Govt introduces norms for independent directors on CPSE boards
New Delhi: The government has come out with a set of guidelines for independent directors on boards of PSUs, defining their roles and responsibilities aimed at improving corporate governance in state-owned companies.
Earlier, the Department of Public Enterprises (DPE) had not defined these norms for non-official directors who are being appointed on boards of Central Public Sector Enterprises (CPSEs).
"This is the first time that role and responsibilities of independent directors for CPSEs have been defined. This is an improvement in respect to corporate governance and to advise independent directors to play their role more effectively," DPE Secretary O P Rawat said.
Under the norms, non-official directors (NoDs) should have a candid view of the faults or shortcomings of company's plans and accordingly suggest measures for improvement, he added.
However, these guidelines would be reviewed in light of experiences gained and brought in line with the relevant provisions once the companies law comes into effect.
The norms mention that independent directors should satisfy themselves on the integrity of financial information and financial controls, besides ensuring that the risk management systems of the company are robust and defensible.
The DPE has asked other ministries/departments to inform CPSEs, under their administrative control, about the norms.
Under these guidelines, independent directors are expected to arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder's interest.
The DPE had given the task of defining role and responsibilities of independent directors to the Institute of Chartered Accountants of India after obtaining comments from relevant stakeholders.
"The fulfilment of the responsibilities in an efficient manner by an independent director would lead to good corporate governance in a PSU which will further help in protecting stakeholders' confidence," a DPE official said.
Defining the duties of NoDs, the norms state they should not use confidential information acquired as NoDs for their personal advantage or for any other entity.
They also mentioned that independent directors should report concerns about unethical behaviours, actual or suspected fraud or violation of the company's code of ethics policy.
Besides, NoDs should not disclose confidential information including commercial secrets, unpublished price sensitive information unless such disclosure is expressly approved by the board or required by law.
The norms mentioned that NoDs should focus on bringing an objective view in the evaluation of the performance of the board and management and also determine appropriate levels of remuneration as per the corporate governance guidelines for CPSEs.
Independent directors are experts from various fields like technocrats, management experts and consultants, and professional managers in industry and trade with a high degree of proven ability.
As per the SEBI guidelines, in case of companies with Non-Executive Chairman, at least one-third of the board should comprise independent directors and in case of companies with Executive Chairman at least half of the board should comprise non-official directors.