PSUs Thumbs Up on New Corporate Governance Norms

My department recently reviewed the corporate governance norms for public sector undertakings (PSUs) and came up with a new set of guidelines that reflects the realities of our present times. These guidelines will be applicable to all PSU with effect from 1st April 2013.

In corporate governance, whether private or public sector, ethical conduct should be embedded in all management practices. In the new guidelines, we have mentioned in the preamble itself that corporate social responsibility (CSR) means a PSU will conduct its business in an ethical and honest manner. There is a small financial component of CSR, but the overall objective of the guidelines is to ensure that ethical conduct of business will be embedded in the company and every employee conducts business in a manner, which is in line with ethics, values and honesty. We have launched a lot of sensitisation efforts like seminars, workshops among PSUs to make them follow these guidelines very comfortably without any problem.

The guidelines also conform to the regulations mandated by the Securities and Exchange Board of India (SEBI). We have incorporated SEBI guidelines in our corporate governance guidelines and efforts are on to ensure compliances from PSUs. In fact, we find that the deviations that were visible during the 1970s and 1980s are no longer there. We have also kept them in line with the OECD norms on corporate governance. OECD has framed them with its experience of last 60 years. We have borrowed the best that suits our corporate and business environment and ethos.

As far as SEBI’s guidelines on corporate governance are concerned they come in two parts under the clause 49 – one is mandatory and the other is voluntary. It is noteworthy that most of the voluntary guidelines have been incorporated in our system and its been mandated that whether maharatna, miniratna or any other PSU – all have to follow and adhere to these.

The Companies Bill, 2012 will take some more time to become an Act. The new guidelines are mandatory and strict. These prescribe up to 5 per cent to be spent towards CSR objectives. It is also true that when PSUs spend money on CSR activities, they come under all kinds of internal as well as external pressures, viz., local groups, unions or sometimes even political interests. Alternatively speaking, it should be taken as a learning process as these pressures will continue to come but the organisations will require developing resilience towards these.

The guidelines also conform to the regulations mandated by the Securities and Exchange Board of India (SEBI). We have incorporated SEBI guidelines in our corporate governance guidelines and efforts are on to ensure compliances from PSUs. In fact, we find that the deviations that were visible during the 1970s and 1980s are no longer there

We have formulated our guidelines keeping all those ground realities in mind so that it facilitates the PSUs to traverse their course without getting unduly affected by such pressures and deliver. Most PSUs are happy with the guidelines and they are ensuring that all such undue pressures are negotiated in a manner that they do not have to do something which is blatantly improper, irregular or illegal.

In fact, PSUs work under a lot of checks and balances conducted by bodies like the CAG and CVC. These are necessary from the point of view of democratic governance. Our Constitution ensures that parliamentary oversight should be there. Parliamentary committees and bodies like CAG have every right to review and monitor things happening in the public sector. This system has proven to be good so far. You do everything in the best interest of public at large and for that this system is excellent. But a good system is also evolutionary in nature: it corrects mistakes from experience. We keep on tweaking the system here and there so that undue harassment is not caused.

Actually PSUs are a little different in contrast to private sector. The private sector is driven by promoters or if it goes public, shareholders objectives. But the public sector’s real owners are all Indian citizens. It’s on their behalf their representative; democratic government is acting as the proxy owner of the public sector. Now, whatever distortions come because of various aberrations in society and in our democratic processes, they will certainly affect governance in public sector but that should not be considered a rule. As a rule, public sector is not at all affected in the systems put in place like selection of board level executives. An independent body called the Public Enterprises Selection Board (PESB) does it. It would ensure that the selection is done objectively and at times administrative ministries, even when it dislikes a person who has been selected, find it very difficult to stop that appointment.

Today, you find stagnation in the quarterly results of private sector companies, like those in FMCG, whereas public sector is increasing hiring, increasing profits and turnover

In India, there is a wrong perception that PSUs are white elephants. This needs to be corrected. However, every economic slowdown, even the 2008-09 recession that bogged down Western economies, showed that India could withstand much better those shocks because of the public sector presence which continued to grow in profits, hired more people, and continue to increase turnover despite the global slowdown. That speaks volumes about the public sector’s performance. Today, you find stagnation in the quarterly results of private sector companies, like those in FMCG, whereas public sector is increasing hiring, increasing profits and turnover. That is the indicator that things are not that way which generally people have an impression of.