Focus on leadership

Written by Ranjan Mohapatra | Updated: Nov 20 2012, 02:12am hrs
Non-financial parameters hold the key to CPSE performance

The department of public enterprises (DPE) has initiated performance studies of the central public sector enterprises. But performance management is more complex in the public sector than in the private sector, primarily because of the role of the government as the majority shareholder.

Over the years, the business orientation of CPSEs has evolved from one of social service to profit generation, induced by the changes in the economic environment. This begs for a significant change in the quality of government's interface with the CPSEs, in tune with the needs of a competitive business environment and the mandate to be profitable.

The performance of any process is influenced by the quality and quantity of inputs, and the design of the process. At CPSEs, both the inputs and processes are influenced by the government. Thus, the performance of CPSEs needs to be perceived as the collective performance of the government (parent ministry) and the respective CPSE.

Again, the CPSE performance is essentially the performance of the CPSE boards, where the inputs are quality professionals as directors (functional, government nominee, and independent directors) in stipulated numbers. The availability of a competent chairman-cum-managing director to lead the board is even more important. India has seen the leadership of the likes of V. Krishnamurthy and Verghese Kurien, who have transformed public sector entities through their vision and leadership abilities.

But the current reality is that as many as 24 CPSEs were headless as of August 2012, and 52 director level positions were lying vacant. The selection process of directors and CMDs/ MDs is not yet focussed on the candidate's leadership ability, but mostly on his relevant industry exposure. A large number of CMDs fares poorly on the leadership scale, but they continue at the helm on the strength of their domain expertise, which affects the CPSE performance.

The pool of independent directors is dominated by retired bureaucrats, ex-PSU directors/CMDs, chartered accountants and academicians. This has not been able to create the required balance of knowledge and expertise to match with the fast changing business environment and the needs of new knowledge and expertise. Inappropriate selection of independent directors till the balance of power in favour of governmentthe majority shareholder influencing decision-making against the interest of CPSEs.

The government nominee directors function mostly as the representative of the principal shareholder with a proportionate authority, but not always with the required business mindset and long-term vision. Many CMDs have complained of arm-twisting by the government in the decision making process, which has worked against the interest of the CPSE.

There is a positive correlation between autonomy and accountability /performance. Though various governments have accepted the concept in principle and provided autonomy on paper, real autonomy still eludes CPSEs. The accountability imposed by the ministries is rather oppressive than of a knowledge-based collaboration for performance enhancement. Though formal control by the government, as per provisions of law or the memoranda and articles of association, is extensive, informal control is still pervasive, which wastes the productive time of PSU managements, inhibits decision-making, and hurts performance.

If the public sector's performance has to improve, accountability for the government, including the bureaucracy and minister, need be defined with clarity on its content, limits and benchmarks. The recent cases of ministers and politicians diverting Corporate Social Responsibility funds of CPSEs to their constituencies is a classic example of ministers considering CPSEs as an extension of government and not as independent business entities with a responsibility to earn profits.

All these factors, directly influenced by the government, affect the performance of CPSEs. Therefore, any initiative to assess the performance of CPSEs needs to factor these issues to do justice to the process of performance assessment.

DPE has the mandate to conduct in-depth studies of significant areas of functioning of CPSEs and create an information base. It seems the number of studies done by the DPE is far less than desired. Research has to be done on specific areas affecting the functioning of CPSEs, specially non-financial areas like human capital (knowledge, skill and aptitude), organisational capital (culture, motivation and organisation design), information capital (database, networks and information people) and the level of utilisation of these potential non-financial resources.

Only in-depth research-based data on key parameters will make the task of performance monitoring simpler for DPE. In the absence of such data, any effort to design performance management systems would generate less than desired outputs. The key to performance lies in the intangibles--non-financial parameters like leadership ability, and not in the financial strength. A saying in Hindi goes like this: If you have an able son, you dont need to save any wealth, and if you have an incompetent son, you dont need to save any wealth either.

The author is president, Vision Consulting, a management & CSR consulting firm