New Delhi, Jan. 1: The government has come out with guidelines for independent directors in public sector units (PSUs) to improve governance.
“For the first time, the role and responsibilities of independent directors for CPSEs (Central Public Sector Enterprises) have been defined. The norms advise independent directors to play their role more effectively, which would help in improving corporate governance,” .P. Rawat, secretary of the department of public enterprises, said.
Under the guidelines, independent directors are expected to arbitrate in the interest of the company as a whole in situations of conflict between management and shareholders.
Non-official directors should have a candid view of the faults or shortcomings of a company’s plans and accordingly suggest measures for improvement, he said.
The directors should satisfy themselves on the integrity of financial information and controls, besides ensuring that the risk management systems of the company are robust and defensible.
The directors should not use confidential information for their personal advantage or for any other entity.
They should report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of ethics.
Besides, directors should not disclose confidential information, including commercial secrets, unpublished price sensitive information unless such disclosure is expressly approved by the board or required by law.
However, these guidelines would be reviewed once the companies’ law comes into effect.
According to the companies bill passed by the Lok Sabha, the board of every listed public company should have at least one-third independent directors.
The independent director shall not be entitled to any remuneration, other than a sitting fee, reimbursement of expenses for participation in the board meeting and profit-related commission as approved by the members.
The bill also provides for rotation of an independent director. The independent director shall hold office for a term up to five consecutive years on the board of a company but shall be eligible for re-appointment on the passing of a special resolution by the company, the bill said.