?Need to develop special code of conduct for independent directors?

Standing Conference of Public Enterprises (Scope) is the apex professional organisation representing the central government public enterprises. Besides, it also has some state enterprises as its members. It currently represents 198 central and state PSUs and public sector banks. Scope is a key interface between the government and PSUs. It also acts as a forum for discussion of policy issues affecting public sector enterprises. In a conversation with Noor Mohammad, Scope director-general UD Choubey expresses his views on issues like competitiveness of PSUs, the government?s disinvestment policy and corporate governance. Excerpts:

How competitive are PSUs vis-a-vis private corporate players? What is SCOPE doing in this regard?

Public sector units are equally competitive, if not more. Post-liberalisation, they have adopted the best practices of corporate governance, some of which are absent even in the private sector. But at the same time, there is still possibility for improvement. For example, there should be a complete separation of PSU board-level management from ownership of the government. PSU boards should not be considered as extended arms of the government. Second, there is a need to devise a system for developing leadership quality in PSU officials.

To some extent, autonomy has been given to PSUs under Navratna and mini-Ratna classifications. But even today, there is a lot of intermingling between PSUs and the government. For this, both PSUs and the government are equally responsible.

Administrative ministry officials interfere with PSUs. And for their part, PSU officials are generally knocking at the doors of their administrative ministries even though they have full empowerment.

That said, there is a need for closer interaction between the government and the PSUs. SCOPE can provide a forum for that.

The government is further diluting its stakes in key public sector units. How far will this go in improving corporate governance in these PSUs?

It is a welcome move because this will bring out the latent wealth of the PSUs. It will also lead to accountability of the PSUs towards a larger number of stakeholders. As part of the listing agreement, the units will be subject to the Securities & Exchange Board of India (Sebi) guidelines and will have to necessarily follow the principle of best practices in corporate governance.

Under clause 49 of the Sebi guidelines, listing PSUs will have to maintain complete transparency and disclosures. Further, they will also be required to set up independent audit committees and appoint independent directors. Listing will force PSUs to improve corporate governance, even as it will help them to benchmark their performance in the industry.

Scope would prefer if proceeds of the listing are allocated for expansion plans of PSUs, and research & development (R&D), besides the social sector. PSUs are not going to shy away from listing.

The government has recently granted Maharatna status to select PSUs. What do you think about that?

Maharatna classification for PSUs is a welcome move. At the same time, there has to be a proper guiding principle for evaluating the efficiency of all Navratnas. Based on their performance, some consideration should be given to upgrade them to the Maharatna status. Maharatnas should work as independent companies. They should not depend on administrative ministries for decision-making.

The erstwhile promoters of Satyam were able to commit massive fraud, even though there were independent directors in the company?s board. This shook the faith of investors in the institution of independent directors. What can be done at the policy level to prevent recurrence of such frauds?

We have no culture of fraud in the PSUs because we know that there is something more than regulations that are guiding them. And that is the ethical consideration. Best regulations have witnessed worst frauds sometimes in the absence of ethics. PSUs today stand for best practices as there are multilayered checks and controls from institutions like CAG, the Central Vigilance Commission (CVC) and the Central Bureau of Investigation (CBI). The Satyam fraud occurred despite the fact that there were audit inspections. Therefore, there is a need to develop a special code of conduct for independent directors so that frauds are prevented.

Independent directors should be persons of high integrity with exceptional track record. They should be subjected to appropriate training and sign some sort of undertaking with the government, or better still with Sebi. They should join the board under a solemn oath.

Private businesses ensure that a succession plan is in place so that there is no dearth of competent people within the company for the top job. But there is no such culture in PSUs. The PESB procedure often gets delayed and the result is that PSUs are sometimes left to function without a permanent head. How can such state of affairs be improved through policy intervention?

Leadership in PSUs should not be based on hierarchy. Instead, it should be based on the principle of system-oriented management. In PSUs, everything revolves around chiefs. There is a need for shifting to a system-based model for leadership. Emphasis is required on the succession plan.

You are a former chairman of GAIL India. What functional constraints do PSU chiefs usually face compared to their counterparts in the private sector?

I did not face any constraints as GAIL chairman. Rather, I received a lot of cooperation from the government.

What was your major achievement as GAIL chairman?

As GAIL chairman, I introduced the concept of three Cs, that is, cooperation, collaboration and competition, among PSUs. They should cooperate, collaborate and compete with each other at the same time. It proved very effective.