Wanted: Independent directors for PSU boards. But where is the approval?

Mint

04-06-2025

Mumbai: Over three-fourths of India's listed public sector enterprises do not have the requisite number of independent directors, as these companies continue to wait for clearance from various government departments.
As many as 62 out of 79 listed PSUs lack the mandated number of independent directors, according to data from Prime Database. Despite repeated regulatory reminders, these companies await clearances from their respective ministries, delaying crucial appointments and inviting penalties from stock exchanges.
Government-owned firms, including Hindustan Aeronautics Ltd, Indian Oil Corp. Ltd, Indian Railway Catering and Tourism Corp, State Bank of India, National Aluminium Company Ltd. and Steel Authority of India Ltd, did not have the minimum number of independent directors as of 2 June, according to Prime Database, a Mumbai-based market data tracking firm.
The list of non-compliant PSUs includes banks, oil and gas companies, metals and mining firms, power utilities, telecommunications, railways, and engineering firms.
According to the Securities and Exchange Board of India's listing regulations, at least one-third of a listed entity's board members must comprise independent directors. Additionally, if the chairman is an executive director, at least half of the board must consist of independent directors.
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Boardroom bottlenecks
There are more red flags when it comes to board committees: 64 PSUs lack an independent director as chairperson of their audit committee, and 68 companies do not have independent chairs for their nomination and remuneration panels.
Additionally, 14 of the listed PSUs are yet to appoint a single woman director, despite gender diversity requirements, according to Prime Database.
'It's ironic that we are asking all private sector companies to comply with these requirements when government-owned companies themselves are non-compliant," said Pranav Haldea, managing director at Prime Database.
With PSUs failing to comply with the market regulator's rules, many have been fined by stock exchanges.
Last week, National Aluminium Company Ltd (Nalco) was fined ₹33.32 lakh for having only three independent directors—two short of the required five—on its 10-member board.
A spokesperson for Nalco said the company was continuously following up with the ministry of mines, its administrative ministry, for the appointment of the requisite number of independent directors.
The bottleneck lies in the approval process across various ministries, according to proxy advisory firms. 'The Prime Minister's Office should send a strong message to all concerned ministries and PSU companies that they need to be compliant, as non-compliance by PSUs doesn't send the right message to investors," said Shriram Subramanian, founder and managing director of InGovern Research Services, a proxy advisory firm.
'For instance, when the government, as a major shareholder, is involved in abusive transactions or there is trouble with key management, independent directors are the custodians of minority shareholders' interests," Subramanian said.
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Many of the largest money managers, including BlackRock and Vanguard, have voiced their concerns when these companies have sought shareholder approval for the appointment of directors, according to voting disclosures reviewed by Mint.
In August last year, Hindustan Aeronautics sought shareholder approval for the appointment of former chairman C.B. Ananthakrishnan. Nearly a fourth of public institutions opposed the decision.
'Nominee serves as chair of the board and bears responsibility for lack of independence. Nominee is an executive director on the audit committee," noted BlackRock, the world's largest money manager, with $11.6 trillion in assets under management.
In the same month, Hindustan Petroleum Corp. sought shareholders' approval for the appointment of Pankaj Kumar as a director, but 28.35% of public institutions, including Vanguard, opposed his re-appointment.
Despite governance lapses, investor interest in PSUs has surged. The BSE PSU Index, which comprises 63 companies, has outperformed the Sensex over the last five years. The index has gained 301% between 5 June 2020 and 3 June 2025, while the Sensex has risen by 135.5% during this period.