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Governing PSUs
Presentation
by
N K Jain
Secretary & CEO
CONTRIBUTION OF CPSE’s
n
CPSEs contribute to 20% of the total market
capitalisation in BSE.
n
The share of CPSE in GDP stood at 6.45 %
for the 2010-2011
Contribution of PSUs in
Orissa
24 PSUs earned profit of Rs. 1,400.25 crore
Source : CAG Report (Commercial) for year ended March 31, 2011
Performance of PSUs in Orissa
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Out of 65 PSUs only 35 are working PSUs.
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Out of 35 Working PSUs only 24 reported
profits. 6 reported losses; 1 break even; 4 not
commenced commercial production.
Source : CAG Report (Commercial) for year ended March 31, 2011
Contribution of PSUs in Orissa
Particulars 200506
Percentag
e of
turnover to
State GDP
6.96
2006 07
6.18
207-08
6.82
200809
200910
6.63
5.68
Source : CAG Report (Commercial) for year ended March 31, 2011
201011
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Tremendous scope to improve
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The losses of PSUs are mainly attributable to
deficiencies in financial management, planning,
implementation of projects, running their operations
and monitoring.
With better management, the
losss can be
minimised and profits can be enhanced
substantially.
The PSUs can discharge their role efficiently
only if they are financially self-reliant and
increase in professionalism and accountability in
the functioning of PSUs.
Source : CAG Report (Commercial) for year ended March 31, 2011
OWNERSHIP MODELS FOR PSUs
n
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DECENTRALIZED MODEL
Different ministries have a portfolio of PSUs
and act as owners, policy makers and
administrators.
Ministries run the enterprise rather than the
Board.
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DUAL MODEL
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n
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Ownership and policy formulation by administrative
ministries.
Does not allow for the separation of ownership and
policy functions which creates conflict of interest.
India model – closer to Dual Model
Ownership rights are delegated to the administrative
ministries
q DPE serves as nodal agency for Guidelines, MOU
process, source of information, etc.
Examples: UK, Brazil, South Africa etc.
q
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CENTRALIZED MODEL
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n
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Ownership is centralized under one Ministry,
Organization, or Entity (like holding company).
The Board of Directors, becomes empowered and
engages in policy formulation independently
without any interference or control of the
Administrative Ministries.
Examples: Malaysia (Khazana), Singapore
(Temasek), Indonesia, China (Sasken), Chile etc.
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Centralized Model best suited for
India
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Clear distinction between the ownership function and the
function of the Management.
Faster Decision making.
Level playing field – inculcating strong commercial culture.
Greater empowerment of the Board of Directors.
Boards are more accountable.
PSUs become competitive and sustainable in market driven
economy.
Professionalism in Board process replacing bureaucratic
system.
Engaging and Retaining talent at industry norms.
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Way forward
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Long term perspective
Government may adopt Centralized Model as a long term
strategy. It will require a total policy overhauling.
Short term perspective
Following governance issues may be addressed in short
term till Centralised Model is adopted:
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Ownership and Management
Board structure and Composition
Board Processes
Board committees
Transparency and Disclosure
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Ownership and Management
nThe
government should not be involved in the dayto-day management of Public Sector Undertakings.
nThe ownership rights of the government should be
exercised at the meetings of shareholders only.
OECD Guidelines on Corporate Governance for
State-owned Enterprise (OECD Guidelines)
nThe state should act as an informed and active
owner and establish a clear and consistent
ownership policy.
nThe ownership or co-ordinating entity’s ability to
give direction to the PSU or its board should be
limited to strategic issues and policies.
Board structure and Composition
n
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Optimum size of Board
Balanced Board
Nominee Directors - Whether Independent ?
ICSI view is that, a nominee director representing a
particular organization e.g. FI, FII, Bank, Govt.
should not be treated as an Independent director.
Lead Independent Director
Board Processes
n
Performance Evaluation
Directors Orientation & Training
Appointment of MD/ Whole-time Directors (WTD)
Appointment of Independent Directors
Age Limit of Directors at the time of Appointment
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Succession Planning
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BOARD COMMITTEES
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Audit Committee
Nomination and Remuneration Committee
Stakeholders Relationship Committee
Corporate Compliance Committee
TRANSPARENCY AND
DISCLOSURE
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Company Information on its Website
Financial Disclosures
Non - financial Disclosures
Thank You
Disclaimer Clause: Views expressed in this presentation views of the
author do not necessary reflect those of the Institute.