82% listed CPSEs don’t have mandated independent directors: CAG report

Source: The post is based on the article “82% listed CPSEs don’t have mandated independent directors: CAG report” published in Business Standard on 30th December 2022

What is the News?

The Comptroller and Auditor General of India(CAG) has raised concern over the high number of vacancies for the post of Independent directors in listed Central Public Sector Enterprises (CPSEs).

Who is an Independent Director?

An Independent Director (also sometimes known as an outside director) is a director on a board of directors representing minority shareholders and who does not have a pecuniary relationship with the company or related persons, except for sitting fees.

Independent directors are required to report concerns about unethical behaviour, suspected fraud, or violations of the company’s code of conduct or ethics policy. 

They ensure the integrity of financial information, safeguard the interests of all stakeholders, and balance the conflicting interests of shareholders.

The Companies Act 2013 provides that every listed public company shall have at least one-third of the total number of directors as independent directors, and that the Central Government may prescribe a minimum number of independent directors for any other classes of a public company.

What does CAG report say about independent directors in listed CPSEs?

Source: Business Standard

There are a high number of vacancies for the post of independent directors in 59 of the 72 (82 per cent) listed central public sector enterprises (CPSEs).

While no Maharatna company has the mandated number of independent directors on its board, CPSEs such as Coal India Ltd (CIL), NHPC, Mahanagar Telephone Nigam Ltd (MTNL) have not appointed an independent director.

The Companies Act, as well as the guidelines issued by the Department of Public Enterprises, mandates that in case the chairman of the board is an executive director, at least half the board should have independent directors.

Hence, the CAG recommended the boards of directors of the listed CPSEs ensure compliance with these guidelines and regulations to bring in better transparency and accountability in their functioning.