In a continuation of the debate between SEBI and the public sector undertakings (PSUs) over whether the latter should comply with the provisions of Clause 49 of the listing agreement regarding corporate governance, the SEBI Chairman, Mr. Damodaran has categorically stated that there will be no relaxation for PSUs from the applicability of the corporate governance norms (see reports in the Economic Times, Business Standard and Hindu Business Line). The SEBI Chairman has insisted on a level playing field for private corporates and PSUs when it comes to corporate governance. I find SEBI’s position to be quite reasonable. There are several reasons why PSUs ought to comply with the corporate governance requirements.
First, PSUs (whose shares are listed on stock exchange and who are therefore required to comply with Clause 49) do access capital markets from time to time like any other private issuer company. Several of the large public offerings are in fact carried out by PSUs.
Second, PSUs do have significant public shareholding where their shares are held either by institutional investors or retail individual investors. Corporate governance regulations (as contained in Clause 49) are intended to protect the interests of these investors through disclosure norms and other checks and balances (such as an independent board, audit committee, etc.).
Third, India has been moving up the rankings for its corporate governance measures, and this is indeed one of the key factors for attracting significant investment and thereby boosting its capital markets. Any relaxations that dilute corporate governance requirements will not augur well.
There is therefore a dire need for PSUs to ensure compliance with corporate governance requirements just like their peers in the private sectors, as both types of entities are required to act in the interests of their public shareholders and other stakeholders.