In our parliamentary system of executive
governance, cabinet decisions are jointly arrived at by
cabinet ministers and reflect the view of the
senior-most executive council of the land. Cabinet
decisions are sometimes challenged by the legislature or
the judiciary; but are rarely rescinded by the
government in power or by the leader of the majority
That’s what happened with BHEL. The
cabinet approved a 10 per cent divestment of the shares
of BHEL. Immediately the Left threatened to walk out of
the coordinating council of the United Progressive
Alliance (UPA). Equally quickly, Mrs Sonia Gandhi
acquiesced to their demand for status quo. Thus, while
Prime Minister Manmohan Singh was conferring with his
G-8 counterparts in Scotland, the UPA agreed to keep the
BHEL divestment in “indefinite abeyance”.
I am not going into the politics of
appeasement, how and why it happened and which
Congressmen were shafting the decision from within.
Instead, let me briefly dwell upon the governance of
public sector undertakings (PSUs) which are listed on
Indian stock exchanges, where the central government
owns over 50 per cent shares — such as many public
sector banks as well as some large state owned
manufacturing corporations, including the ‘navaratnas’.
Even if government owned every share of
the state owned banks, the doctrine of exclusive
ownership would not have allowed it to do as it pleased.
Banks accept deposits and other debt from the public
and, therefore, have a minimal fiduciary duty to perform
well enough to protect these liabilities and pay the
contractual interest dues. The navaratnas are another
matter. Had they been owned exclusively by government,
they could have done whatever the sarkar wanted — either
to grow the business or to ruin it.
The governance problem arises because a
company like BHEL is listed, with 33 per cent of its
equity being held by mutual funds, institutions and
individuals, while 67 per cent is owned by government.
The company and its board, therefore, has a fiduciary
obligation to do everything that is needed to increase
long term shareholder value. That’s where the governance
contradiction comes into play.
Anyone who has served as a director on
the board of a PSU whose majority shareholder is the
government knows the role of the government’s nominee
director. Typically a Joint or Additional Secretary, he
is the most powerful person on the board, bar none. I
don’t know of a single occasion where a PSU board
meeting has begun without the worthy babu taking his
seat. Date of board meetings of listed PSUs are changed
at very short notice because the concerned bureaucrat is
suddenly unavailable. Rare is a managing director of a
PSU who can pilot any board decision without prior
concurrence from his boss at the ministry.
These reflect a more serious problem.
Essentially, there is an inherent disconnect between the
objectives of government and those of corporations. The
government sees PSUs as instruments of its political and
socio-economic will. Therefore, the IAS officer will do
what is right from the perspective of a political animal
called the government — which has little to do with the
needs of a corporate creature called the widely held,
joint stock limited liability company.
Let me give you two illustrative
examples. Consider the appointment of CEOs of PSUs and
public sector banks. Since everybody knows when a CEO’s
tenure is coming to an end, it should be easy to have
smooth succession planning. Yet, these posts are often
left vacant — with the PSUs being run by a caretaker —
because government has not made the selection in time.
The second example is Indian Airlines. Everybody knows
that IA needs to rapidly augment its aged fleet, and
that this takes time. Yet no decision has been taken.
Divestment of the shares of public sector
banks and the navratna PSUs is not about distress sale
of the family’s silver. It is about liberating these
organisations from the stultifying presence of the
bureaucracy and politicians. It is about creating a
milieu that allows these companies to progress, invest,
grow and increase shareholder value. Its about corporate
governance, not revenue. I don’t expect the Left to
understand this. But with her body of capable advisors,
I thought Mrs. Gandhi would.