Despite the predominance of Public Enterprises in most countries, there have been very few writings on them from the corporate governance perspective. The various committees popularly referred to have adopted the listed companies in the private sector as their reference. It is possible that the decades old debate is seemingly settled in favour of privatisation, of the milder variety of disinvestment or the dramatic sale. However, in a cautious economy like India under strains of diverse pulls, Government control over the PEs will not wither away in a hurry. Even if Government is determined to become a minor shareholder, two issues are of utmost importance from the Governance point of view (a) what would be the approach of the Government to the corporation in the absence of any other more active replacing share holder - how does it propose to carry out the fiduciary and other responsibilities before power reconcentration can happen and (b) whether the status quo is acceptable for those enterprises which are not targetted for disinvestment below 51% on whichever reasoning.

In this context there is merit in assuming that the logic of privatisation of a few enterprises does not necessarily settle the broader issue of Government-PE interface. This issue must be kept alive not only because of the transition problems and the continuance of PE system in some strategic areas but also because of two other minor possibilities. (a) as seen in several countries the first step in administrative reforms results in corporitisation of activities which often take the shape of PEs and (b) some countries in the developing world have indicated the possibilities of governmental intervention/re-nationalisation. For these reasons it is contextual to revisit the issue of public enterprises and arrive at an action agenda for restructuring the control architecture.

A debate on corporate governance in public enterprises could appear tautological because of (a) the new ideology, which has gained massive ground, favouring creation of markets for ownership (through privatisation) for improving the economic efficiency of capital and (b) the conventional/popular assumptions about "Public" ownership and its implications. Nevertheless, a brief critique may be in order before an attempt is made for a balanced approach.

Privatisation as good governance

The logic of privatisation from the perspective of good governance is centered around the assumption that transfer of property rights in favour of more vigilant/active share-holders may improve the economic value of the firm on a sustainable basis. Thus, partial privatisation for shoring the finances of the government without change in the control structure will not result in better governance. Even an intermediary stage - such as the Special Purpose Vehicle (company/trust/cooperative/mutual fund) for further divestiture and/or to take charge of the Government equity would not bring about good governance by itself unless the Governance issues are chalked out and addressed under different dynamic positions of transition.

At the theoretical level, the hope of better governance on privatisation may arise from two assumptions. One is that the agents will now be better aligned to the principals' interests (or could it also be the other way round?) and secondly, that the principals can now create a market (of the contestability type) for the management control of the firm.

The first hopes for X-efficiency and for even trades-off between the quantitative and qualitative objectives foregone under both situations which indeed belies validation for methodological reasons. The second one could rest on the unconfirmed belief that the public enterprise managers do not measure up to the market benchmark in their abilities. Further, if the shareholder monitoring does not improve qualitatively upon disinvestment, due to passive institutional holding or passive small investors, the governance situation is not likely to be different. Thus, alternative patterns of share-holding must be evaluated not merely against expectations of financial performance but in their possible impact on corporate governance. "Transferring property rights to new owners is just the first step, however, and on its own is not sufficient to guarantee changes in the behaviour of managers. The new comers must also have the power, incentive, and ability to monitor managers and ensure that they act in the owners' best interests" (Gray-1996). Thus, the Government may meet its fiscal objectives by reducing the share holding to 49% or 24% and yet be unable to resolve the governance issues. The reduction may change the legal compulsions (for instance the applicability of Article 12 of the Constitution, the superintendence by CAG/CVC etc) but may attract greater velocity of interaction with the civil service or the administrative machinery. The assumptions and controversies about Public ownership may have to continue beyond the events of managing fiscal deficits.

THE ASSUMPTIONS ABOUT PUBLIC OWNERSHIP & CORPORATE GOVERNANCE:

Central to the decades old debate of public ownership is the wide belief that exercise of control by representatives of the public, ie., the politicians, ministers and civil servants, somehow impedes performance of the enterprise and results in its decay. The implicit argument advanced by several academicians and representatives of managements has been that given full autonomy the managements would be able to meet the objectives of the enterprises better. It is assumed that the objectives of the enterprises have to be unwaveringly commercial and that the managerial class is best attuned to pursuing them by virtue of their training and orientation. It is argued that the political representatives and the civil servants exercise external control without adequate accountability and responsibility either directly or through their agents on the board. It is also observed that the norms for exercise of control have been distinctly absent. The exercise of control (formally or informally) in the absence of identifiable norms and with little accountability has culminated in a feeling of "illegitimacy" of the relationship between the agents of the owners and the management.

