The chairman of the Securities and Exchange Board of India, M Damodaran, said on Wednesday public sector companies will have to comply with Clause 49 of the listing agreement for stock exchanges.
Clause 49, which came into effect on January 1 last year, stipulates that listed companies fill 50 per cent of their boards with independent directors if they have an executive chairman and one-third if they have a non-executive chairman.
However, few government-owned companies have met the Clause 49 stipulation (the table shows the state of play in some large government-owned companies).
Damodaran, who was speaking at an event organised by the Institute of Company Secretaries of India, told reporters: "The solution suggested, that the corporate governance requirement should be less for public sector companies, is something I cannot persuade myself to agree with."
"Notwithstanding the difficulties that public sector companies face, a solution must be found somewhere else and not in diluting corporate governance norms."
Damodaran's comment came after RS Sharma, chairman and managing director of the country's largest public sector company, Oil and Natural Gas Corporation, said Clause 49 should be relaxed for public sector companies because the appointments are made by the government and take time.
Sharma was speaking at the same function.
Clause 49, added to the listing agreement in 2000, is the outcome of a series of scams that hit the corporate world.
Sebi amended the clause on October 29, 2004, but it finally came into effect after two postponements on January 1, 2006.
All listed companies have to comply with the provision. However, companies proposing to be listed have the option of compliance time till the day of listing and not necessarily at the time of filing the draft prospectus.
Several other public sector chiefs contacted later by Business Standard agreed with Sharma and pointed out that the government is not doing enough to appoint the requisite number of independent directors on the boards of companies they own.
"The issue is that the government has not appointed independent directors on the boards of the companies it controls," said the chairman of a large public sector company, who declined to be identified.
"The fact is that the government does not want to lose control of public sector companies," the chairman added.
An expert who tracks corporate governance issues and did not wish to be identified said if government-owned companies have listed on stock exchanges and are raising money from the market, they have to compete on the same grounds as every other company.
In fact, PSU chiefs agree that there is a need for more independent directors. "We must be able to compete," said a senior official with HPCL.
"More directors on the board would give us an additional perspective and add value to our functioning," the official said.
