The concept of corporate governance has generated a great deal of interest and public debate. Corporate governance is intended primarily to ensure transparency in management of the enterprise and encompasses the entire functioning of the company.
Keeping in view relevant laws, instructions and procedures, the Department of Public Enterprises (DPE) brought out the ‘Guidelines on Corporate Governance for CPSEs’ in June 2007.
CPSEs have been, furthermore, categorized into two groups for purpose of Corporate Governance, namely (a) those listed on the Stock Exchanges and (b) those not listed in the Stock Exchanges. In so far as listed CPSEs are concerned, they have to follow the SEBI guidelines on Corporate Governance.
They may, in addition, follow those provisions of the Guidelines brought out by DPE which do not exist in the SEBI guidelines and also do not contradict provisions in the SEBI guidelines. The non-listed CPSEs are to follow the DPE guidelines on Corporate Governance, although these are voluntary in nature. These guidelines are under implementation by the CPSEs.
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Professionalisation of Boards
In pursuance to the policy on public sector enterprises being followed since 1991, several measures have been taken by the Department of Public Enterprises to professionalize the Boards of public enterprises. The guidelines issued by the DPE in 1992 provide for induction of outside professionals on the Boards of CPSEs as part-time non-official Directors.
The number of such Directors, moreover, has to be at least 1/3rd of the actual strength of the Board. In the case of listed CPSEs headed by an executive Chairman, the number of non-official Directors (Independent Directors) should be at least half the strength of the Board.
The guidelines also provide that the number of Government Directors on the Boards should be not more than one-sixth of the actual strength of the Board subject to a maximum of two. Apart from this, there should be some functional Directors on each Board whose number should not exceed 50% of the actual strength of the Board.
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The proposals for appointment of non-official Directors are initiated by the concerned Administrative Ministries/Departments. In so far as Navratna and Miniratna CPSEs are concerned, the selection of nonofficial Directors is made by the Search Committee consisting of Chairman (PESB), Secretary (DPE), Secretary of the administrative Ministry/Department of the CPSE, Chief Executive of the concerned CPSE and non-official Members.
In the case of remaining CPSEs (other than Navratna/Miniratna CPSEs), Public Enterprises Selection Board (PESB) makes the selection of non-official Directors. The concerned Administrative Ministry/Department appoints the nonofficial Directors on the basis of recommendations of Search Committee/PESB after obtaining the approval of competent authority, i.e. Appointments Committee of Cabinet (ACC).