Despite the popular tirade against external controls over public corporations, there is need to revisit the logic, even if it is somewhat warped in practice. It is precisely the existence of non-commercial/non-financial objectives that are germane to the logic of public ownership. The political system with all its flaws, is yet the representative of the public. The role of the political representative as an agent of the public is in some ways different from that of the directly investing small investors. The social objectives become the foremost for the politician as there is an implicit social contract for him/her. Thus even under the most ethical of situations the political representative would have to trade off one type of objective with the other and the short term with the long term. If the political system exercises control over a corporation which trades off financial objectives with the social ones, the managers would consider it as negative interference. (For argument, we exclude for a moment the rent seeking motivations that might be the cause of such control.) The civil servants are expected to understand social and public accountability far better than the management and hence in a sound position to continually optimise the complex pulls from differing objectives and interests.

It is paradoxical that the conclusion of failure of the public enterprises has arisen from analysing financial results, with which the managers are most familiar, while the governance system presumed a welt of objectives. (This kind of information asymmetry as to the goals of the owners, degrees of trade off expected of the stake-holder interests vis-à-vis the share-holders, short-term vs. the long term and the like may impinge on the performance of the professional managers in the private enterprise also even if of less magnitude. As Peter Drucker commented in a private letter to Robert Monks (1993)" One of the basic problems is that management has no way to judge by what criteria outside shareholders value and appraise performance -- the stock market is surely the least reliable judge or, at best, only one judge and one that is subject to so many other influences that it is practically impossible to disentangle what, of the stock market appraisal, reflects the company's performance and what reflects caprice, affects the whims of security analysts, short-term fashions and the general level of the economy and of the market rather than the performance of a company itself".)

The aggression for privatisation was preceded by several experiments to change the control mechanisms - both internal and external. The external control which were believed to be excessive lay in the Parliamentary controls, policy directives, appointment of Board of Directors/Chief Executives, pricing, licensing, wage/salary determinations, criteria of investments, etc., Some of these were sought to be rationalised through memoranda of understanding between the PEs and the Government and a few guidelines on a selective basis. Internal control is primarily in the realm of organisational design, delegations of authority, internal auditing etc., It is observed that the weight of external control has taken away the possibilities of enterprise in the public corporations (thus, some believe that the term "public enterprise" is indeed an oxymoron). Unlike the private enterprises where the external control ends with the AGM, public corporations have a different architecture whereby the locus of control is mostly with the political system and bureaucracy.

In situational exceptions, the leadership of the enterprise may have been able to shift the locus of control in favour of the board or even the top-management itself. In such unique instances the enterprise is seen as progressing faster with a spirit of entrepreneurship, despite controversies of other costs/disbenefits - this situation may represent the specter of run-away managements whose objectives may indeed be power, status, self-aggrandisement. The outcome of social cost benefit analysis which is assumed in the decision making process of the politician and the bureaucrat are flayed for their trades off with corporate performance while the opposite situation at the behest of managements is not yet a matter of concern - possibly for methodological constraints of estimating the latter.

The criticism of the role of outside directors representing the Government has been threefold. The first is that they pursue objectives which may not augur well for the efficiency of the corporation. The second is that such representatives do not make a distinction between their responsibilities as members of the board vis-à-vis their official power. The third is that such directors are not necessarily "technically competent" . The first criticism can be countered with the fact that public enterprises have multiple objectives and the external directors may be pursuing objectives which are not necessarily the reference point for the critics. The second is debatable but possibly true of not only the external directors but also those of the functional directors. For instance, it is not clear as to how a full time director is able to charter the demarcation between his managerial role and that of the supervisory - This schizophrenic issue is difficult to be resolved satisfactorily. The third aspect is again contingent on the role expectations of the members. For instance, if the company has accepted certain social objectives and the member of the board pursues the same, but is evaluated against his knowledge vis-à-vis financial matters, there is an obvious mismatch.

