Take the cautious route to privatisation

BEFORE I am misunderstood, I wish to clarify that I fully support the concept of eventual privatisation of the public sector as well as other services being run by the Government at a great cost to the exchequer and without the consumer getting his money's worth. In the first place, the state had no business to squander thousands of crores of the taxpayers' money by creating monolithic organisations and then trying to control public enterprises as subordinate offices under various ministries. The ministers and more often senior bureaucrats enjoy all authority without any accountability whatsoever. They enjoy many unwritten perks at the expense of the public sector undertakings - cars, hospitality, occasional foreign trips and maybe some major benefits if an opportunity knocks at their door. Sadly, the top management of the public sector with some honourable exceptions accepts and, maybe, welcomes such a situation as many lack the moral courage or professionalism to oppose interference. Many of the officials reach the top slots with the influx of time and by not getting involved in any controversy. The selection of board- level directors is confined to in-house promotions with hardly any fresh induction of talent through open advertisements which, however, may not attract suitable candidates as the wage levels are fairly low compared to what is offered by good private companies.

On the positive side, many PSUs were set up in remote and backward areas and they helped the local economy and population with job opportunities. Many undertakings are models for efficient management and have performed very well inspite of constraints. In all such cases, the CMD was a good leader.

I have long years of experience in the Army and in the public and private sectors, both at middle and senior management levels, and I am making my observations with a full sense of responsibility.

The Government must exercise caution before rushing into privatisation of the existing enterprises. The grass is certainly not as green in the private sector as it appears to some recent converts to the concept of privatisation who want us to believe that all problems will be solved once the conversion takes place. Major reforms and harsh steps to ensure ethical corporate governance in the private sector are required urgently before self-seeking individuals are allowed to use the assets of the public sector for personal gains.

Barring some highly professionalised corporations and multinationals, the Indian public limited companies especially family- owned enterprises are no models for efficiency and ethical business practices. A few years ago an unsuccessful bid was made by the NRI industrialist, Mr. Swraj Paul, to take over some well-known public limited companies. For the first time, the public became aware that the so-called owners of these corporates were holding a very small majority of the shares. The shareholders who were widely dispersed had no say in any matter. The Government bailed out those companies by asking state-owned financial institutions which had considerable holdings to back the so-called owners in retaining control of the corporates. Many of these companies took full advantage of the lacunae in the law to perpetuate family rule from one generation to another. Board meetings and shareholder AGMs are generally stage-managed to pass resolutions giving legal endorsements of policies and appointment of directors who in most cases are rubber-stamps. The real power remains with the family.

Most of the public limited companies have borrowed huge amounts from nationalised banks and financial institutions and lately from foreign funding agencies. Many are behind schedule in repayment owing to gross financial mismanagement. The finance departments of these companies are generally headed by the close confidants of the so-called owners and between these gentlemen and the obliging officials of the nationalised banks and institutions who look the other way as huge amounts of public money are misused and diverted for personal ends or simply mismanaged.

Invariably, the sufferers are the small investor and the public exchequer but who cares for such stakeholders? A close look at BIFR companies will reveal the same story. As far as promoters are concerned, after closing shop they start all over again in another company which they would have floated with funds siphoned off from the previous venture. There is hardly any instance of such promoters having been prosecuted for offences which are punishable under both the IPC and other legislation.

Let us now see how these private sector companies (with some exceptions) manage their human resource. They try to hire the cheapest possible labour force or rely heavily on contract labour for regular jobs without much forethought about their ability to assimilate technology. The wage levels of the non-executive workers as well as non-unionised staff are generally low and there is a small number of senior executives who get good salaries and perks (mostly under the table). Absolute loyalty to the owner is a must. Non-conformists are isolated and eventually they leave out of self-respect or in frustration.

Trade unions are viewed with suspicion and all-out efforts made to prevent the formation of a union. If one is formed, then at the first available opportunity attempts will be made to purchase the main office-bearers, many of whom are obliging and will sit in the driver's seat, playing a double-game with the workers and the management at a great expense to both. Labour laws are flouted with impunity with the connivance of Labour department officials who take their share and the show goes on. Many family- owned managements have failed to realise that harmonious industrial relations are possible without their indulging in unethical and unfair practices.

On every forum employer-bodies such as the Federation of Indian Chambers of Commerce and Industry and the Confederation of Indian Industry make fervent pleas to the Government of the day for amending labour laws which they think are too protective of workers. In a way the laws seem protective but in a country in which there is no social security system to support unemployed labour, such demands to amend the laws must be seen in the context of the meagre retrenchment compensation payable under the existing law, but subject to government approval which mercifully, for the labour, is never granted.

At the same time, we cannot have a situation where surplus labour which cuts into the very viability of the enterprise is to be retained at all costs. We cannot also ignore the fact that in the first place the manpower, now surplus, was recruited to meet a need of that time and once the employees' skills become redundant, they cannot be thrown out by simply paying them 15 days wages for each year of service rendered. They have given their best years to the company. A worker earning Rs. 3,000 a month and who has put in 10 years of service can be put on the road after he is given a princely sum of Rs. 15,000.

Yes. This is the type of freedom the captains of our industry want and all kinds of reasons are advanced to remove the clause of prior government approval. I will favour such freedom provided they pay a substantial compensation, say six months wages for each year of service, subject to a minimum or maximum amount. In the case mentioned above, a worker will get Rs. 1,80,000 which should allow him to survive. The enterprise will be still a beneficiary considering that otherwise, the worker will stay for the next 25 years on wages which will increase every year. Such a proposal may still be unacceptable to the private sector and as such, the impasse will continue.

As for enforcement of discipline, there can be no two opinions that each worker drawing wages must do a full day's work and conform to the rules and regulations of the organisation and any failure must attract exemplary punishment if the misconduct so warrants. As a fairly successful human resource manager, I give the assurance that within the existing system of labour laws, discipline and efficiency can be maintained provided the managers who are paid to manage the people working under them do not abdicate their right. Unfortunately, that is the case in both the public and private sectors and then they blame the labour laws for all the ills.

Finally, about ethical corporate governance. Ethics has no standard definition. Family-owned enterprises have their own rules. For them, it is quite ethical to give costly gifts to government officials on the occasion of Deepavali and monthly payments to the police, labour, excise and sales-tax inspectors and so many other clogs in the regulatory set-up of the State and Central Governments. In defence of such practices, they say they will otherwise be constantly harassed. They think that the payments are a small price to pay for peace of mind and financial savings which will accrue to them. They get many legitimate dues reduced by offering financial incentives to decision-making officials.

In this context, the Central Vigilance Commissioner, Mr. N. Vittal, has written to the CII and other employer federations, asking them to pass resolutions and declarations to the effect that their constituent member-companies are not party to giving bribes to government officials. Mandate permiting, the CVC should ask for affidavits from the board of directors of each public limited company saying it follows various laws and that the company officials never give bribes or take undue financial advantages from the firms they manage.

Similar affidavits must be taken from chartered accountants who audit the accounts of public limited companies that the accounts have been scrutinised in letter and in spirit.

If the system controls directors and chartered accountants, whose sacred duty is to protect the interests of all stakeholders, any deviation should attract stringent and exemplary punishment.

So at the end of the day all responsible citizens must ponder the sad state of affairs and do their little bit to arrest the slide. Privatise by all means but set the private sector house in order and at the same time carry out an urgent review of outdated systems and procedures which do not allow even honest entrepreneurs to function. We have not reached a point of no return, as luckily a vast majority of our population including government servants is God-fearing and honest.

- Lt.Col. B.R. MALHOTRA (retd)

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