Retired bureaucrats to fill the post of independent directors in public sector firms

Retired bureaucrats board market-bound PSUs




NEW DELHI: The government is hand-picking retired bureaucrats to fill the post of independent directors in public sector firms slated to hit the market this year, diluting the spirit of the norms governing such appointments in the rush to meet the Rs 40,000-crore divestment target. Clause 49 of the listing agreement requires companies to have independent directors in half of the board positions. The government is under pressure to fast-track these appointments as it could raise only Rs 2,090 crore so far this year from PSU selloffs. Several companies that will be taken up for divestment in the coming months do not have the required number of such directors.



The move to appoint former bureaucrats as independent directors may hamper the autonomy of these PSUs in the long run, said a senior official with the department of public enterprises (DPE), the nodal agency for nodal agency for all central PSUs. “As most of these officials have been in the government, how do you expect them to exercise their independent view,” he said, requesting anonymity. “There can also be vested interests involved.”



A quick look at the recent director-level appointments reveals that the government has preferred to name former bureaucrats, rather than searching for competent people from the industry. Recently, the government appointed Sheela Bhide and AK Rath as independent directors at Coal India, slated to list this month. Both are former Indian Administrative Services (IAS)officers. A large number of retired bureaucrats are serving as independent directors on the board of several PSUs such as Shipping Corporation of India, which recently appointed former financial services secretary Arun Ramanathan on its board. Satluj Jal Vidyut Nigam, which hit the bourses in April 2010, appointed two independent directors in March — Ravi Dhingra and Bharti Prasad — again, both are former IAS officers.



The trend is also evident in the appointment of directors in National Hydro Power Corporation, which hit the bourses in August 2009. Of the six directors, two are ex-IAS officers. “A company needs to make a judgement on the purpose of appointing an independent director,” said Planning Commission member Arun Maira. “Does it want the independent directors to add value to the company by backing its judgment by his/her sound domain knowledge, or is the independent director being appointed to provide a moral compass to the company.”



Chiefs of several PSUs, however, do not feel that having former bureaucrats as independent directors will undermine their autonomy. “One should understand that these people know in and out of the government functioning. There are certain issues in which their expertise will come in handy,” said the chairman of a PSU, who asked not to be named. There are, however, certain reservations within the government on such appointments. The DPE has, time and again, raised the issue of freeing the appointment of independent directors from the administrative ministries of these companies. The Planning Commission had also earlier suggested an expert panel of independent directors created by an autonomous body.



Although DPE maintains a data bank of independent directors with names such as TR Doongaji (MD, Tata Services), Aman Mehta (ex-CEO, HSBC) and CJ George (MD, Geojit Financial Services), PSUs rely more on the diktat from their administrative ministries. According to the current practice, administrative ministries recommend names of three candidates for the post of an independent director in a PSU. A search committee comprising officials of DPE and PESB selects one of them. The administrative ministries, thus, indirectly control the appointment of independent directors in PSUs.

By…….Dheeraj Tiwari & Subhash Narayan / The Economic Times