The Public Enterprises thus are indeed in a state of dynamism - if not flux - than certainty even under prospects of disinvestment by the Government. This arises from the transition being noticed in the objectives of the enterprises and the changes perceived in the approaches to ownership/controls by government. It is obvious that the assumptions about the efficacy of competitive markets and the increasing belief in autonomy and decentralisation have made public enterprise reform / privatisation a certainty of the modern times. The evidence to validate these assumptions and beliefs will take time and it will not be surprising to find a need to retrace the steps in some manner or the other. Meanwhile, however, mere changes in the equity holding do not axiomatically result in a better governance system - the issues of transition on the one hand and the continued presence of Government control over some activities will need to be addressed.

THE ACTION AGENDA:

It is against the back drop of increasing attention to Governance that a project was under taken for gathering the view-points of public enterprise managers, board members and the Ministries to evolve a set of recommendations for immediate implementation. The premise was that the Government will continue to hold majority share-holding in several enterprises. Though the transitional issues were not germane to the study, there are several pointers relevant to those companies which may soon have less than 51% holding by the Government and yet require exercise of good governance, if not control over the board.

The Standing Conference on Public Enterprises which has been furthering the interests of central PEs commissioned Yaga Consulting Pvt Ltd to carry this project and submit a report for the consideration of the Public Enterprises (PEs) as well as the Government (SCOPE `1997). The study included central public enterprises falling under the purview of the Department of Public Enterprises - all those with Government ownership of 51% and above of equity. A three step methodology was followed commencing with a brain storming session by a select gathering of Government officials, experts in public enterprises and Directors of PEs on the 10th of April 1997. This session was supported by theoretical presentations. Based on the data and information collected in this session, a draft report was prepared for the consideration of about 60 respondents comprising of the executive body of the SCOPE ; Chairmen of PEs and select experts. Following this, the views and suggestions were integrated with the draft report and a final set of recommendations has been arrived at.

From a theoretical perspective, the set of recommendations proposed does not conform to a specific model. However, it is considered that consensus is important for change. The major issue of diversity in objectives has been resolved in favour of the financial ones. The report also resolved the issue of integrating the soft side of corporate governance with the structures and systems. The set of recommendations implies a shift in the locus of control to the Board of Directors without compromising on the logic of public accountability. This is a step towards improved monitoring that would enhance stake-holder value but still far from ensuring share holder activism. The recommendations suggested and currently pending for acceptance by the Government are as below:

A. Government & Public Enterprises:

A.1 It is indeed trite to repeat the several recommendations and the logic behind each one of them, from the 60's onwards, exhorting the government to give greater autonomy to the PEs . The several Committees on Public Undertakings, have highlighted this aspect but there has hardly been any change. One of the major complaints of PEs has been that the ministers and the officials in the ministry exercise authority frivolously through formal as well as informal communications. Concurrently, there is inadequate consultation and discussion during crucial decisions Whereas, the ministry can easily conjure up reasons for all such communications and non-communications, there is unanimity that good governance will ensue if communication systems and structures are rationalised. It is also a fact that several directors and chief executives often appear to be seeking undue interaction with the ministers and secretaries - such inclination is also rationalised giving reasons of the importance of managing this authoritarian stake-holder. Irrespective of who is to be blamed for this situation, it is recommended that the administrative ministry contacts the PE only through its representatives on the Board and not otherwise (The manner of satisfying the parliamentary accountability will be dealt with shortly). Even as its feasibility is discussed , the interim arrangement must be to list down all such communication-events along with the subjects of discussion for circulation among members of the Board every three months (Recommendation 1)

A.2 The BPE (now the Department of Public Enterprise) was setup with laudable objectives which appeared strategic at the time. Most objectives, even on reckoning the recommendations for strengthening the BPE's role and the current process of re-engineering the circulars and guidelines, now appear incongruous. This is primarily because of the need for firm-specific approaches as against unitary designs and also the ineffectiveness of departmental governance. The command and control approach which had much validity in the early years after Independence is no longer valid due to the induced as also the naturally evolving diversities and complexities in the nature of ownership, nature of differentiated competition in the market place and other related issues. Thus , the DPE must revisit its role. It is recommended that the DPE recrafts its mission and role to that of a competitive consultancy organisation offering value-added services to all varieties of public enterprises and in the process severe all its traditional relationships with PEs. (Recommendation 2). This would seem drastic but administrative reform which is connected with economic adjustments calls for, among others, restructuring and `institutionalising'/corporatisation of some services. Countries such as Australia and U.K have done this successfully years ago.

