Therefore, the need of the hour is to change the process of appointment of IDs. The responsibility for selection of IDs should be given to a sovereign, independent and impartial committee and removing the role of administrative ministry in their selection. At present selection committee under Department of Public Enterprises (DPE) selects candidates out of the panel recommended by the concerned ministry.
However a panel of eligible persons to be IDs is being maintained by DPE but this appears to be mere formality as this panel is never being used by DPE for nomination of IDs in PSUs. It could be considered by Government to give powers to DPE to nominate IDs in PSUs, from a panel being maintained by DPE, without the interface of concerned ministry.
Moreover these appointments be done proactively much in advance so that seats on the boards of PSUs do not remain vacant and true purpose of IDs being on board is fulfilled.
Further, only a conducive and legally binding atmosphere would enable the IDs to play the following key roles expected of them:
• Help in bringing an independent judgment to bear on the Board’s. Being totally independent of the company or its management, provide a candid view of the faults or shortcomings of the company’s plans and suggest measures for improvement.
• Bring an objective view in the evaluation of the performance of board and management
• Scrutinize the performance of management in meeting agreed goals and objectives and monitor the reporting of performance
• Add value to the decision making process of the Board of Directors by giving positive inputs and constructive criticism, wherever required
• Safeguard the interests of all stakeholders, particularly the minority shareholders
• Moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest.
• Facilitate sustainable development of the company.
Moreover, the enhanced role of IDs would enable the stakeholders trust the functioning of the management as well as the Board. The board, on the other hand, would become more vigilant while undertaking the tasks of policy making and use of funds. However, it is too early to say that every of the deficiency in the working of the company and in the utilization of stakeholders’ funds can be regulated with these measures
It is also widely accepted that a process of continuous improvement of this institution is essential to address the challenges facing the ID system, so that the gap between what is expected of the IDs and what they actually deliver is reduced. While international experience could provide a useful guide, all legal and regulatory reforms necessary to make the institution truly independent and effective in India need to reflect the realities of (a) concentrated ownership and (b) paucity of competent IDs.
It is however recognized that raising corporate governance standards would require going beyond legal and regulatory reforms. Management, institutional investors and media have to play a complementary and facilitating role.