BackFIIs question CIL’s ability to take crucial decisions as independent directors retire
Until 31 October, the monopoly coal miner didn't have any independent director on its board for over two months
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Kolkata: The management of Coal India Ltd (CIL) recently faced probing questions from foreign institutional investors (FIIs) on its ability to take important decisions in the wake of the retirement of all its independent directors this year, S. Narsing Rao, chairman of the state-controlled miner, said.
Rao and others last month conducted roadshows abroad to test waters for the Union government’s proposed sale of stake in CIL.
Until 31 October, the coal mining monopoly didn’t have any independent director on its board for over two months, all seven that were there previously having retired this year between February and August. They had joined CIL’s board in 2009, almost all at the same time, ahead of its initial public offering of shares.
Under Indian securities market regulations, at least half of a company’s board members are required to be independent.
Because it didn’t have any independent director, CIL couldn’t have taken any major decision that needed to be cleared by its full board.
Thankfully, the CIL management wasn’t faced with such a situation during these two months, Rao said, adding that the company issued disclaimers to potential investors abroad to give them a “clear (view) of the reality".
The company could face penalties from the capital market regulator for not being able to fill up a vacancy for more than six months, according to another CIL official, who did not want to be identified. The first of its seven independent directors retired in February.
CIL had to delay the announcement of its second quarter results till 13 November because its audit committee was defunct for want of independent directors.
At CIL, the audit committee is mandatorily headed by an independent director. It vets quarterly financial performance before they are announced. That apart, it conducts periodic reviews jointly with the company’s statutory auditors.
Effective 31 October, the government has reappointed for three years two former independent directors—R.N. Trivedi and K.R. Gupta—apart from inducting on CIL’s board former coal secretary Alok Perti as the third independent director. Four slots still remain empty.
The company has repeatedly been reminding the Union government for appointment of independent directors, said the unnamed CIL official cited above. “The government always takes time to decide on these matters," this person said. “But it should realize that CIL being a listed company now has to comply with so many corporate governance norms."
Rao refused to comment on the reasons for the delay in the appointment of independent directors. Acknowledging their role on the board of CIL, he said: “These government nominees have protected the interest of minority shareholders more than anyone else."
The government is considering a proposal that public sector companies should be allowed to choose independent directors according to their own needs, and get them approved by the government, instead of the government nominating them.
The Union government owns 90% of CIL’s shares; the rest are widely held.
The government is looking to sell at least 5% more of the miner’s shares from its own holding.
“Technically, the complete absence of independent directors on a company’s board can lead to serious questions about governance standards, particularly in listed companies," said Arvind Mahajan, executive director at consulting firm KPMG. “But because we are dealing with a public sector firm, the issue is probably not as concerning (as it would have been had it been a private company)."
The CIL management has traditionally faced questions from activist foreign investors on its ability to decide independently. It has been alleged by many of them that the company does not have the freedom to decide coal prices on its own. But being a monopoly founded by the nationalization of private coal mines, it is unrealistic to expect that the government will not keep a close tab on CIL.
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