The Securities and Exchange Board of India (Sebi) has written to the government on improving corporate governance standards and creating an autonomous environment at listed public sector undertakings (PSUs).
The market regulator has sought the Centre’s view on proposals, including reduction of dependency on administrative ministries and moving government holding in PSUs to a separate holding company in order to ensure more independence.
Sources said Sebi wrote to the government on seven board proposals based on the recommendations made by the Uday Kotak-led panel on corporate governance. At its board meeting last month, the market regulator accepted most of the recommendations. On proposals where it has no legal jurisdiction, such as making changes to the governance structures of PSUs, Sebi has referred them to the government or the regulatory bodies concerned.
Sebi has highlighted other areas that include strict compliance with the provisions of the Listing Obligation and Disclosure Requirement (LODR) regulations and ensuring an independent board comprising members with a diversified skill-set.
“All listed companies, government or private, need to be on a par. So, all listed PSUs should be compliant with LODR rules,” Sebi said in the presentation to the Ministry of Finance.
Several PSUs are non-compliant with LODR rules, such as a board comprising least one independent woman director, at least 50 per cent independent directors and 25 per cent minimum shareholdings, the deadline for which has been extended till August.
In its presentation, Sebi said the government could provide more clarity on the objectives and mandates of PSUs. For instance, if a PSU has some non-commercial objectives, it should be transparently disclosed to the shareholders on a regular basis so that an investor can take an informed decision.
“At present, most PSUs are governed by the ministries concerned. The appointment of directors is being done under government supervision. Given this structure, PSUs have always lagged private peers in terms of performance and trade at lower valuations,” said J N Gupta, managing director and co-founder of proxy advisory firm SES.
The Kotak panel, of which Gupta was a member, had recommended that the government consider consolidating ownership and migrating PSUs into an independent holding entity structure by April 1, 2020.
“There are certain issues with PSUs that need government intervention, such as appointment of directors and complying with minimum public shareholding norms. Instead of extending deadlines, Sebi should take some enforcement action to make them liable,” said Sandeep Parekh, founder, Finsec Law Advisors.
Sources said Sebi raised concerns of several PSUs being non-complaint with the 25 per cent public shareholding norm even as the extended deadline is just four months away. The government has till August to meet this norm. According to reports, the government has sought further extension of the deadline.