A.3 The performance contract system between the Government and the PEs has had a long and unsatisfactory history in the world and our experience could not have been any different. By now, it is abundantly clear that the MOU is, as termed by an eminent academician, `more memoranda than understanding' and has degenerated into a ritual. The system itself has no fit with the new dynamism required for a more competitive world. However, it is necessary transition that an economy like ours had to go through than leap-frog into the totally unfamiliar. It is evident that no straight-jacket system such as the MOU will suit the needs of individual companies and their technology, products, markets, risk profiles, competitive conditions, cost structures, inherent disabilities etc. Importantly, the legality and ethical justification for such a contract with a part owner, even if the largest, would soon become questionable. Consequently, it is recommended that the MOU system is scrapped and in its place a firm-specific `Strategy Agreement' is implemented. This new instrument will concentrate on a few crucial issues surrounding the profitability, survival, sustainability issues under the most plausible scenario of competition, supply-demand-price dynamics and the changing profile of governmental support , direct and indirect . This Strategy Agreement System may be developed by specialists to a full-blown form and will enable strategic approach and commitments than rituals. This system may adopt an yearly cycle. In course of time, and on attaining reasonable diversity in ownership, it would be prudent to involve other important stock-holders in this exercise. (Recommendation 3)

A.4 Several experts on public enterprises have criticised the role of CAG (Comptroller and Audit General) as an additional burden. Whereas, the CAG is an important instrument of public accountability, it works to the detriment of several normal rights of enterprises. It is recommended elsewhere that the CAG must get involved through a different mechanism to ensure diligence in management and restructure the manner in which it is required to advise on the appointment of chartered accountants, issue directions under section 619(3) of the Companies Act, prepare special reports, affirm, or comment upon or supplement the audit report prepared by the CAs as provided under section 619(4) of the Companies Act. Public enterprises have complained that this double check is not suffered by the private sector and also that the annual general meetings are delayed, among other reasons, on account of the CAG audit. More importantly, despite the recent castigation of some auditing firms, a re-certification by the CAG is considered as an affront to the chartered accountancy profession. It is recommended that the Companies Act be amended to remove the separate category of Government companies and provide the necessary level-playing field for the PEs. In the interim, it is recommended that the CAG relates itself as an instrument of public accountability through participation in the Audit Committee of the Boards and refrain from the traditional types of scrutiny to the extent legally permissible. Continuation of the existing approach in the light of errant auditors is no justification for over-governance but is a fit case to be addressed by the profession itself. (Recommendation 4)

A.5 The Parliament's role in the governance of public enterprises has received mixed reactions but predominantly indicating that call attention motions and questions in the Parliament have not served the interest of the public enterprises, save a very few policy discussions that took place in the case of Indian Airlines, SAIL etc. Whereas, policy discussions should feature prominently in this forum, it is the dominant view that several questions are constituency based and interest related and hence avoidable. It is recommended that the Parliament adopts an internal code to be enforced by the Speaker, by which all questions related to specific PEs will be raised only in the Consultative Committee. The Committee can call the Chairman of the concerned PEs as also a representative of the ministry, if required, for clarifications and discussions. It is also recommended that the discussions pertain to strategic matters only and not operational. Such a system will bring greater transparency apart from being more effective. To strengthen this system, the Consultative Committee and the Committee on Public Enterprises may be apportioned special budgets for engaging external consultants or commissioning special studies as in the case of the Senate Committee in the US. (Recommendation 5). Though the practicality/acceptability of this best practice code may be doubted, it may be pointed out that it will have as much good effect as any other code and is non-competing with better alternatives that may emerge in the years to come.

A.6 The writ jurisdiction provided by Article 12 of the Constitution has come under severe criticism. This provision has led to a flood of cases and a fear psychosis amongst management. At the same time, there are several employees who prefer the continuation of this coverage. Though this provision is not a part of corporate governance in itself , it seems to have an impact on building long term capabilities in competition with those in the private sector as also those where the government control falls below 51%. It is recommended that Article 12 of the Constitution be amended to exclude coverage of PEs and provide them a level playing field. Meanwhile, it is noticed that the Supreme Court also has undergone changes in interpreting labour laws as evident in some recent judgements. Keeping this in view an early opportunity may be availed of to test the applicability of Art.12 once again. (Recommendation 6)

