DPE moves in to ensure domain expert, person with proven record to get independent director post in CPSEs

What could be seen as trouble for aspiration of civil servant, the Department of Public Enterprises (DPE) under Finance Ministry has asked all the Ministries / Department to ‘take note’ of Committee of Public Sector Undertaking (COPU) recommendation regarding appointment of independent director on the board of Central Public Sector Enterprises (CPSEs) on the basis of domain expertise and proven track record.

COPU is a Parliamentary Committee headed by BJP Member of Parliament, Santosh Kumar Gangwar. In its Action Taken Report on the observations / recommendations contained in its report on NTPC Limited, the Committee re-emphasized the government to strictly take note of its observations in letter and spirit and to direct all the concerned Ministries / Departments to ensure that appointment of Independent Directors on the Board of CPSEs be made with candidates possessing domain expertise / core competence and with only those having proven track record in the relevant specialized fields.

Now, in an Office Memorandum (OM), DPE wants all the Ministries and Department “may note the above recommendation of the Committee for compliance while forwarding the panel of names to OPE for appointment of non-official Directors on the Boards of CPSEs.” As on March 31, there are 255 operational CPSEs in India, of which 45 are listed on stock exchange.

Companies Act norms

The Companies Act, 2013, says every listed public company shall have at least one-third of the total number of directors as independent directors and the Central Government may prescribe the minimum number of independent directors in case of any class or classes of public companies. The Companies (Appointment and Qualifications of Directors) Rules, 2014 says an independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business.

In its report submitted in February this year, COPU expressed concern over lack of domain expertise and core competence of the persons appointed as Independent Directors on the board of NTPC. It noted that the NTPC board had passed a resolution in its meeting held on June 26, 2006 where it was decided that Independent Directors nominated should have expertise in Economics, Human Resource Management, Regulatory framework, eminent industrialist from manufacturing concern, management consultant, Environment , Finance and Banking, Energy and Power, Academics or in Research and Development.

Lack of subject knowledge

The Committee had observed that a large number of those who were appointed on the Board were civil servants lacking the requisite domain expertise when there was no dearth of availability of professionals in the market. It found that DPE has attempted to justify that one IFS officer who was appointed as Independent Director had worked in various positions involving close understanding / knowledge of forests / environment related issues, and as such, he could be considered as having domain expertise in ‘environment ‘.

The Committee found that the DPE by justifying one instance of the appointment of an IFS officer has diverted the larger issue of need for appointment of domain experts on the Board that would ensure bringing in more experience, professionalism, efficacy, expertise and transparency in the functioning or NTPC.

Published on

April 16, 2022

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