One of the reasons why public sector undertakings become white elephants is that they are not allowed to function in a professional manner. More often than not, they are used by the politicians in power to subserve their petty, personal and political interests. The manner in which independent directors are appointed is a pointer to the vested interests at play in the running of PSUs.
A report quoting details provided under the Right to Information Act shows that of the 172 independent directors on 98 PSU boards, as many as 86 have links with the ruling BJP. Retired bureaucrats, especially from the IAS, also find a place as independent directors on the boards of at least 40 PSUs. This defeats the very purpose of having independent directors whose job is to improve corporate credibility and governance standards.
Company laws clearly define the role of the independent director, who is not related to the company but is expected to act as its friend, philosopher and guide. In other words, they should be chosen for their domain knowledge, experience in the profession and their ability to act in an independent and impartial manner even in stressful conditions. A perusal of the list of independent directors of PSUs in the public domain shows that they were selected for their close affiliation with the ruling party. In fact, several of them were accommodated on the PSU boards because they could not make it to the legislative bodies through the electoral process. In other words, it is considered a reward for the services rendered to the BJP. The bureaucrats who get such jobs are the ones who were good at cultivating their political bosses while they were in office.
It is wholly wrong to blame the BJP alone, as the Congress had been doing much the same when it was in power, either on its own or in alliance with other parties. The party and its allies, too, filled the posts of independent directors with their own favourites. In the states, too, public undertakings are seen as milch cows by those in power. The practice of Union ministers keeping the vehicles of PSUs under their charge for use by their family members, relatives and friends was at one time quite rampant. Though Prime Minister Narendra Modi has a no-nonsense approach, it cannot be said with certainty that the practice has ended, either at the Centre or in the states. Small wonder that eventually the PSUs fall into the red and become a drain on the public exchequer.
Under company laws, an independent director has an important role to play. He or she can help the PSU steer clear of problems and attain the objectives for which they were set up. They can accomplish this job only if they are in a position to understand the environment in which the PSUs function. They are, therefore, envisaged as repositories of wisdom on whom the PSU management can rely on in critical situations.
How many of them can perform this duty when they are there only because they showed a willingness to contest an election when the party asked them to do so or performed a political job given by the party? Such a person will only be interested in drawing some pecuniary benefits from the PSU. The rules regarding qualifications of independent directors are so lax that anyone can be appointed to the post. A way out would be to fix the qualifications so high that no riff-raff finds a place on the PSU boards.
While laissez-faire conditions prevail in the appointment of independent directors in the PSUs, the non-profit organisations, popularly known as NGOs, face problems of a different kind. Many join the boards of NGOs not because they earn some money but because of their commitment to the social cause. They want the satisfaction of doing something positive for the society, often at the cost of their own money and time. Some of them are even founders of the organisations.
They have to submit so many documents which are of a personal nature to become board members or signatories to bank accounts, including FCRA accounts, maintained by the NGOs, not to mention the calls they get from the home ministry. If some of them find the formalities so irksome and decide to stay away from board positions, they cannot be blamed. Ultimately, it is the nation which suffers, by letting the incompetent become independent directors of PSUs and preventing the qualified and the competent from becoming board members of NGOs.