Killing Fields of PSUs
- 1. Governance in the Public Sector Undertakings (PSUs) Maximum Government Minimum Governance Brijendra K Syngal
- 2. 1. What is Governance 2. The Indian PSU Environment 3. Growth dampeners for PSUs 4. Tenets of Good Governance 5. Case Studies 6. Philosophical Questions 7. The World Today 8. Concluding remarks Agenda
- 3. 1. What is Governance 2. The Indian PSU Environment 3. Growth dampeners for PSUs 4. Tenets of Good Governance 5. Case Studies 6. Philosophical Questions 7. The World Today 8. Concluding remarks Agenda
- 4. • How any organization, including a nation, is run? • Includes processes, systems, and controls - to safeguard and grow assets. • Concept of governance has 6 different meanings: minimal State good governance new public management corporate governance social-cybernetic systems self-organized networks What is Governance ??
- 5. Good Governance • Catalyst to delivering value to all the constituents • A holistic, integrated approach • ‘Conformance and performance’ • Governance is derived from the Latin word “gubernare” – the action of steering a ship Titanic
- 6. Corporate Governance • Set of processes, customs, policies, laws, institutions • Way a corporation is directed, administered or controlled • Goals for which corporation is governed • Manage relationship with stakeholders: - Shareholders - Board of Directors - Executives - Employees - Customers - Creditors - Suppliers - Community
- 7. Public vs Private • The Political View “In situations where commercial and political objectives conflict, there is the potential for the company to react more slowly than its competitors, or even to take a decision that is against its own commercial interests” – Tim Fischer – formal federal leader of the National Party in Australia. Seven Tenets • The Managerial View
- 8. Public vs Private • Public Sector – Too much policing – Too much audit – (External and Internal) – No authority to take decisions – No Real autonomy White Elephants • Private Sector – Autonomy, Authority and Freedom to take decisions – External Audit Efficient Organizations, MNCs as well as Satyams and Enrons Ironically PSUs are more transparent!!
- 9. Agenda 1. Introduction to Governance 2. The Indian PSU Environment 3. Growth dampeners for PSUs 4. Tenets of Good Governance 5. Case Studies 6. Philosophical Questions 7. The World Today 8. Concluding Remarks
- 10. The Indian PSUs • Amongst the largest and most profitable of India Inc • Management control lies with Government • Government holds minimum 51% equity in PSUs • BSE listing – Central Public Sector Enterprises # 169 – Public Sector Banks # 35 – State Level Public Enterprises # 6 CPSUs account for over 13% of BSE capitalisation !! ‘Temples of modern India’ – J. L. Nehru
- 11. Genesis of Indian PSUs • Capital intensive industries: – Oil & Gas - Iron & Steel -Telecom – Coal - Power -Transportation – Banking & Financial Services – Insurance - Heavy Engg • Objective post independence era: – Low regional imbalances - Income inequalities – Employment generation - Industrial growth • Post liberalisation performance measurement as per: – Profitability - Productivity – Return to shareholders.
- 12. Governance of Indian PSUs • Changing measurement tools required: – Government to only define broad goals, strategy and objectives; – Leave the rest to the professionals to manage, execute and deliver ‘Government must not be in the business of running businesses’ – Margaret Thatcher But is this the case in reality?
