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Institutional EYE

Commentary on Corporate Governance Issues

For want of a nail

For want of a nail, the shoe was lost, For want of a shoe, the horse was lost, For want of a horse, the rider was lost, For want of a rider, the message was lost, For want of a message, the battle was lost, For want of a battle, the war was lost, For want of a war, the kingdom was lost, For want of a nail, the world was lost

- The Rundgren variation of ‘The want of a nail’

The eight maharatna companies (- the true blue in the PSU universe) have 123 directors on their board. 46 or 47 of the 123 are executive directors. The uncertainty is around the chairman and managing director of SAIL. He holds this executive charge in addition to being Special Secretary & Financial Adviser to the Government of India.

Each ministry by habit, has two of its nominees on the board. We have 15 representatives – SAIL having only one (excluding its chair).

Of the 61 remainder, 29 - nearly half, are retired civil servants. Of these, the bulk are retired IAS officers (15) and the balance drawn from the foreign service, revenue service, economic service and forest service, among others. Put differently, 44 of the 76 non-executive directors or 57% of the non-executive directors, are either currently working or have worked for the government of India.

Then there are a handful of chartered accountants (10), academicians (9), lawyers (5). The balance eight are drawn from the private sector, consultancies and even a few whom bankers classify as ‘politically exposed persons.’

Composition apart, equally disquieting is the tenure of the various members of the board: only four of the 123 directors have been on the board of their company for more than five years.

That these maharatna companies still dominate the profit charts is because they are monopolies - and a quirk of history. Open them to competitive pressures and ask how many will hold their own. BSNL, MTNL, Air India, Hindustan Photo Films, Hindustan Copper, Hindustan Fertilizers are just a handful on dole. Even SAIL - though still a maharatna and once towering above all other steel companies, is no longer the largest player in its sector.

No doubt the PSU’s face unique challenges that make their governance more complex than in the private sector. They have diverse objectives both commercial and social, conflicts of interest - since the parent ministry is both the administrative owner and regulator, and really protracted decision-making.

The old rhyme teaches us that seemingly unimportant acts can and do have unforeseen consequences. Paying mere lip-service to the existing framework is the surest way to ensure that these maharatna companies too lose their primacy

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