A.7 Similarly, the jurisdiction and roles of CBI (Central Bureau of Investigation) and Central Vigilance Commission are seen as an anachronism. The PE employees may be treated as no different from other corporate employees - it would indeed be difficult to comprehend the need for differing systems for increasingly identical segments of employees. Similarly, the CVC has not brought joy to any one and may be made to shed its role vis-à-vis PEs without any negative trade-off. It is recommended that the Prevention of Corruption Act is amended to exclude the PE employees from the definition of `public servant'. Further, it is recommended that the CVC's jurisdiction over PEs is removed and the Board is let to appointing a Chief Vigilance Officer as deemed appropriate (Recommendation 7).

A.8. It is realised that integration of employees, management and the Boards in the process of increasing share-holders value and the value of the shares in the market are important for acquisition and long term sustenance of competitive abilities. Employee Stock Option Plans are an important instrument not only for better strategic management of the enterprise but as an indirect mechanism of corporate governance in future. It is strongly recommended that PEs examine and devise valid models Stock Option Models to achieve objectives of corporate governance as well as operational efficiency on a dynamic basis. (Recommendation 8)

B. The Board of Directors:

B.1 Though there are several models, it is believed that a single-tier Board sufficiently empowered would be the natural choice for the PEs. Obviously, empowering and strengthening the Board would be an immediate requirement for improving the governance system. In this context, it is regrettable that several directives and recommendations regarding the composition of the Board have remained un-implemented. The more recent foray into this is the important circular of the DPE dated 16th March, 1992. It is the wide feeling that the stake-holders' interest 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, full-time as well as part-time, on the other. It is , however, a happy augury that the `Navratnas' are being given further powers and the boards being reconstituted. Similar move in the case of Miniratnas may also be noted with optimism. Reckoning all aspects and without labouring on the much discussed lacunae, our recommendations in respect of the Board of Directors is as follows.

B.1.1 It is recommended that the positions of Chairman and Managing Director continue to be vested in one person as against the popular view for the private sector. (Recommendation9) This is to ensure that PEs do not get into the same difficulties as several State level enterprises on the one hand and also to protect the interests of the organisation vis-à-vis other possible powerful pulls, on the other. The situation in the private sector is the contrary where the balance of power is needed to be distributed in the opposite direction for demarcating management from governance effectively.

B.1.2 It is recommended that each PE Board has a minimum of 8 and a maximum of 15 directors at any point in time and 50% of this number be from the functional directors including the CMD. (Recommendation 10). This implies a minimum of four functional directors including the CMD .

B.1.3 If there is any vacancy due to the number of functional directors not adding up to 50%, then a representative from the employee and consumer segments must be co-opted in that priority to take up the position as a part-time Director. This recommendation is with the hope that undue delays are prevented in the process of appointing functional Directors.. (Recommendation 11)

B.1.4 One-quarter of the Board must be drawn from experts, academicians, professionals and technocrats. (Recommendation 12)

B.2 The above structure is a departure from the DPE circular but is a profile needed, keeping the future also in view than a mere rectification. The suggested structure also would require a change in about five years to provide for representation of the Financial Institutions or similar stake-holders in the making. Even if the Government continues to hold more than 51% stock, it would be prudent to allow one or two F.Is or mutual funds holding considerable shares, to take Board positions. This is in recognition of the general trends world-over towards proportionate representation and to pave way to induce a measure of `contestability'.

B.3 Representatives from the administrative ministry and Ministry of Finance must be represented at as senior a level as possible and not exceed two . (Recommendation 13)

B.4 It is further recommended that no director shall hold such a position in more than 3 organisations concurrently. This may be adopted as a "Best Practice" norm till the Companies Act is amended. (Recommendation 14)

B.5 The tenure may be fixed at 3 years for the part-time directors and in respect of CMD and functional directors it may be 5 years or superannuation whichever is earlier but not less than 3 years. (Recommendation 15)

B.6 Each Board must appoint from within them an Appointments Committee and a standing Audit Committee. Similarly, committees for Capital Expenditure and Compensation may also be created on need-basis. In the board managed situation capital expenditure decisions and compensation designs may be left to the Boards/AGM. These committees may co-opt external specialists, representatives of ministries, PESB (Public Enterprises Selection Board), CAG etc., as appropriate. (Recommendation 16)

