PSUs running without heads

According to official data, nearly a dozen PSUs have been functioning without a regular CMD for many months, and in cases years. What has caused this delay: policy or politics?

jasleen

Jasleen Kaur | July 22, 2013



Metals and Minerals Trading Corporation of India (MMTC), a central public sector enterprise, is worth Rs 66,000 crore. One of the highest earners of foreign exchange for the country, it not only handles the export of primary products such as coal and iron ore, but also imports metals, primarily gold, for the industry and fertilisers. The company also has a vast international trade network, including a wholly owned international subsidiary in Singapore.
But the country’s largest trading giant has been working without a regular chairman and managing director (CMD) since October 2010.

The selection process for finding a suitable CMD started long ago. The government also tried finding a CMD to chair this mini-ratna by forming a few panels.
The first selection panel, constituted by the public enterprises selection board (PESB), was scrapped by the commerce and industry ministry. A second panel was subsequently constituted within the ministry but its recommendation for a candidate was not accepted. A third panel was formed under the chairmanship of a planning commission member. Though official orders are yet to come, sources at the PESB say even that stands cancelled and soon a new panel would be formed to select the MMTC head.

Since the superannuation of Sanjiv Batra in September 2010, the appointment of a full-time MMTC chairman has been dragging on, primarily due to the about-turn taken by the commerce ministry on the selection process.

In October 2012, an additional secretary in the commerce ministry, DS Dhesi, took over as the CMD in addition to his present assignment as the director-general of the trading giant.

“In case of MMTC, three panels have already been formed, but for some reason or the other their recommendations were not accepted by the ministry. We can just give recommendations. A final decision is taken by the ministry concerned,” says PESB chairman Atul Chaturvedi.

MMTC is not the only example of PSUs that continue to work without a head for long. National Aluminium Company (Nalco) and Bharat Heavy Electricals Limited (BHEL), a maharatna, have also been working without CMDs for the past few months.

Dozen and counting
More than a dozen central public sector enterprises (CPSEs) do not have a full-time CMD. In some cases, the post has been lying vacant for more than a year. According to Chaturvedi, in most cases the impediments were patterned: either PESB, entrusted the job to find a suitable candidate for the PSUs, acted late, or vigilance clearance was not received, or the parent ministry did not favour the PESB choice and the selection panel had to
be scrapped.

It is surprising that despite the presence of PESB and other mechanisms available to the government for selecting CMDs, CPSEs continue to work without a regular head for months, and in many cases years. The pattern also points fingers at vested interests within the government who want to keep CPSEs headless.

Former cabinet secretary TSR Subramanian says that a lot has changed in the way the chief of a PSU is selected. He says it is mostly based on how the person concerned would play ball with the minister. “Unfortunately, in the case of many PSUs, the chief is close to the minister concerned. So the minister can actually use the chief to oblige people through contracts and other things, like we saw in the Jindal case, where bribe was (allegedly) given for the allocation of a coal block. If we see in the context of the railway board also, not only political implications but also cash implications were involved,” Subramanian said.

In cases of delay in the appointment of a regular CMD of a PSU, heads of other PSUs or government officials are given the charge: like Steel Authority of India Limited (SAIL) CMD CS Verma is holding additional charge of the National Mineral Development Corporation (NMDC). Similarly, Brigadier SK Mutreja (Retd), the CMD of NEPA Limited, holds an additional charge of the Tyre Corporation of Indian Limited (TCIL).

Mutreja said it is difficult to manage the charge of two companies, especially when the companies are located so far. In his case, Nepanagar is in Madhya Pradesh while TCIL is based in Kolkata. “It is physically difficult and it also affects the business activities, especially when the companies are sick and under revival process,” he said. “A person holding an additional charge of a chief executive is never able to push through projects the way a full-term chief executive can. We do not have functional directors and adequate staff.” 

“The government should put up a time-bound appointment schedule so that these problems can be avoided,” said  an official from the department of  public enterprises. 

The proposals for appointment of board-level executives in CPSEs are approved by the appointments committee of the cabinet (ACC), headed by the prime minister. Subramanian, however, said that politics often takes precedence, with the administrative ministry in charge of a CPSE delaying approval of candidates who are not in the good books of ministers concerned.

In case of many PSUs – like MMTC and Hindustan Fertilisers, for instance – the charge of CMD has been given to joint secretaries. So the official of the ministry supposed to monitor the functioning of these PSUs becomes part of the PSU itself. That is a conflict of interest.

Subramanian said ministries should have an independent approach to the PSUs: “The ministry (concerned) is supposed to supervise their work. But if the same person is actually handling the work, then there is a conflict of interest.”

