New Delhi, 4 August
The government has approved a proposal that restricts an independent director at a public sector enterprise from holding directorships in more than 10 private companies.
The move, reducing the earlier limit of about 20 private firms, is primarily aimed at strengthening corporate governance practices at Central public sector enterprises (CPSEs) amid challenging economic conditions.
According to a government official, the decision has been taken amid reports that independent directors were unable to give adequate time to understand issues pertaining to the concerned PSU and “were not aware of the developments taking place in the company”.
“Therefore, the Appointments Committee of the Cabinet (ACC) has approved the proposal for laying down a limit of not more than 10 private companies (with the existing ceiling of not more than three for CPSEs remaining unchanged) for non-official director,” the official said. The limit would be applicable for an individual being considered for being appointed as a non-official director in a CPSE, he added.
The department of public enterprises (DPE) has defined independent directors’ roles and responsibilities who are being appointed on boards of CPSEs.
Under the norms, non-official directors should have a candid view of the faults or shortcomings of company’s plans and accordingly suggest measures for improvement.
The changes in norms for appointment as non-official directors at public sector entities also come at a time when there are rising concerns over corporate governance practices in the private sector.
Among others, the new Companies Bill, which is expected to be taken up for discussion during the Parliament session starting this Monday, has provisions for stronger protection of the interests of investors.