Missed opportunity on reforming PSEs

The Uday Kotak committee-recommended policy changes to the existing corporate governance framework for listed public sector enterprises (PSEs) acknowledges that PSEs face unique governance challenges. The committee recommended the government clearly stipulate strategic goals for PSEs, specifically its “non-commercial objectives”.

In 2012, an investor filed a derivative action against Coal India for breach of fiduciary duties by its directors owing to supply of coal below market prices. If a clear mandate is laid down, investors can make an informed investment decision and such conflicts can be avoided. It has been observed that listed PSEs have a poor track record of complying with listing norms. The committee has come out sharply against such non-compliance.

In Singapore, Temasek is a single holding entity for all PSEs and reports to the Ministry of Finance. The Kotak committee has recommended adoption of a similar structure for Indian PSEs by April 1, 2020. This is aimed at providing functional autonomy and reducing conflict of interest. Apart from laying down a timeline which might be an overreach, the committee has treaded with caution to avoid a turf war with the administrative ministry.

The “evolution not revolution” approach of the committee is praiseworthy but so far as the issue of corporate governance for PSEs is concerned, it’s a clear miss.

The committee has not considered revocation of the exemptions provided to government companies under various legislations such as the Companies Act, 2013, Competition Act, 2002, and listing regulations which provide preferential treatment to PSEs.

Further, the committee has not recommended any specific mechanism for protection of rights of minority investors of a PSE. The committee should also have looked at state PSEs for there is a lacuna in corporate governance guidelines for state PSEs.