B.7 The manner of appointing Directors may be changed forthwith. The representatives of the ministry may be nominated by the Secretary and in his own case, by the Minister concerned. The selection of functional directors as well as the CMD must be done by the Appointments Committee of the existing board of the PE with the assistance of the PESB. The PESB must take a supportive and advisory role without wielding any specific over-riding authority. It may be worthwhile for the PESB to change its mission and role to that of a service provider to all PEs, at a price. The logic for this suggestion will be found in the realm of administrative reform under economic adjustments, as already mentioned elsewhere. (Recommendation 17)

B.8 It is realised that several suggestions/nominations by the concerned PE and/or the PESB have been turned down by the concerned ministry/ACC (Appointments Committee of the Cabinet) with little justification, making the entire process a futile exercise. It is sincerely hoped that the current efforts in respect of Navratnas and the others will be more objective and expeditious. While appreciating this effort, it is felt that we still need some changes in the context of empowering the boards.

B.9 It is recommended that a unanimous decision by the PESB and the Appointments Committee of the Board be treated as automatic approval. The composition of the Appointments Committee may be made dynamic, in such a way as to exclude those who are candidates for the directorships. Where there is difference of opinion, the same may be referred to the ACC or to its delegated authority. In due course, however, these decisions may be taken at the Board level and AGM without involving PESB. (Recommendation 18)

B.10 Appointments on the board must be so timed as to ensure that there is no large scale change among the directors and that there is always some mix of the earlier members and the fresh ones. In selecting the directors, the Appointments Committee of the Board must ab initio describe the existing profile of the Board, the gaps in the expertise/skills and the specifications of the desired additions. (Recommendation 19)

B.11 It should be ensured that full-time directors are identified / appointed so as to be in place and understudy the current incumbents at least three months ahead of the completion of their term. The gaps in appointments, the inordinate delays at different levels, the ad-hoc arrangements etc., are well known and need no elaboration. (Recommendation 20)

B.12 In the case of new PEs or their JVs/Subsidiaries, it may be ensured that the functional Directors are in place before any strategic decisions such as those relative to locations, choice of technology and long term contracts are made. ( Recommendation 21).

B.13 Should there be a vacancy of the CMD for any reason whatsoever, there must be a standing directive that the next senior-most functional director will act in his place automatically. Under no circumstances should any other person be appointed to act in that position. (Recommendation 22)

B.14 It is recommended that the database of part-time directors is created by SCOPE in consultation with existing PEs, national level academic institutions and the government. This panel may be submitted to PESB and also made accessible by all PEs. (Recommendation 23)

B.15 It is recommended that each Board constitutes a standing Audit Committee. The Audit Committee must have full powers for appointing the chartered accountants and accepting the audit reports. The Audit Committee must have a special invitee from the CAG's office. The representative of CAG can initiate, suggest and recommend any type of audit as he/she deems fit for the concerned PE. The need for additional audit by the CAG will not be necessary. (Recommendation 24)

B.16 It is obvious that the remuneration for the members of the Board should be far higher than the current levels to be able to attract the best talent in the country. It is recommended that the board level appointments are freed from rigid guidelines. Full-time directors may be appointed taking cognizance of the market dynamics subject to the condition that the Appointments Committee will fully record the justifications and the Audit Committee endorses. Differences, if any, will be referred to the ACC or any authority designated by it.(Recommendation 25)

B.17 In respect of part-time directors, it is recommended that a sitting fee of Rs. 3000/- per meeting is granted apart from reimbursing costs of travel and stay. This is the minimal incentive for ensuring that reputed and worthy people are inducted. No other facilities such as telephone at residence, secretarial help should be extended (Recommendation 26)

B.18 All members of the Board must be trained, specially in aspects of strategy, strategic planning, strategic management as a necessary competence for discharging their roles effectively. Additionally, they must be exposed to the industry-specific issues . The SCOPE may be entrusted with this project on a country wide basis and it may draw upon professional expertise as deemed appropriate. (Recommendation 27)

B.19 The board must prepare an internal note laying down the operational aspects which it shall not take-up in its meetings under normal circumstances. Such exclusion list will ensure adequate focus on strategic issues of the company and good governance in the long run. (Recommendation 28)

B.20 The disclosure norms as prescribed now may be continued and , in addition, the Board may give a statement of the perceived risks for the PE concerned in the next three years on a rolling basis and certify that the firm is indeed a going concern. (Recommendation 29)

C. Codes & Ethics

C.1 All approaches to Corporate Governance appear to converge on the issue of recommending a Code for adoption. It is evident from several experiences, that mere codes, in whichever field, have little utility in themselves. Not merely because there is no statutory support for them but more because of their remoteness on the one hand and their theoretical approach, on the other. While good Codes can be important templates if they are supported by appropriate sensitization and training, there are several actions possible that would improve governance even if the formal Codes take time for institutionalisation.

