How we selected PSU outliers

GN Bureau | December 24, 2015



 State capitalism was the need of the hour when India got into its path of economic development. It continues to occupy a pedestal position despite the new global economic order – contributing over 27 percent to India’s fiscal budget in 2014-15. And despite the flak that the PSUs receive, whenever they are compared with their peers in the industry,  some champions stand out. Of course, it was not an easy task evaluating the performance of 235 state-owned companies – four of which also happen to feature in the Fortune 500 list.


The hypothesis, however, was clear: the competitive ability of PSUs emerges from the overarching themes of governance and strategy, which are critical for their growth in domestic and international markets. We were also clear that at the level of PSUs, governance was relevant for the corporate setup and the various business units with proper management structures in place, which result in increasing profits and realisations as the organisation matures. 

In our bid to strengthen the process for the 3rd edition of the annual PSU Awards, Governance Now along with its process partner M76 Analytics decided to take a more evolved approach and measure the initiatives and impacts of the initiatives for the stated strategic objective of the PSUs for the six non-financial category awards. 

The 2015 edition of the Awards has added few more categories – one each for strategic investments and non-ICT technology adoption and one each for overall best financial performance (based on the total scores on all financial parameters) and overall best performance (based on the total scores of financial and non-financial parameters).  Overall, we decided to increase the categories of the awards – including financial and non-financial – from nine last year to 13, signaling growing competitiveness and strategic turnaround. 

No wonder then, the process that started with the announcement of nominations on August 2 culminated on October 30, with a grand jury meet chaired by former urban development secretary Dr Sudhir Krishna.
 
Evaluating the PSU performance
Financial performance of an organisation is critical for the overall evaluation of any company and Governance Now PSU Awards process ensured equal thrust on the same. With a total of six awards in the financial category, the awards research team led by Jai Mrug of M76 Analytics made good use of the data from the respective annual reports and CMIE Prowess Database to arrive at the scores. The scores thus arrived at were normalised by the research team to make sure that the jury got a clear picture of how well a PSU is performing given the inherent characteristics of industry, market and time. 

And to make sure we use the best industry benchmark, the team decided to adopt Moody’s Metrics: Key Financial Ratios by Industries for Global Non-Financial Corporation (editions 2007, 2009 and 2014). This enabled the team to compare the individual PSU scores against their respective industry segment and geographies. Normalisation of scores using industry standard helped us remove the impact of prevailing conditions of the economy and measures its performance against the benchmarks of the industry at a global scale (for example, performance of oil PSUs was pitted against global benchmarks of the oil industry). 

The awards for the non-financial category were selected from the nominations received by the jury. The main objective of this award is to assess the performance of the company above and beyond monetary rewards and measure its contribution to wider aspects of the society through activities like CSR, green initiatives, research and innovation, HR initiative, and technology adoption. The jury made an effort to understand the motivation behind the efforts undertaken to give back to the society and also how much those efforts had paid off. Further, information, including that relating to compliance, legal matters and projects was compiled by the research team. It was then presented to the seven-member jury (see list) that deliberated throughout the day to select one winner from each category.

The jury, however, decided not to give any award for Technology Adoption (non ICT) and for Consistent Growth & Adaptation for the Navratna companies and for Strategic Investments in Miniratna 2 & Others category, as it found that not enough work had been done by any PSU to qualify for the same. The jury also observed that PSUs in the Miniratna 2 & Others category needed to move beyond planting of trees as a green effort and needed to create a format for reporting savings from green initiatives, including carbon credits earned. While no clear winner emerged for the green award in this category, it decided to give a Special Mention award to Rajasthan Electronics & Instruments for its initiative in driving use of solar energy within the company and also among its clients. 

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