Principles of Corporate Governance of State-Owned Enterprises and its compliance in India

Abstract

The article deals with the key points of the Guidelines on Corporate Governance for Central Public Sector Enterprises of India concerning the composition of a board of directors, audit, nominating and remuneration committees, subsidiaries. The author analyzes the level of compliance with these principles of 338 public sector enterprises, of which 255 were assessed by the Department of Public Enterprises and received grades from «poor» to «excellent». The article also discusses external and internal factors that may affect the level of compliance with the guidelines on corporate governance. Thus, the external factors include a big size of a company, experience, absence of major debt. The internal factors include reduction in a proportion of the State ownership, memorandums of understanding and the «ratna»-statuses. The last two factors were paid particular attention. The author concludes that the main obstacles to achieving desirable quality of corporate governance in the Indian central public sector enterprises are: (a) absence of ownership policy in public sector companies, defining the role and duties of the State as a shareholder, (b) accountability of public sector companies to many public authorities at the same time that almost negate corporate governance in its general understood sense, (c) the lack of operational and financial autonomy of a board of directors, (d) non-compliance with the number of independent directors and non-compliance with the requirements of the legislation and principle of corporate governance.