The unseemly controversy over the denial of an extension of service to the former chairman of the State-run Oil and Natural Gas Corporation (ONGC) Subir Raha, has once again brought the issue of corporate governance in public sector undertakings into stark relief. The issue at stake is not the fact that Mr Raha was not given an extension. Arrivals and departures are a fact of life in the corporate world. At top levels, they can have a crucial impact on a company’s bottomline and growth prospects. That is why corporates take succession planning seriously. Most well-managed companies also have reasonably transparent and well thought out succession plans in place to ensure seamless transitions and minimise impact on shareholder value.
The Reliance imbroglio, for instance, was a prime example of the negative consequences of not having a workable plan in place — as well as the gains to shareholder value once these issues are sorted out. PSUs are no exception to this rule, since they have to compete in the same economic environment as private sector companies. On this ground, one could argue that the government, as the largest stakeholder in ONGC, did the right thing, since as a professional, Mr Raha should have had a succession plan in place. However, even if he had wished it, he couldn’t have done so, since PSU appointments are still in the firm grasp of the controlling ministries and the Public Enterprise Selection Board (PESB).
It is not as if the government is not aware of the problem. As far back as 1997, the Standing Conference of Public Enterprises had commissioned Yaga Consulting to study the special needs and constraints on PSUs which are also publicly listed and traded, and make suitable recommendations. The consultants had noted: “It is regrettable that…stakeholders’ interests are being sacrificed significantly through slow action in professionalising and empowering the boards on the one hand and politically motivated decisions in the appointments of both CMDs and directors.” Despite many subsequent committees and reports, the government is yet to action meaningful reform. A McKinsey study had found that investors are willing to pay a premium for good governance, ranging from 13 per cent in Germany to 38 per cent in Russia. It is not enough, therefore, to merely brand our PSUs ‘ratnas’. It is time we started treating them as such.
{{/usCountry}}It is not as if the government is not aware of the problem. As far back as 1997, the Standing Conference of Public Enterprises had commissioned Yaga Consulting to study the special needs and constraints on PSUs which are also publicly listed and traded, and make suitable recommendations. The consultants had noted: “It is regrettable that…stakeholders’ interests are being sacrificed significantly through slow action in professionalising and empowering the boards on the one hand and politically motivated decisions in the appointments of both CMDs and directors.” Despite many subsequent committees and reports, the government is yet to action meaningful reform. A McKinsey study had found that investors are willing to pay a premium for good governance, ranging from 13 per cent in Germany to 38 per cent in Russia. It is not enough, therefore, to merely brand our PSUs ‘ratnas’. It is time we started treating them as such.
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