ONGC chairman calls for seperate CEO post in PSUs

Oil and Natural Gas Corporation (ONGC) head R S Sharma has demanded the creation of a separate post of CEO in public sector companies to avoid a conflict of interest arising from the responsibility being vested with the chairman.

As per the corporate governance guidelines issued by the Ministry of Corporate Affairs, a committee comprising the majority of independent directors and the chairman is to determine the performance of "individual directors, as well as the board as a whole," Sharma said.

"In case the board is headed by the CEO (chairman also having the executive responsibility, as is the case in PSUs), a conflict of interest is inherent," he wrote to the Public Enterprises Selection Board (PESB).

He suggested that chairman should be non-executive or the role and offices of the chairman and CEO should be separated.

Sharma also demanded that the number of independent directors on PSU boards be reduced to one-third, as the board becomes "too large to manage" if filled with 50 per cent independent directors.

As per Sebi guidelines, 50 per cent of the company's board should be comprised of independent directors and the market regulator does not recognise government nominee directors on the PSU board as independent directors.

"For compliance with Sebi guideline, the board becomes too large to manage. Too many opinions become cumbersome in the process of decision-making in the board meetings," ONGC Chairman and Managing Director R S Sharma said.

"The situation is actually an overland for the board functioning," he wrote.

ONGC has not been able to meet the guideline as the Oil Ministry has not cleared the names of independent directors to be appointed on its board for years. The company now wants the strength of independent directors in case of public sector units to be reduced from 50 per cent to one-third.

Sharma said the draft Companies Bill, 2008, which is to replace the existing Companies Act of 1956, states that every company should have a maximum of 12 directors, excluding the directors nominated by lending institutions.

Including the chairman, ONGC has seven functional directors, besides additional secretaries in the ministries of oil and finance as government nominee directors. The Managing Director of ONGC Videsh Ltd, the overseas arm of the company, is a special invitee of the board.

The ONGC board currently has four independent directors and to meet the Sebi listing guideline, it needs to have five more independent directors.

To buttress his case, Sharma pointed to the provision in the new companies bill that states that every listed public company "shall have at least one-third of the total number of directors as independent directors".

"Once this bill is passed, it will become a law of the land. But even before that, the government may ask Sebi to make their rules amended, as it is being envisaged by the government," he wrote.

Sharma also demanded that the selection process of independent directors should be made "more transparent". Alternatively, the existing board should be allowed to make the selection.