C.2 It is recommended that where directives or actionable guidelines are possible, these are issued straight-away by the concerned departments/bodies/PEs without waiting for codes to trigger change. Changes in law where they become essential, must be followed through separately and without unnecessary bundling of recommendations. Further, each PE must develop its own code through an internal mechanism. This develops necessary ownership, which is the key to good governance. (Recommendation 30).

C.3 Similarly, it is recommended that concerned ministries, Parliament, CAG, CBI, CVC also develop their own respective Codes of Best Practice in relation to PEs, within the next six months, as would enable good governance. (Recommendation 31)

C.4 Ethics are the soft side of corporate governance. Whereas, good controls and systems are necessary for good governance, they are not sufficient. Sufficiency arises only when sensitivity to ethics is institutionalised and imbibed into the organisational culture. It is realised that most courseware in our country at the University level as well as at the management development level have ignored Ethics. Thus , ethics is often mixed up with morals, mere legal requirements or personal attributes like honesty, discipline and habits. It is the belief in all modern economies that Ethics need to be discussed and understood formally.

C.5 It is recommended that each PE draws up a group of 20 to 30 executives from middle and senior levels of management as potential Ethics Counselors. This group will be responsible for undergoing training in Ethics and triggering a Code of Ethics for the PE. The code on approval by the board, will be used as a template for sensitizing employees at all levels to enable them distinguish the acceptable from the unacceptable. This group will continue to counsel employees whenever any one approaches with an Ethical dilemma or an apprehended risk. (Recommendation 32)

C.6 Members of the board may be given a special one-day training on Ethics on a pan-India basis. This project may be entrusted to the SCOPE which may collaborate with other professionals in the country. (Recommendation 33)

CONCLUSIONS:

The issues of Government - PE interface are far from over considering that (a) the Government may need to have a system even when it becomes a minority shareholder, especially in the absence of any other active replacement and (b) the Government will need to re-engineer the governance structure and process in respect of those in the strategic sector that will remain under it. Further, there are two other possibilities which would assert that the Government - PE relationship may have to continue. The first is the prospect of some of the Government activities getting corporatised and the other is prospect of re-nationalisation of the privatised units, as evident from a few other countries. The use of special purpose vehicles or such other intermediary mechanisms may hasten the process of managing fiscal deficits and shifting the stock holding. But the governance issues will continue to dog the Government in some form or the other.

In this context, the innumerable economic assumptions regarding better alignment of agent-principal interest and efficiency due to markets for management control appear speculative. The logic behind public ownership has been little understood in the tide for market economies and so also the trades off between the qualitative and quantitative objectives. This type of information asymmetry are evident in the private enterprises as well where the managements are often at a loss to know with certainty the criteria used for evaluating corporate performance. Thus, it may be necessary to regain an understanding of public ownership and come out with a governance structure whereby the locus of controls are re-engineered to secure a fine balance between the changing objectives of the Government, financial performance of the company and social good. The study undertaken by the SCOPE attempts at this approach.

The consensus based approach for recrafting the Government - PE interface covers six broad areas. The salient features of the report can be stated as (a) rationalisation and setting of normative standards in the relationship between the PE and the Parliament, Ministries, Judiciary and the Comptroller & Audit General (b) Restructuring of Governmental Agencies dealing with PEs as service providers than Superintendents (c) involvement of employees through stock option programmes (d) establishing criteria for the structuring of the PE Board to enable greater involvement of functional directors. (e) The appointment of special committees for audit, appointments, capital expenditure on compensation, norms for succession, competence building of members of the board and (f) the manner in which the ethical component, which is the soft side of corporate governance is improved. Implementation of these recommendations on a time target may resolve the fundamental issues of establishing an acceptable and workable governance system for the PEs.