India’s PSUs should be setting the benchmark for governance, which can in turn help put pressure on private-sector firms when it comes to corporate behaviour. Sadly, that does not appear to be the case. Data compiled by Prime Database shows that several state-owned companies are, in fact, violating the Companies Act, 2013, and Sebi’s equity listing agreement. Since the Narendra Modi government came to power last year, 106 independent directors have resigned or retired after completing their terms in 32 companies. But these positions are yet to be filled. As a result, several blue-chip PSUs do not conform to Clause 49 of the equity listing agreement, which makes it mandatory to have at least one-third of the board as independent directors in companies where the chairman of the board is a non-executive director. In cases where the chairman of the board is an executive director, at least half of the board should comprise independent directors, according to this rule. Coal India, for instance, doesn’t have a single independent director on its board, which has four vacancies. In each case, the recruitment and appointment of independent directors is stuck at the level of the administrative ministry.
Independent directors are key to good corporate governance, especially to safeguard the rights of minority shareholders, all the more important when the dominant shareholder is as powerful an entity as the sovereign or the government of India. The absence of such independent directors not only raises questions of transparency but also of professionalism — independent directors are meant to have domain expertise and discharge supervisory functions. Further, non-compliance with norms raises questions of propriety for the government’s ambitious disinvestment agenda — Rs 41,000 crore is to be raised through minority stake sales and merchant bankers are already being appointed for 10 such cases.
But these cases of PSU vacancies aren’t aberrations. They confirm a dispiriting trend of dawdling on key appointments and a general perception that differential standards of regulation apply to government-owned and private companies. For instance, after the March 31 deadline for all listed companies to appoint at least one woman on their board of directors had passed, approximately half of all state-owned companies were yet to comply. At the end of the day, complying with law and regulation and setting corporate governance standards will also reflect in higher valuations. There is a premium on valuations when it comes to corporate governance. This is where PSUs should lead the way.