Transparency, integrity, responsibility and accountability are supposed to be the four pillars of corporate governance. Of these, reforms in transparency and integrity in the public sector, through regulations like RTI Act and checks & balances for the vigilance administration, have both pros and cons, but the net impact of such reforms have been positive.
Decision-makers have realised that they may be required to defend and justify themselves. This has made them more cautious. On the flip side , decision-making has suffered.
A separation of ownership and management is also important. So is fixing the accountability of each. In the absence of a clear-cut ownership policy, it is difficult to evaluate the owner?s accountability. The vague ownership policy leaves scope for passive ownership?exercised through administrative ministries?and formal and informal interference in the day-to-day working of the PSU boards.
The demand for greater board autonomy is a long pending one. With government and independent directors making up the majority, PSU boards have become extended arms of the administrative ministries, so much so that even where boards/CEOs have powers, they prefer to seek the ministerial go-ahead than act on their own. Delays in appointing functional directors, CEOs and independent directors betray poor succession planning, for which the administrative ministries are largely responsible.
Functional directors come mostly from within the organisation and have domain expertise. This led to a misconception that they are the last word in taking board level decisions. They forget that a board?s functioning requires more of vision and strategy, risk coverage and creation of appropriate second line through competency building. But government directors largely pursue the social and political agenda. They come prepared to pursue their agenda in the board meetings and are capable of hijacking all decisions as they deem fit. They are supported by the third partners i.e. independent directors who are selected de facto by the administrative ministry even though there is a ?search committee? for this end.
Independent directors are supposed to be the conscience-keepers and watchdogs at the fence to provide justice without being influenced by functional or government directors. But they behave like the ?dependable independent directors? of the administrative ministries. The recent direction under the Companies Act (2013) on the role, duty and responsibility of independent directors has made them stronger than before, as they are now competent to evaluate the performance of the functional board and the CEOs.
A committee of independent directors has been directed to meet at least once in a year for judging and directing the overall performance of the board. Considering their diverse nature and the gap between expectations and performance, mandatory orientation training is required for all the partners on corporate governance, leadership, project management and above all ethical governance.
In the West, sovereign committees are being formed to ensure (i) succession planning through impartial board nominations, (ii) monitoring vision, strategy and execution and (iii) capacity building through training. The influence of administrative ministries is being minimised to the extent that succession planning and monitoring are being considered without involving administrative ministries.
Countries like France, the UK, Sweden, Norway, China, Vietnam and even Malaysia have introduced reforms along these lines. In China, SASAC (State-owned Assets Supervision & Administration Council) looks after state-owned enterprises (SOEs), whereas in Vietnam, the ?sovereign committee? has been made responsible. In Malaysia, the Khazanah is similarly responsible for SOEs. In New Zealand, the ?Crown committee? has been given the sole power to control. Under the circumstances, there is a need to examine the worldwide trend and introduce radical reforms in public sector enterprises in India.
Only partial reforms have taken place in public sectors in India. The MoU system has paid good dividend, as a sense of achieving the target has entered the DNA of the enterprises, particularly when it is linked with performance-linked pay (PRP). But important issues like succession planning; vision & strategy and its execution & monitoring, and risk management still await a response.
In line with the global trends, a suggestion here would be to set up a ?sovereign committee? that is free from administrative ministry controls, to manage the following functions:
* Succession planning for functional directors, CEOs and independent directors by taking out government nominee directors.
* Well-documented ownership policy on all enterprises so that the accountability of the owner could be evaluated.
* Relinquishing administrative ministry controls.
* Creation of a sovereign wealth fund exclusively for the growth of public sector enterprises and also for investing in equity at home and abroad.
* Consolidation of holding in public sector enterprises by the sovereign committee.
* Mandatory adoption of 10 to 20 villages every year by Ratna status and profit-making enterprises
* Mandatory orientation-cum-training programme prior to taking up board level positions
N The time has come to appoint an expert committee on corporate governance in line with the earlier four committees (Kumaramanglam Birla, Narayana Murthy, Naresh Chandra and J J Irani) to introduce drastic reforms in public sector enterprises. The sooner the better.
The author is director general, Scope