The Hindu Business Line : Oil Ministry seeks `independent director' status for Govt nominees on PSU boards

DESPITE the Securities and Exchange Board of India deferring the implementation of amended Clause 49 of the Listing Agreement, the issue of `independent directors' continues to haunt public sector companies.

The Ministry of Petroleum has written to the Finance Ministry urging that government directors be accorded the status of `independent director'.

According to estimates, India Inc would require over 15,000 trained independent directors before the end of this year. Besides, most of the existing independent directors would fail to qualify after the implementation of the amended Clause 49 from January 1, 2006.

All eyes are on the 13-member Expert Committee set up by the Ministry of Company Affairsto advise the Government on the new company law.

The committee is expected to submit its report by the end of next month. One of the reasons for deferring the implementation of amended Clause 49 was that the existing company law does not define `independent director'.

The Concept Paper on revamped company law under examination by the committee proposes that every public company having paid-up capital or turnover of such amounts as may be prescribed would have a minimum of seven directors of whom no less than three or such number as near to 50 per cent of the strength of the board, whichever is higher, would be independent as defined under the law. They should also possess such attributes necessary for being appointed independent directors as may be prescribed.

Apart from functional directors, most public sector undertakings have two government directors on board. Under Clause 49, government directors on the boards of PSUs are not considered independent. Further, the amended Clause 49 disallows a former executive who left the company less than three years ago to be an independent director.

Partners of legal, audit, and consulting firms, as well as partners of such firms that had worked in the company in the preceding three years also cannot be termed independent directors.

An executive director or a senior executive a level below an executive director, too, cannot be considered.

According to the Federation of Indian Chambers of Commerce and Industry, the moot question for consideration is as what should be the ratio of independent directors vis-à-vis the total strength of the board and are we going to have so many truly independent directors?

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