- 13. Agenda 1. Introduction to Governance 2. The Indian PSU Environment 3. Growth dampeners for PSUS 4. Tenets of Good Governance 5. Case Studies 6. Philosophical Questions 7. The World Today 8. Concluding Remarks
- 14. Predicament
- 15. Appointments & Compensation • The PSU board itself has no powers around succession planning, compensation and board appointments! • Government virtually controls PSUs Are independent directors really independent? Serious Flaws in Governance
- 16. PSU Show Stoppers • Independence, leadership and enhancement of shareholder value are big question marks in this environment let alone governance
- 17. Multiple Influencers • Various influence groups are at work all the times • Money, power, position, (de)fame are the various detractors that constantly dog PSU management • Walking a fine line – its all about governance “Self Governance”
- 18. Is this Justified? • PSU funding is based on taxpayer’s money to a significant extent • Would it not be better if government set objectives and then let professionals manage the show World over the infrastructure as well as service sectors are funded by taxpayers’ money. Nonetheless, the governments get out of them the moment they reach maturity or commodity status
- 19. Agenda 1. Introduction to Governance 2. The Indian PSU Environment 3. Growth dampeners for PSUs 4. Tenets of Good Governance 5. Case Studies 6. Philosophical Questions 7. The World Today 8. Concluding Remarks
- 20. Good Governance Essentials • Authority • Accountability • Transparency/Glasnost • Audit • Reward for good work • Reprimand for bad • Hire & Fire Seven Tenets This may also be termed as the Managerial view leading to maximisation of stakeholder value
- 21. Agenda 1. Introduction to Governance 2. The Indian PSU Environment 3. Growth dampeners for PSUs 4. Tenets of Good Governance 5. Case Studies 6. Philosophical Questions 7. The World Today 8. Concluding Remarks
- 22. The Air India Story • Merger of Air India with Indian Airlines ill-timed and made without adequate financial consideration. • Bulk order for aircrafts based on flawed and invalidated market share growth estimates. • High aviation oil prices, rise in wages and competition from other airlines. The airline is in the need of an immediate lifeline for it to chart a turnaround in its fortunes Air India
- 23. The BSNL Story • Policy and paralysis of decision. Similar parallels as Air India. • Capacity constraints leading to no major growth in subscriber base. • Both, BSNL and Air India are not listed. This leads to their performance being subject to public scrutiny only occasionally. The enterprise is in a sordid state of affairs due to the dysfunctional nature of the Board and continuous interference by the Govt. BSNL
- 24. The VSNL Experience • Entry into cellular services • Undersea cable project skirting India in a JV with British Telecomm • Entry into NLD and other domestic services Today VSNL, as Tata Telecomm, has been able to do all if not more of the above VSNL Denied
- 25. The Kingfisher Saga • Started operations in 2005. But didn’t see a single year of profit since it got listed in 2006. • Flawed business plans of Founder (Dr. Mallya) and impropriety in style of functioning of the organization. • Questionable merger with Air Deccan. Fleet maintenance issue on its Airbus & Fuel cost variations. Kingfisher Airlines Thus, pvt sector entities are equally prone to mismanagement and corrupt practices.
- 26. Sahara Scandal • SEBI bars two Sahara Group entities from raising money from the public as it raised several thousand crores through debentures, deemed illegal by the regulator. • Through court proceedings and decision taken by the regulator, it is deemed that the money raised by the 2 companies was without due compliance of SEBI norms. • Total dues were to the tune of over Rs. 24,000 crores. The group founder Subrata Roy is arrested in Feb 2014 and a claim for defreezing of company assets made. Sahara Group Investor Fraud
- 27. How to deal with…. • Politicians • Bureaucrats • Lobbyists • Press Personal Perspective
- 28. Agenda 1. Introduction to Governance 2. The Indian PSU Environment 3. Growth dampeners for PSUs 4. Tenets of Good Governance 5. Case Studies 6. Philosophical Questions 7. The World Today 8. Concluding Remarks
- 29. Philosophical Question • Why PSUs are not MNCs? • Why are they not in the global league of fortune 500, with all the talent, expertise? • Or why have they not become global, if they are indeed Board Managed? Perceptions Seven Tenets
- 30. Answer • An emphatic yes provided the conditions are right – PSUs have been through 50 yrs of destruction – Bloated with unnecessary manpower – Forced into non core business areas – Jagirs or personal fiefdoms - No objectives - Excessive interference - Political & Bureaucratic Where is the question of good governance? Seven Tenets
