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Public sector undertakings (PSUs) fell short in compliance regarding board structures and corporate governance, as per a report by Institutional Investor Advisory Services (IiAS).
Of the BSE100 companies assessed by the advisory group, 93 were compliant with regulatory requirements for board independence as of December 2023. However, the seven non-compliant companies were all PSUs, including a bank.
“Most PSUs continue to have weak board structures or remain non-compliant with even the minimum regulatory standards. This has been a concern for several years, but regulatory enforcement over PSUs has been weak. For a large part of the regulatory requirements on corporate governance, the government has created an exception for PSUs in the regulation itself,” said IiAS in the report on corporate governance.
The regulatory norms require listed companies to have at least half of the board be independent if the Chairperson is an executive director or represents the promoter group. For other firms, the minimum requirement is 33 per cent.
However, corporate governance for other firms has improved incrementally along with transparency.
In the Corporate Governance Score report, IiAS indicated that this has been the best performance for the BSE100 index constituents since they began assessments in 2016.
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“64 companies have scored in the ‘Good’ and ‘Leadership’ category, which reflect that, by and large, corporate India is reasonably well-governed. This year’s score has just one company in the ‘Basic’ category, the lowest count in all the years,” it noted.
In 2022, there were seven companies in the basic category and 52 in the top two categories.
On the impending board refresh from April 2024, the institutional advisory firm said that 39 companies had tenured independent directors on the board as of December 2023.
As per the regulations, the grandfathering of previous board tenures of independent directors ends with this financial year for most companies.
“One risk of the board refresh will be for business groups – if business houses decide to shuffle independent directors across group companies, it will defeat the purpose of the regulations. Therefore, it will be interesting to see if Indian companies truly embrace the need to refresh boards or try harder to maintain the status quo,” says the report.
