Institutional EYE

Commentary on Corporate Governance Issues

Having your cake and eating it

The time is right to consolidate government equity into a holding company


27 January 2021: The relative underperformance of PSU shares in the market reflects all that is wrong with the current ownership and governance structure. The more recent push back that investors have been giving board appointments in government owned companies is another wake-up call. Apathy is not a business strategy.


Currently state-owned enterprises are dispersed across different ministries. For example, those in the oil and gas sector are under the purview of the Ministry of Petroleum and Natural Gas and companies linked to the railways are under the administrative control of the Ministry of Railways. While this is an upgrade from commercial enterprises functioning as a departmental unit – as was the case with BSNL, till it was corporatized, there are alternative structures that might better serve the governments objectives. Railways are a commercial enterprise. If the social objective of running them is not so strong, they too can be corporatized.


Given that the default option is not to cede control, we suggest transferring the Government’s shareholding to a government holding company, one the lines of Temasek Holdings in Singapore or Khazanah in Malaysia. It is also not as ‘revolutionary’ as an independent fund - outside the ambit of the government, giving money to third parties to manage. Under this So while the ministry has to let go, the government remains in control.


The advantage is that such a fund can have a strong emphasis on the performance of these companies while keeping an eye on the returns to the government. It will serve as a centre of ‘ownership excellence,’ and like PE firms, constantly learn and evolve as an owner of business. The structure enables it to have consistent processes, be it performance targets or board appointments (including the relevant ministry nominee) or leadership roles. The annual report will measure aggregate and individual company performance, sales, profits, margins, dividend declared, and so on. Comparing across businesses and over time will bring focus. And what gets measured gets done.


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