Politics takes precedence
Though the government has a well-established process of appointment, where the minister is not the final authority to take a decision, the candidate’s names are also ‘stage-managed’, Subramanian said. “It has been seen in many cases that people are ready to pay huge amounts of money to become the chief of a PSU because it is a very lucrative post. Even ministers prefer to keep the post vacant, or they temporarily appoint someone and delay the process of final selection. So there are many games that are played,” he said.

Many PSUs are acting without a proper head mainly on account of tardy selection process and bureaucratic hurdles.

According to PESB, some 15 positions of chief executives are lying vacant in CPSEs. Apart from the large ones, the list includes companies such as Brahmaputra Valley Fertilizer Corporation Ltd, HCL Cables, Hindustan Photo Films and Hindustan Machine Tools (HMT).  

Together, the companies without a full-time head are undertaking projects worth several thousand crores of rupees.

“In more than 90 percent cases, CMDs are selected within the time-frame. We start the procedure of inviting application one year in advance, which is followed by interviews, recommendations and CVC clearance. But there are cases when these things could not be done within a year. Many times CVC takes a lot of time in giving clearances,” Chaturvedi explained.

It is believed that these CPSEs are critical to the economy and need to have a system that builds in appropriate succession planning, apart from speedy appointments, so that performances of these companies are not hampered.

In its report submitted in November 2011, the committee of experts on reforms in CPSEs had also recommended a time limit for board level appointments (see box). The panel is constituted by the planning commission.

Chaturvedi said delayed appointments are hurting business activities since acting executives are devoid of powers to take crucial decisions. “The effect on policy decision and decisions related to financial implications are more pronounced in the case of bigger PSUs like BHEL, Coal India and ONGC. Certainly, a full-time MD is always better than the (temporarily) officiating one. They always have the hesitation in taking a final decision because they consider themselves temporary arrangement,” he says. 

Chaturvedi explained that some PSUs are lying headless because there is a proposal for merger, so the board has been asked not to fill these vacancies. The final decision would be taken only after the merger. Some PSUs are in the disinvestment mode. And in case of some, the board was told that the incumbent CMDs would get the extension but it never happened, so the post kept lying vacant. But, Chaturvedi said, despite all this, 95 percent vacancies are filled in time.

Health of PSUs to blame?
Chaturvedi said health of PSUs is also one of the factors affecting appointment of CMDs, and it reflects on the quality of the candidates. “Some PSUs are performing so badly that no one wants to join them,” he said, taking the examples of  HMT and Hindustan Photo Films. “No one would make a career out of it (heading such units). Then there are certain PSUs which are in huge financial mess, and we do not receive many applications for them. The board then (in such cases) asks the ministry concerned to appoint someone on deputation.”

He said there is a continuous improvement in the process of selection by the board and it is trying hard to be more objective and transparent. But he said the ministries should be more transparent in declaring reasons for scrapping a panel formed by the board for selection of a CMD.

“In most cases, all we get to know is that the ACC has agreed to scrap the panel. Why that has happened we never get to know,” Chaturvedi said. “Some panels are scrapped because the vigilance clearance is denied to candidates. As per procedures, after receiving an application vigilance clearance should be given within three months, or it should be denied. I think that has been breached.” 

To overcome this problem, there should be a time-bound clearance of appointments. Indeed, many would argue that in well-run companies, there is a second line of command groomed over the years to take over the reins; if necessary, at short notice as well. PSUs, unfortunately, do not come into that category, say industry experts. The choice of successors is often driven not by merit but political considerations.

While there is no reason why the government cannot complete the selection process sufficiently in advance, the government should ensure PSUs are not left headless and should also give more time for the successor to take over. Also, the government must work to restore the credibility and authority of the appointment system to ensure PSUs get the best talent, and not ministers’ favourites.

PSUs working without a regular CMD


Name of the PSU  
                   Working without
                                                 a regular CMD for


HMT Limited                              2 years

Heavy Engineering
Corporation Ltd,
Ranchi (HECL)                           3 years

Hindustan Photo
Films Manufacturing
Company Limited (HPFL)          3 years

Minerals and Metals
Trading Corporation (MMTC)      2.5 years

NPPC (a subsidiary of
Hindustan Corporation
Limited)                                     2 years

Hindustan Cables
Limited (HCL)                            1.5 years

Brahmaputra Valley
Fertiliser Corporation
Limited (BVFCL)                        1.5 years

Cotton Corporation
of India (CCI)                           1 year
 
National Mineral
Development
Corporation (NMDC)                 8 months
 
Bharat Heavy
Electricals Limited (BHEL)          7 months
 
National Aluminium Company
(NALCO)                                    6 months
 

This story first appeared in the July 15-31, 2013 issue of the Governance Now magazine.

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