- 31. But… • Too much Oversight, only Controls • No real autonomy, authority • Only audit • No rewards • No punishment • Political vs Managerial conflict Seven Tenets
- 32. Trusteeship vs. Stewardship • Is government striking effective balance between trusteeship and stewardship? • Government’s involvement should be minimal, except for policy matters “Clearly there is a gap between autonomy granted & autonomy availed. Complete separation of government interference from day to day management of PSUs is an immediate requirement. PSUs should not be considered as an extended arm of the administrative ministries.” - Dr. U.D. Choubhey, - Former CMD – GAIL
- 33. Agenda 1. Introduction to Governance 2. The Indian PSU Environment 3. Growth dampeners for PSUs 4. Tenets of Good Governance 5. Case Studies 6. Philosophical Questions 7. The State of India Today 8. Concluding Remarks
- 34. Making Sense of India Today – One Year of Modi Government- Emphasis on private sector benefits. But, no sound policy and regulation coming with it – Neglect of PSUs (Need for Overhaul at BSNL & MTNL) – Growing NPAs at banks – Misconstruing “Maximum Government, Minimum Governance” by the “leaving it to market forces” approach – Air India in a state of continuous decay
- 35. While world witnessed worst recession …. “Coal India IPO fetches mind- boggling Rs 2.36L crore” “OIL IPO subscribe d 91% in an hour ” “PowerGrid subscribed 15 times, employees make full use of quota” PSUs accounted over 72% of 2010's mobilisation - Coal India (Rs 15,199 cr) - NMDC (Rs 9,930 cr) - NTPC (Rs 8,480 cr) - Power Grid (Rs 7,442 cr) - REC (Rs 3,530 cr) PSUs collectively realized Rs 49,007 cr in 2010 “NTPC FPO subscribed 0.77 times, gets maximum bids at Rs 209” “NHPC IPO fully subscribe in an hour time “Cochin Shipyard mulls Rs 800-crore IPO” “ONGC to be India's biggest IPO ever”
- 36. Agenda 1. Introduction to Governance 2. The Indian PSU Environment 3. Growth dampeners for PSUs 4. Tenets of Good Governance 5. Case Studies 6. Philosophical Questions 7. The World Today 8. Concluding Remarks
- 37. Getting it Right = Paradigm Shift • Right sizing • Focus on Core Competencies • Access to capital markets • Adoption of appropriate reward structures • Seven Tenets • Privatisation Follow the VSNL/Maruti models for success of PSUs
- 38. Getting it Right = Paradigm Shift • Doing away with the bugbears of: – Bureaucrats and Politicians – Industry polity nexus – CVC – CAG – Administrative Ministries Or doing away with the Rahu, Ketu and Shanis For getting things right for PSUs And Putting them on the path to becoming MNCs
- 39. PSU Management = Good Governance • Allow governance to prevail and PSUs can outwit their private sector competitors by even bigger margins • VSNL/Maruti are examples at hand • Because VSNL/Maruti has had the autonomy to flourish • So can other PSUs like ONGC, IOC, BHEL etc Seven Tenets hold the key
- 40. OECD View Corporate Governance in State Owned Enterprises – Ensure level-playing field with the private sector – Reinforce ownership function within state administration – Improve transparency of objectives and performance – Strengthen and empower boards – Provide equitable treatment of non-controlling / minority shareholders
- 41. Back to Basics…. • Return to basic value systems – India’s century old principles of ‘Dharma’ • Make ethics part of your and company’s DNA • Make ‘high moral character’ key hiring criteria • Make integrity, ethics and compliance part of promotion, compensation and evaluation processes “Ethics in business is extremely important; your reputation is all you have in life.” - Sir Freddie Laker Focus on strengthening the moral fibre of the corporation
- 42. “Good government is no substitute for self-government” & “You must be the change you wish to see in the world . . .” - Mahatma Gandhi
Editor's Notes
- #5: The first use is governance as a “minimal state”. Ownership of public services has been replaced by regulation, sometimes in the form of (partial) self regulation. New public management - This refers to introduction of private sector management methods to the public sector and private sector incentive structures into public service provisions. Governance as a Social cybernetics systems comes close to alternative notions like “centreless society”, polycentric state or indeed “governance without government”. It has everything to do with thought-aided, purpose-directed, history-illuminated, feedback-dependent, and future-affirming or "feed-forward" governance. Self-organised networks - are the results of government withdrawal, deregulation, privatisation, in short minimal state