Questions are again being raised on ‘corporate governance’ in public sector undertakings. The latest salvo comes from former ONGC Chairman RS Sharma, who is a member of various task forces and government committees.

Raising the issue in a note to Prime Minister Narendra Modi on Sunday, Sharma questioned the ‘unceremonious’ removal of independent directors and the government’s policy on not giving extensions to PSU chiefs after completion of their initial five-year term, even though they may have many years of service left before their normal superannuation at age 60.

After the Modi Government came to power last year, an informal communication from ‘higher authorities’ had gone to government departments and ministries that all appointments on PSU boards made under the previous UPA regime would be reviewed.

This resulted in many independent directors appointed under the UPA regime losing their positions without being given a valid reason.

Companies that have been affected include Indian Oil Corporation, Hindustan Petroleum Corporation and Coal India. Even today, independent director positions in Indian Oil and Coal India, among others, are lying vacant.

Appointment process

The process for appointment of an independent director to a public sector company’s board is similar to that for a functional director of such entities. The nodal ministry selects the name from a Department of Public Enterprises list for such directors, and sends it to the search committee.

The committee scrutinises the people on the list and finally recommends the name/names to the nodal ministry, which then approaches the Appointments Committee of the Cabinet (ACC), chaired by the Prime Minister, for the final notification. The only other member of the ACC is the Home Minister.

Sharma, who himself was nominated as an independent director in Steel Authority of India last year, was informally told that his name would not be considered at the annual general meeting (AGM) and that he need not attend the same.

In fact, Sharma was given the option to resign, which he declined. But by virtue of his name not being considered at the AGM, he ceased to be an independent director.

Other instances

More recently, the decision to not extend former SAIL Chairman and MD CS Verma’s tenure despite having enough years of service and reports that NTPC CMD Arup Roy Choudhury is not getting an extension at the end of his tenure, have created uncertainty.

Sharma said in his letter that these moves raise questions over government interference in the functioning of the PSUs.