MUMBAI: In less than nine months of 2014 a record 108 independent directors on PSU boards have either resigned or were not re-appointed, thanks primarily to the recent change in government at the centre.
This is the highest number of cessations of independent directors in any particular year since 2006, from when data is available. The previous high was 97 in 2013, data from Indianboards.com showed.
Being the largest shareholder in PSUs, it is the prerogative of the government to appoint independent directors but such large number of resignations also puts a question mark on the issue of corporate governance at PSUs, industry watchers said. The newly enacted companies act that does not allow any special immunities to independent directors on PSU boards may have also contributed to this trend, they said.
Of the 108 independent directors with PSUs who did not find favours with the new government, as many as 71 have stepped aside after May 16, the day the new government took its oath of office, data from Indianboards.com, a joint initiative of Prime Database and NSE, showed. In terms of total cessations, the highest was in 2013 when 256 directors had resigned of which 159 were non-independent directors.
The trend which clearly points towards political patronage by the incumbent government in such appointments also puts a question mark about transparency and corporate governance practices at government-run companies. "Appointment of independent directors on PSU boards happen via ministries. Thus, a change in the government also shall lead to changes in directors in PSUs," said Pranav Haldea, MD, Prime Database group. "I believe this trend of resignation by directors at PSUs would continue till those who were aligned with the previous government either resign or are not re-appointed," Haldea said.
The main idea behind having independent directors on the boards of companies is not only to professionalize the top-decision making body within the firm, but also to supervise the working of the firm by some efficient people who should also be unbiased. Instead what has happened over the years is a majority of independent board seats at PSUs have been occupied by retired bureaucrats and top executives from PSUs themselves, thus defeating the whole purpose of having an independent oversight. Recently a TOI article pointed out how at several public sector banks and insurance companies, instead of top professionals from these fields occupying board seats, as is the norm in most developed economies, a host of small-time politicians, little-known chartered accountants and even petrol pump owners and news readers were appointed as government nominees.