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Hobbling public sector firms

Hobbling public sector firms
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First Published: Thu, May 05 2011. 01 15 AM IST
Updated: Sat, Jul 02 2011. 03 46 PM IST
Substituting symbolism for substance often pays great political dividends, but little else. On Wednesday it was reported that on the recommendation of a parliamentary panel, the government has advised different ministries to give preference to persons from underprivileged and under-represented backgrounds while making appointments of non-official directors on boards of state-owned firms.
Press Trust of India reported that the department of public enterprises had issued an advisory on professionalization of boards to Central Public Sector Enterprises (PSEs). The parliamentary panel has said that if persons from categories of scheduled castes, scheduled tribes and other backward classes and women categories meet the criteria, they should be given preference.
Earlier in the year, the corporate affairs ministry had done something similar: it had said it would make it mandatory for firms with five or more independent directors to have at least one woman as an independent director.
In both instances, it is not clear what will be gained by the step of “diversifying” the board, so to speak. The objective of any firm is to make profits. It does not matter how they do that, so long as they don’t break the law. From that perspective, appointment of directors is carried out with a view to securing best domain expertise or (for example, in case of independent directors) to keep profit making in line with good corporate governance. Caste, religion and gender have little to do with this. Any effort to say that it does matter, would be to build an artificial case.
As far as PSEs are concerned, they can do without this step. Most of them are hobbled with many other issues: inefficiency, poor preparedness for competition and plain shielding by government. What they need to do is attract directors with proven records in strategizing and expertise in what they do. Appointing directors based on other criteria will in no way improve the commercial prospects of these firms. “Social objectives”, so to speak, have little role to play in boardrooms. They are best left alone.
Should directors on company board be appointed to further “social objectives”? Tell us at views@livemint.com
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First Published: Thu, May 05 2011. 01 15 AM IST