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 government–the 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.