Board Structure in Central Public Sector Enterprises

Central Public Enterprises in India are not simple business enterprises, but fall under definition of “State” under Article 12 of the Constitution of India. They are subject to Writ Jurisdiction. The Right to Information Act, 2005 is applicable to them.

The Law governing Central Public Sector Enterprises are complex mix of Guidelines/instructions issued by Department of Public Enterprises (DPE), the Companies Act, 1956 regulations of Comptroller and Auditor General of India (CAG), Central Vigilance Commission, and administrative Ministry.

The Listing Agreement and hence all regulations of Securities and Exchange Board of India are also applicable to all listed Central Public Sector Enterprises.

Guideline on Corporate Governance for Central Public Sector Enterprises 2010 issued on 14th May 2010 is a prime document governing Board Structure among Central Public Sector Enterprises (CPSE).

The number of Functional Director should not exceed 50% of actual strength of the Board. These are full time operational Directors responsible for day to day functioning of the enterprise.

The number of Government (nominee) Director shall be restricted to maximum two. The choice of the Nominee Director would vest with the administrative Ministry of the concerned Department.

In case of Board headed by Executive Chairperson, number of independent director shall be at least 50% of the board strength in case of listed enterprises. In case of listed enterprises with non – executive Chairperson or not listed enterprises, independent directors shall be at least one third of the board strength.

The age of retirement of part-time Chairmen of public enterprises should be 62 years. Minimum qualification for part-time non-official Directors would be graduate degree from a recognized university. Not less than 10 years at the level of Joint Secretary and above in the Government; CMD/MD in Corporate Sector/PSU; Professor level in an Academic Institution or professionals of repute like eminent Chartered Accountants/Cost Accountants at the level of Directors of Institutes/Heads of Department. In selecting academics at the level of Professors, these academics should be in fields relevant to the company’s area of operation, e.g. management, finance, marketing, technology, human resources, or law, as Professors of some other disciplines may have little to contribute. The age band should be between 45-65 years (minimum/maximum limit). This could however, be relaxed for eminent professionals, for reasons to be recorded, being limited to 70 years.

Presently, nominee directors appointed by ‘financial institution’ or ‘corresponding new bank’ are considered as independent director.

A Director shall not be a member in more than 10 committees or act as Chairman of more than five committees across all companies in which he is a Director.

The Board shall lay down a code of conduct for all Board members and senior management of the company.

The Board should have a formal statement of Board Charter which clearly defines the roles and responsibilities of the Board and individual Directors.

The company concerned shall undertake training programme for its new Board members (Functional, Government, Nominee and Independent) in the business model of the company including risk profile of the business of company, responsibility of respective Directors and the manner in which such responsibilities are to be discharged. They shall also be imparted training on Corporate Governance, model code of business ethics and conduct applicable for the respective Directors.

The Audit Committee shall have minimum three Directors as members. Two-thirds of the members of audit committee shall be Independent Directors. The Chairman of the Audit Committee shall be an Independent Director.

At least one Independent Director on the Board of Directors of the holding company shall be a Director on the Board of Directors of its subsidiary company.

We will discuss other relevant issues related to DPE Corporate Governance Guideline in our future blog posts.


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