As of December 2024, about 86% of the independent director positions in Central Public Sector Enterprises (CPSEs) are vacant, marking a sharp increase from 59% just two months earlier. Official data reveals that out of approximately 750 independent or non-official director positions, 648 remain unfilled. The vacancies have grown steadily, with 392 positions vacant in September and 441 in October, as many directors completed their tenures in recent months.
Efforts to Address the Crisis
The government is making urgent efforts to fill around 200 vacant positions in the 64 listed CPSEs. Senior officials have stated that CPSEs, along with their administrative ministries, are working closely with the Department of Personnel and Training (DoPT), the Department of Public Enterprises, and the Ministry of Corporate Affairs to expedite the hiring process.
To tackle the issue, several strategies are being explored, including:
- Fast-tracking appointments: Accelerating the selection process to fill positions promptly.
- Extending tenures: Considering temporary extensions for non-official directors whose terms have expired.
Significance of Independent Directors
Independent directors play a crucial role in ensuring high standards of corporate governance and protecting stakeholders’ interests. They also serve on audit committees, which oversee companies’ statutory audit compliances. For listed CPSEs, at least one-third of the board must consist of independent directors. Similarly, unlisted public companies of a certain size must have at least two independent directors.
The lack of independent directors raises concerns about corporate governance in CPSEs, which include 70 listed companies accounting for over 8% of the total market capitalisation of firms listed on the Bombay Stock Exchange (BSE).
Appointment Process
Independent directors are typically appointed for a three-year term, extendable by another three years. However, they cannot serve on the same CPSE board beyond six years.
The appointment process is initiated by administrative ministries or departments, which recommend three eligible candidates for each vacancy. The final selection is made by a search committee headed by the DoPT secretary. This committee includes the secretaries of public enterprises and administrative departments, along with non-official members.
Conclusion
With independent directors being integral to maintaining the corporate integrity of CPSEs, filling these vacancies has become a priority for the government. Accelerating appointments and ensuring compliance with governance norms will be crucial to safeguarding stakeholder interests and enhancing public sector enterprise performance.
