Let’s Get Gallant About PSU Talent; Not Nonchalant, As We Are Now.
The total number of entities that the Government of India owns as part of its direct business empire is staggering. These entities are classified as Public Sector Undertaking (PSU), along with those entities owned by state governments. The company, if listed, has to be majority-owned by the government to be a PSU. Those companies owned by GoI are known as central public sector enterprises (CPSEs). It would be a tough-ask to a bureaucrat in charge of them, to remember all of them, along with the key highlights of their financials.
Earlier last week (end august), the Public Enterprises Selection Board (PESB), a part of the Department of Personnel and Training, announced a set of draft proposal to revamp the process of selection of heads of public sector companies & its functional leadership. It is also proposed that the Public Enterprises Selection Board (PESB) would hold interviews for the positions of the Chairman and MDs of a group of PSUs at the beginning of the year; instead of the current practice of selection process done for individual companies when required (and most often, after overshooting the deadline and thereby giving extension to the incumbents or having a “temporary incharge”). These are part of the note put up on PESB website, titled “Consultation on reforms for selection of personnel for Board level posts in CPSEs”. This is a welcome change and a refreshing well-intended idea.
It looks that the government intends to appoint the candidates based on their performances in the interview and those scoring highest will get the company of their choice. Sounds like the concept of common entrance test that the 12th standard students take, to get into engineering or medical college - with specialisation and college of their choice.
As part of the revamp, the age limit for candidates is proposed to be fixed at 55 for companies with a retirement age of 58 years and 57 where the board member retires at 60. Those applying for the top jobs will need to have a minimum one-year experience in the eligible grade. The draft note as detailed as it was, is itself an exercise in learning “government-speak” language. (Note to potential “lateral hires” : please learn this language quickly).
Many of the political & policy commentators, have time and again called for reforms of the bureaucracy and that it needs to be completely overhauled by sheer disruption. But, as goes for any execution, dismantling any full current system and replacing it with new, is akin to an beating-open-heart-surgery. Difficult, complicated, demanding, needs focus during entire process, with high risks of failure and yet not impossible.
Selection of public sector chiefs
This article focuses on a simpler subject of selection of public sector chiefs and their functional heads. One presumes that the “right person for the right job” is the motto of any selection process. That would mean meritocracy and that the policies won’t give additional scores to any candidate-in-the-race, as part of any special remarks or affirmative action.
The capital for the businesses that these Public sector companies need are mostly from the citizens of this country, as the government of India is the majority shareholder; and if they are listed entities, then the additional monies from the citizens in lieu of retail / HNI / DII shareholding adds to the base. Comparatively many of these companies return lower RoE for their shareholders, for variety of reasons. In today’s economic scenario, we should remember that these enterprises also have debt obligations, which are secured by the sovereign guarantee or the implicit one !
It is assumed that these public sector companies have their interests aligned to the profitability and maximising returns for ‘all its shareholders’, especially the listed public sector companies; which would necessitate the governance structure to protect minority shareholder rights, rather than only pass on the decisions of the majority shareholder. That’s a conversation for another discussion !
If you are running a business, you are answerable to your stakeholders - equity holders and lenders included - in this case, the citizens of the country. So it’s important that the leadership succession plans of these entities be handled carefully and to ensure business continuity. It is also relevant to look at the roles of the Boards of those entities versus the role of the majority shareholder (GoI).
If we focus on the leadership succession planning and the draft note issued by PESB, the following questions arise :
Learnings from private sector :
The private-sector conglomerates are relevant comparison (which may not be liked as examples), as they own multiple companies across various sectors, albeit with far-lesser promoter-shareholding in their listed entities than the GoI. They have similar constraints of having companies of various size & scale, different regulators, operating Joint ventures with different equity partners, complications of listed vs unlisted entities within their group, companies with staff / labour unions in their midst, and many other variables that impact the business functioning. Such a conglomerate or any other mid-sized private groups with multiple entities in India have effectively built talent pipeline within their fold, despite the above constraints.
Theoretically, government in its role of “business owner / manager” can learn some of these best practices of talent management from the private sector. The GoI can create a central database of all of its CXOs across its businesses and manage its talent-bench-strength effectively across its owned-businesses (with the bells & whistles of adequate governance norms including informing the other stakeholders). It has to enshrine the role and responsibility of “Group Talent Manager” to PESB.
Some of the principles that capitalist model of businesses have shown is that “right person for the right role” is a function of time. The competence of that leader and the leadership could be challenged in a different time ! Also we need to accept in today’s millennials-led era and when we project our “demographic dividend” of youth, we also need to accept that age and maturity have no correlation !! So the current system of age-led and number of years in the same role-led system of promotions.
Lets start with GoI putting together a list of all it’s directly-owned companies and the organisation map of each of those companies. Then put together a list of positions that open up every year; don’t let’s not forget to put a emergency plan for every leadership role to avoid succession gap issues. And importantly get all the inputs from all the relevant stakeholders, before the decision is made and not after as ratification. That would alone stand the test of fairness !
Question of lateral hires seems far fetched, as the experience or willingness about lateral hires is low-bar; that it may not even worth wasting another so-called attempt! We probably just need to accept that the current system just does not accept or like lateral-hires. If a friend of any of the current laterally-hired senior leader asks for their view in private, it’s easily available as feedback, but never on-record.
With nearly Rs 20,00,000 crore capital deployed across these CPSEs, and a combined networth of nearly Rs 12 lakh crore, the shareholder expectation would be for decent returns on the capital-employed. Notwithstanding the often-mentioned market joke that the guest houses of CPSEs and their wonderful hospitality makes them great candidates for staying invested-into. The succinct point is that we need the right leaders with appropriate executive independence and their boards actually & independently measuring their performance carefully. After all, the government of India has lot of capital riding on their decisions and actions.
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