PSUs Should Initiate Process of Appointing Independent Directors: Par panel
A parliamentary panel has advocated that central PSUs initiate the process of appointment of independent directors by recommending names directly to the search committee under their respective administrative ministry and the department of public enterprises, a move aimed at expediting the appointments.
At present, the process is initiated by the administrative ministry and involves six layers leading up to the approval of the Appointments Committee of Cabinet.
The 'Parliamentary Standing Committee on Industry' in its report on the professionalization of the boards of central public sector enterprises (CPSEs) said it is "disturbing to find that not even 50 percent of listed CPSEs are compliant with the provisions of independent directors on the boards of CPSEs".
It said the government should endeavor to make CPSEs independent from the administrative ministry as recommended by the Kotak Committee set up by Sebi on the review of corporate governance norms of the country.
According to the committee, the "greatest threat to the professionalization of Boards of CPSEs lies in the rampant non-compliance by CPSEs with provisions aimed at good corporate governance practices". It called for the Department of Public Enterprises to be entrusted with the responsibility of playing the role of the regulatory agency to all CPSEs.
The panel recommended that the criteria of educational qualification have to be enhanced from the current 'minimum graduation degree' to at least a professional degree in the domain concerned keeping in mind the high expectations from a Board member in the present corporate world.
It is in favor of introducing an aptitude test as one of the mandatory selection criteria, observing that the idea gains importance in light of the recent scams that have taken place in reputed companies.
It suggested the government to take into account the feasibility of the move to entrust the Indian Institute of Corporate Affairs to conduct such a qualifying test, as suggested by the Ministry of Corporate Affairs.
The committee observed that the vacancies of Independent Directors on the Boards of CPSEs is a 'serious threat' to the efforts to professionalize their Boards which in turn is required to shore up their performances, calling for 'decisive steps' to be taken for the timely appointment of Independent Directors.
It also suggested that the process of filling up the Board level vacancies should be initiated by the CPSE at least one year before the vacancy actually occurs so that there is no gap between the anticipated vacancy and the recruitment.
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