A consensus seems to be emerging among the members of the Uday Kotak headed Committee on Corporate Governance that the final call on appointment of independent directors should be taken by the board of the company.
Appointment of independent directors on the boards of a company particularly Public Sector Enterprise (PSEs) has always been a contentious issue.
It is not surprising that questions are being raised on the appointment of Bhartiya Janata Party’s national spokesperson Sambit Patra as non-official director on ONGC board. Informed sources said, “it was felt in the Committee that the administrative ministry should be kept out of the appointment process.”
The Kotak Committee is expected to submit its report to the SEBI Chairman Ajay Tyagi shortly. At present, the system of appointment of independent directors is arbitrary both in private and public sector — the final call is the promoter’s not the board.
In the case of PSEs, the selection of non-official Directors (Independent Directors) falls in the domain of Department of Public Enterprises (DPE). The proposal is initiated by the nodal ministries and submitted to DPE. These proposals then are processed in DPE and are placed before a search panel that comprises senior secretary-level officials.
The recommendation of the search committee is thereafter forwarded to the concerned ministries, which in turn makes the recommendation after completing due formalities and obtaining approval of the competent authority.
“There is hardly any role of the company board here. They just have to accept it,” says a professional company secretary.
In both the cases — government and private sector — the other approvals are just for books, the company secretary said.
Those who are closely involved with the corporate governance exercise told BusinessLine that the Committee may recommend and SEBI may forward the same to the government, but how much will be implemented is anyone’s guess.
To ensure greater transparency in the functioning of company board and its decision making process, the Committee has also considered evaluation of board by an independent authority.
For bringing better corporate governance in public sector enterprises, a discussion also took place on the need to have a PSE ownership policy. The government, which is the main promoter here, should identify its objective and obligation towards PSEs.
In early June, SEBI had set up this committee under the Chairmanship of Uday Kotak, Executive Vice-Chairman and Managing Director of Kotak Mahindra Bank, to help improve the standards of corporate governance of listed companies in India.
In July, SEBI Chairman Tyagi had asked the Committee to look into the corporate governance challenges faced by listed PSEs in detail.