CPSEs to Get 208 New Independent Directors to Strengthen Governance

NEW DELHI (India CSR): In a bold move to fortify corporate governance, the Indian government is spearheading one of its largest recruitment drives to appoint 208 independent directors to the boards of Central Public Sector Enterprises (CPSEs). Announced in May 2025, this initiative addresses a critical shortage that has hampered oversight and accountability in these state-run entities. With 86% of independent director positions vacant as of December 2024, the urgency of this overhaul resonates with stakeholders, from policymakers to investors, who see robust governance as vital to CPSEs’ success. This article dives into the details of this transformative effort, exploring its implications, processes, and the broader context of public sector governance in India.

Why the Urgent Need for Independent Directors?

Addressing a Governance Gap
CPSEs, numbering 389 including subsidiaries, are pivotal to India’s economy, with 70 listed entities contributing nearly 10% of the BSE’s total market capitalization. However, a staggering 86% vacancy rate in independent director roles as of late 2024 has raised red flags. These directors are essential for ensuring impartial oversight, protecting shareholder interests, and upholding compliance with regulations like the Securities and Exchange Board of India (SEBI) Listing Obligations and Disclosure Requirements. The shortage has weakened scrutiny, leaving boards vulnerable to inefficiencies and potential mismanagement, according to governance experts.

SEBI’s Mandate and Market Expectations
For listed CPSEs, SEBI mandates that at least one-third of board members be independent directors. These individuals chair critical committees, such as audit committees, which oversee financial reporting and statutory compliance. With listed CPSEs under intense market scrutiny, filling these vacancies is a priority to align with regulatory standards and boost investor confidence. The government’s focus on listed entities first reflects their high visibility and economic impact.

The Appointment Process: A Strategic Approach

Search Committee in Action
The Department of Public Enterprises (DPE), in collaboration with the Department of Personnel and Training (DoPT), has mobilized a high-level search committee to fast-track appointments. Led by the DoPT secretary, the committee includes secretaries from public enterprises and relevant administrative ministries. Since March 2025, it has held multiple meetings to identify suitable candidates, prioritizing listed CPSEs before addressing unlisted ones. The committee’s rigorous selection process ensures candidates bring expertise, independence, and integrity to the boardroom.

ADVERTISEMENT

Nomination and Eligibility
The appointment process begins with administrative ministries recommending at least three eligible candidates per vacancy. These recommendations are vetted by the search committee, which finalizes selections based on qualifications, experience, and alignment with CPSE objectives. Independent directors serve an initial three-year term, with the possibility of a three-year extension, but cannot continue beyond six years on the same CPSE board. This structured approach aims to balance continuity with fresh perspectives.

Remuneration and Incentives

Competitive Compensation
Independent directors at CPSEs are entitled to a sitting fee of up to ₹1 lakh per board meeting, along with reimbursements for participation and potential profit-related commissions, as approved by the board. While this aligns with private sector norms, experts note that remuneration varies based on the CPSE’s size and stature. In contrast, private sector independent directors at Nifty 50 companies earned a median of ₹87 lakh in FY24, a sharp rise from ₹42 lakh five years ago, highlighting a gap CPSEs may need to bridge to attract top talent.

Attracting Diverse Talent
To fill these roles, the government is casting a wide net, seeking professionals with expertise in finance, technology, sustainability, and governance. The push also aligns with broader diversity goals, as a recent parliamentary panel flagged the underrepresentation of women in CPSE leadership, urging concrete measures to address barriers. By diversifying boards, CPSEs aim to reflect India’s demographic and professional landscape while enhancing decision-making.

Broader Context: CPSEs in 2025

Financial Performance Driving Confidence
The urgency to strengthen governance comes amid a stellar financial year for CPSEs. In FY25, CPSEs distributed a record ₹1.5 lakh crore in dividends, with the government receiving ₹74,017 crore, led by giants like Coal India (₹10,252 crore) and ONGC (₹10,002 crore). This robust performance, coupled with capital expenditure reaching 94% of the annual target by February 2025, underscores CPSEs’ economic significance and the need for effective oversight.

Navratna and Maharatna Elevations
The government’s focus on governance aligns with efforts to empower CPSEs through status upgrades. In 2025, IRCTC and IRFC joined the Navratna club, bringing the total to 26, while Hindustan Aeronautics Limited earned Maharatna status, becoming the 14th such CPSE. These designations grant greater financial and operational autonomy, making strong governance even more critical to ensure accountability.

Impact and Future Outlook

Strengthening Investor Trust
Appointing 208 independent directors is expected to restore confidence among investors, particularly in listed CPSEs. Robust boards will enhance transparency, improve risk management, and align CPSEs with global governance standards. This is especially crucial as the Department of Investment and Public Asset Management (DIPAM) promotes PSU stocks for inclusion in mutual fund portfolios, highlighting their value and dividend returns.

A Model for Public Sector Excellence
Beyond compliance, this initiative signals a broader commitment to modernizing CPSEs. By prioritizing governance, the government aims to position CPSEs as competitive, agile entities capable of driving India’s economic growth. As the appointment process unfolds through 2025, stakeholders will watch closely to see how these new directors shape the future of India’s public sector giants.

(India CSR)