashtriya Ispat Nigam Limited (RINL) and now MD and COO of JSW Steel.

MBN Rao,former CMD of Canara Bank,said a lot depended on the selection of independent directors and the management should play an active role in that. “In my tenure as CMD of two banks,I came across highly informed set of independent directors,some of them hailing from the IITs,” he said.

At least one-third of the members of a board must be independent directors. However,there are a number of PSUs,including mini-ratnas,where these posts are yet to be filled as they need the go-ahead of the administrative ministries and the Public Enterprises Selection Board.

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