The real crisis in PSUs: Leadership - Hindustan Times

The real crisis in PSUs: Leadership

ByM Damodaran
Aug 29, 2021 08:05 PM IST

Instead of crippling the public sector and making false comparisons with the private sector, address organisational deficits

The public-versus-private sector debate has dominated the national discourse. One school of thought believes that the public sector never had any business to exist, and sees it as the breeding ground for inefficiency, corruption and nepotism. An opposite school believes that, in the absence of the public sector, avowedly based on egalitarian concepts, the less privileged would not have access to the fruits of development.

Banks and other PSUs are intended to be entities that contribute directly to economic production. To bind them, and then accuse them of not being competitive when compared to private sector entities, is unfair (ABHIJIT BHATLEKAR/MINT) PREMIUM
Banks and other PSUs are intended to be entities that contribute directly to economic production. To bind them, and then accuse them of not being competitive when compared to private sector entities, is unfair (ABHIJIT BHATLEKAR/MINT)

It is necessary to lay down a fundamental principle — efficiency is ownership-neutral. But the idea here is not to undertake comparisons, and come to judgments on the preferred form of ownership of productive enterprise. Instead, the focus here is on the missing element in the public sector — leadership.

In any corporate structure, while shareholders and other stakeholders are at the apex of the organisational pyramid, the highest level of decision-making, and indeed of direction-setting, for all enterprises, is the board of directors. An inadequate board, in both numbers and quality, cannot hope to discharge the responsibilities cast on it by statute, regulation and convention.

Even a cursory look at the boards of public sector undertakings (PSUs), including public sector banks (PSBs), tells a sad story. An analysis of vacant Board positions as on March 31, shows that in 24 Maharatnas and Navratnas, there are a total number of 149 board-level vacancies, comprising 11 positions of executive directors (EDs), 135 positions of independent directors (IDs), and three positions of nominee directors. Not one of these entities had the requisite number of IDs in position. In many entities, EDs are fewer than what the law, regulation or the Articles of Association contemplate.

Additionally, there is the troubling phenomenon of the positions of chief executives falling vacant, and not being filled in time, even though many of these vacancies arose because of events such as superannuation, which should have been anticipated. The leadership position in the boardroom also presents a sorry picture, with non-executive chairpersons not being in position in a number of entities.

If this was not bad enough, turn to PSBs. The composition of the boards of PSBs has been provided for in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980. Many of the positions, which had been carefully thought through, while the legislation was drafted, have been vacant for years.

Three categories merit special mention. One, the board of every nationalised bank was to have one representative of workmen, and one representative of non-workmen (officers). The expectation was that the views and suggestions of the workforce should receive appropriate attention. These positions have remained vacant for years. It is often heard, in private conversation, that these representatives can obstruct the bank’s smooth functioning, and are, therefore, better kept outside the boardroom. In an inclusive society, this is perverse.

Two, there is a specific position reserved for a chartered accountant on the board of each PSB. This position has also remained vacant in many banks. It is not clear whether the loss caused in terms of relevant expertise at the board-level has been compensated by preventing some members of the profession from seeking to convert board directorship into a profession.

And three, a well-thought-out move in the context of nationalised banks going public, and raising a part of the money from the market, was to have shareholder directors, elected by the shareholders, other than the majority shareholder. Only some of these positions have been filled. Further, there are provisions for ensuring the representation of different sectors of the economy on each such board. This representative nature of the board, and the consequent ability to draw on the experience of persons with firsthand ground-level experience, has also been lost sight of. In sum, at last count, 60 positions of all categories of directors on PSB boards were found to remain vacant for at least a few months, if not several years.

In 2015, the positions of chair and managing director on the boards of PSBs were split, and, over time, persons of proven eminence were brought in to head the board of directors in these banks. At present, with many of them having left, on the expiry of their terms, there is only one part-time non-executive chairperson in a total of 11 PSBs.

Some companies, in their compliance reports, as well as in responses to shareholders, have stated that they have repeatedly written to the government to fill these positions. With no progress in this matter, some of them seem to have sacrificed the truth in filing their compliance reports. Is it fair to push these companies into a corner, where they have to shoulder the blame for what is clearly not within their powers?

Given the vacancies at the level of vice-chancellors in universities, or members of tribunals, or other senior positions, one might be tempted to ask — why fret about vacancies in PSUs and PSBs? The simple answer is that both banks and other PSUs are intended to be entities that contribute directly to economic production and progress. To bind them hand and foot, and then accuse them of not being competitive when compared to private sector entities, which suffer from none of these infirmities, is as unfair as any comparison can get.

In recent years, a number of tough decisions have been taken, reflecting the ability, courage and willingness to take decisions. Would it be fair to expect that some of these easier decisions will also get taken, sooner rather than later, and boards will become stronger and better equipped to provide leadership to the public sector?

M Damodaran is chairperson, Excellence Enablers and former chairman, SEBI, UTI and IDBI

The views expressed are personal

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