This may sound a bit bizarre. The Centre wants more Indians and foreigners to participate in the wealth creation efforts of the public sector entities by buying into their equity in divestment transactions. However, in the same breadth, it is doing everything possible to ensure that minority shareholders’ are kept at bay and have little say in running of such companies.

The latest such instance where shareholder rights have been abrogated in the case of Government companies is on the issue of ‘independent directors’.

By exempting the Government companies from certain provisions of the company law, the Centre through corporate affairs ministry has now ensured that the Board of Directors of such companies have no role in the appointment of independent directors.

It will now be the concerned administrative ministry or the State Government that would be the deciding authority as regards forming an opinion on whether a person is suitable to be appointed as an ‘independent director’.

Also, the nomination and remuneration committee of Government companies will not have any role in identification of directors, criteria for determining qualifications, positive attributes and independence of directors. All their roles will be confined only to identification, appointment, evaluation and remuneration of ‘key managerial personnel’ and other employees only.

Simply put, the Board’s opinion on deciding the independent director does not matter and will also not be sought thus making them nominal figureheads.

From a governance perspective, this is turning the clock backwards and in a way taking India to the pre-historic times. Why make Government companies tap the capital market, list their shares, raise public funds and conform to listing regulations if they are not to be functioning as Board run companies and end up as extension of Government departments?. This was what these entities were before corporatisation.

The situation is all the more embarrassing for the market regulator SEBI which has for reasons not unknown chosen to become a benign bystander seemingly unable to enforce its authority when it comes to regulating the listed public sector entities.

The independence of SEBI is clearly at stake and this exemption to public sector companies in the matter of adherence to company law as regards appointment of independent directors cock a snook at Clause 49 of listing agreement.

In effect, the Centre has now in a way institutionalised a practice prevalent in pre-Companies Act 2013 era where there was rampant lobbying with the powers that be to secure Board level positions as independent directors.

Will the market regulator SEBI take up the cause of minority shareholders in such listed Government companies?.

The best way out for policymakers is to create a new category of ‘sovereign companies’ and allow public sector companies to be listed honourably without having to conform with corporate governance norms under Clause 49.!!!

The recent change in company law to relax rules for related party transactions in case of all companies including listed companies has evoked sharp reactions on the positioning of SEBI as a regulator better placed for protecting minority rights.

The exemptions to Government companies virtually nullifying these rights makes it all the more necessary for SEBI to show its teeth.

srivats.kr@thehindu.co.in

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