"PSEs gradually becoming extended arm of admin ministry"

jasleen

Jasleen Kaur | February 19, 2014




The Standing Conference of Public Enterprises (SCOPE), an apex body of central government-owned public enterprises, has a mission to improve overall performance and to strengthen effective and sustained engagement of these companies with all stakeholders.

Leading the organisation at present is director-general UD Choubey, a former chairman and managing director of GAIL (India) Ltd. In an interview with Jasleen Kaur, Choubey talks about the reforms in the corporate governance and makes a strong pitch for a level-playing field for the public sector enterprises (PSEs). Edited excerpts:

Are you satisfied with reforms in corporate governance in PSEs?

All reforms introduced with respect to public sector have certain limitations. One of them being the high number of independent directors on board – 50 percent of them is independent directors and two directors are nominated by the administrative ministry. The outcome of this is that the PSE board is totally influenced by the administrative ministry.

The independent directors, who are also nominated by the administrative ministry, are actually dependable independent directors. They are supposed to be the watchdog on the board so that nothing happens against ethical or regulatory norms of the objectives set for the board. But this objective is not being met to the extent required. The government-nominated directors generally come with social and political agenda, and this is a big gap between employees and nominee directors.

The control of the administrative ministry should be minimised, if not (made) nil. A trend has started worldwide where administrative ministries are done away with and power is vested in sovereign committees of the governments, particularly in the post-recession period. Without any say of the administrative ministry the sovereign committee takes decision on the nomination of directors, succession planning, strategy implementation and financial aspect of the company. Developed countries have considered that capital in the hands of the private is threatened and is against the concept of welfare state.

Does the administrative ministry’s control over the board of enterprises affect PSES’ functioning?

Yes, it is affecting them to an extent that the public sector boards are gradually becoming an extended arm of the administrative ministry. The plight of the top management is not good because of the formal or informal interference from the ministry. They have to knock the doors of the administrative ministry before they take any decision. So where is the board’s autonomy?

The government has certain objectives to fulfil – that the company is working ethically and transparently, that they are giving better profits, and also performing their social responsibility. Incidentally, there is no ownership policy by the administrative ministry for boards even six decades after the PSEs started functioning. Ownership policies should be well documented after involving all stakeholders. The board has to be evaluated against the board policy, with respect to integrity, transparency and accountability.
 
Is there a need to revisit corporate governance norms?

We need to review the corporate governance norms in line with the worldwide trends. We must have an expert committee in line with the earlier committees. There is a need for focused attention to this so that we can adapt new practices immediately.
 
What’s your take on existing levels of autonomy in PSEs?

PSEs are required to attain several social and economic objectives, including compliance of other objectives. Moreover, PSEs are governed by many systems and mechanisms such as answerability to parliamentary committee, review by administrative ministry, audit by CAG, central vigilance commission. The multiplicity of control structure interference in their operational decision results in large unproductive time on conformance than performance. The government has undoubtedly taken several initiatives which have helped PSEs to disengage themselves from many constrains.

There is, however, a need for full empowerment of the board of PSEs to decide strategies and their implementation without day-to-day interference by the administrative ministry. Primarily a well documented ownership policy is required to strike a right balance between autonomy and state control. Ownership and management needs to be distanced. Defining the ownership function of the state would help minimise their control and interference in day-to-day commercial decision-making and provide greater powers to boards.
 
How are PSEs performing vis-a-vis corporate governance and CSR?

Corporate social responsibility (CSR) occupies a significant space in the present business world. Many organisations have progressively realised their broader responsibility towards society and environment. They have realised that commitment to the financial bottom-line is no longer the only appropriate focus for a company. The CSR clause will add significant momentum in India’s economic and social development, leading to equitable and sustainable growth of the country.

SCOPE has been strongly advocating and urging the industry fraternity to contribute towards CSR as corporate citizens. We are suggesting that each corporate (house) should adopt at least 20 villages (and) mandatorily ensure that there are roads, drinking water facility, health and sanitation, education and skill development.
 
Should PSEs do more than merely following mandatory guidelines?

The public sector has been doing CSR and has an unparallel record of contributing and shouldering social responsibility and integrating their business strategies with sustainable initiatives. It is a matter of pride that their CSR strategies are aligned to national priorities to meet the basic needs of citizens – like literacy enhancement, educational aids and skill development, providing drinking water, environment protection, health-care and family welfare. PSEs are doing it; some even more than the mandatory two percent. But I still feel there is a need for focused attention. Giving two percent money to an NGO is not in the right perspective because the public sector is competent enough to ensure that the benefit reaches the end point. For that, there is a need for social audit to check deliverability. ONGC, BHEL, SAIL, NTPC, RINL are some of those which are doing good work.  

Tell us about constraints PSEs face in project implementation.

Public enterprises face a lot of complications in project implementations and their management. Some of them include stringent norms and cumbersome procedure for getting environment and forest clearances, location of projects in sensitive border areas, lack of adequate infrastructure facilities, inter-state issues which impede smooth execution of projects.

As PSEs have dominant government stake, it is logical that they are extended special consideration to undertake larger projects related to vital infrastructural services. There should be one single window clearances to projects for accelerating development. The government should ensure that all pre-requisites like land acquisition, environmental, forests clearances should be put in place before award of contract.

(This story appeared in February 16-28, 2014 issue of the magazine.)

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