IOC, BHEL, SAIL do not have independent directors: CAG

As many as 17 listed PSUs, including  blue chip entities like Indian Oil, BHEL and SAIL do not have the requisite number of independent directors, an important tool of corporate governance, says a CAG report tabled in Parliament today.

Describing independent directors as the most significant instrument of corporate governance, the CAG report said, only they can challenge the decisions of the management and protect the interest of shareholders and other stakeholders.

As per Clause 49 of the listing agreement between the company and the stock exchange, one-third of the board members should be independent directors provided the company is headed by a non-executive chairman.

In case the board is headed by an executive chairman, at least half of the board should comprise independent directors.

"Out of 47 listed government companies, the boards of 17 companies did not have the required number of independent directors," said Comptroller and Auditor General (CAG) report.

The other important listed companies, which do not have requisite number of independent directors on their boards include NTPC, Power Finance Corporation, Hindustan Petroleum, Bharat Petroleum and Bharat Electronics.

The report said that "since the power of appointment of director vests with the government, induction of the requisite number of independent directors on the board should be ensured in the central government companies."

The CAG also regretted that often members of the audit committee of PSUs do not have sufficient training necessary for appreciating operational and financial issues.

"PSUs should provide required training to the members of audit committee to enhance their financial literacy... To enable them to fulfill their fiduciary responsibilities", it added.

The audit committees are expected to contribute towards improving financial reporting, accounting policies and internal control system with a view to enhancing credibility of financial statements.