The government today said it would come out with the guidelines on independent directors to improve the quality of representation on the boards of the state-run companies. Heavy Industries and Public Sector Enterprises Minister Praful Patel said the quality of independent directors in the PSU boards “needs to be upgraded”.
“I want to make one categorical assertion that the quality of the members who are appointed on the boards as independent directors will have to be upgraded,” Patel told reporters here after releasing the Public Enterprises Survey 2009-10.
The Minister pointed out that many PSU boards are being represented by people who have no domain expert or little expertise and do not contribute to the functioning the company.
“Therefore the Department of Public Enterprises (DPE) will make some guidelines and make some assessment in consultation with our companies as to what is the contribution of the independent directors on the boards and if need be we can suggest remedial measures,” the minister said.
“So we want to have a qualitative assessment of the members who will be joining the board,” he added.
Patel also said PSUs should immediately fill the vacancies for independent directors as it would otherwise affect the listing of those firms.
As per the Sebi guidelines, it is mandatory for a company to fulfil the criteria for 50% representation by independent directors on the board, if the chairman is executive, before getting listed on the bourses or hitting the capital market.
In case the chairman is non-executive, the rules demand that at least one-third of the board should comprise independent directors.
Recently, Minister of State for Heavy Industries and Public Enterprises A Sai Prathap informed parliament that 25 PSUs, including blue-chip companies like Indian Oil, SAIL, ONGC and BHEL, are not compliant with Sebi’s norms on the representation of independent directors on their boards.
On strategic sale of sick PSUs, he said the government will have to take a “fundamental call” about those companies which cannot be turned around.
On the difference between the salaries of PSUs and private sector employees, Patel said that state run firms can take advantage of the Employee Stock Option (ESOPs) facility to compensate their employees.