The Hindu Business Line : ‘A pan-IIM board can fill the shoes of Govt’

Amid calls for autonomy, a review panel headed by R.C. Bhargava has suggested a pan-IIM board to serve as a via media between Govt and individual IIM boards.

Our objective is to see how management powers can be transferred from the Government to the IIM society boards, while simultaneously ensuring the accountability of the boards to the shareholder. But the problem here is that the Government as such is a nebulous entity

R.C. Bhargava, Chairman, Maruti Suzuki India Ltd

Harish Damodaran
Bindu D. Menon

R.C. Bhargava, Chairman of Maruti Suzuki India Ltd, headed the official Review Committee for the Indian Institutes of Management (IIM) that recently submitted its report to the Union Ministry of Human Resource Development. The report, among other things, has sought the creation of a ‘Pan IIM Board’ as a via media between the Government and the boards of the IIMs besides serving as an institutional mechanism for facilitating coordination and providing broad policy guidelines.

In an interview to The New Manager, Bhargava discusses the logic behind the proposed body.

Wouldn’t the establishment of a pan-IIM board create one more layer in the governance structure of the IIMs?

Well, if you see the current structure, there is the Government, then the respective IIM boards, their individual directors who are the CEOs, and finally the faculty. The structure does not bestow clear authority and accountability on any one of these levels for running the IIMs. Power is divided between them, with none of them being fully responsible for anything.

The right governance structure for any institution, not just the IIMs, requires that one body have the powers, authority and responsibility as far as management goes. Under the Companies Act, it is the board that has full powers to manage a company. At the same time, the board is also accountable to the company’s shareholders.

In the case of the IIMs, which are governed by the Societies Act, the board is similarly accountable to the shareholder, which happens to be the Government. The difference though is that here too the Government wields management powers. And that’s why I say the authority is divided.

In a proper governance structure, the board would have all the powers of management, which is, in fact, what even the Societies Act envisages. Our objective then is to see how these management powers are transferred from the Government to the IIM society boards, while simultaneously ensuring the accountability of the boards to the shareholder.

But the problem here is that the Government as such is a nebulous entity. Unlike shareholders of companies who are persons and physically distinct as shareholders, the ‘Government’ consists of the minister, the secretary, joint secretary and undersecretary — all of who keep changing and have no real stake in the institution.

The Government may have invested the taxpayer’s money. But those managing on behalf of the Government have not put their own money separately; they get their salaries irrespective of the institution’s performance. That’s the difference between the Government being a shareholder and you or I being shareholders of a company. We have a deeper, personal involvement in what is happening in a company than anybody in the Government.

Moreover, the Government as a shareholder runs umpteen companies and institutions in so many fields.

But how does setting up a pan-IIM board resolve matters?

If one agrees about taking away the Government’s managing powers and transferring these to the boards, the next step is to make sure that the Government’s ability to hold the IIMs accountable and check their performance is not impaired.

If there were questions in Parliament with members saying, look we have invested hundreds of crores in the IIMs and we will continue to do so. But what are the means to ensure that this money is spent properly? The Government has to convince Parliament that public money is being spent in the way the taxpayers would have it and there is, therefore, a certain degree of accountability on whoever is spending the money.

That’s why the IIMs’ appeals for total autonomy are not realistic view because they are publicly-funded institutions. If taxpayers’ money is involved, you need to have a certain method of ensuring accountability about how the money is spent.

The challenge is how do you combine giving full powers to the IIM boards while at the same time ensuring the public character and accountability of these institutions. It is obvious that people in the Government — for the reasons discussed earlier, including the short stay of any Government officer or politician, howsoever well-meaning they may be — cannot be expected to have the experience, the skills or the capability to provide any meaningful time or overall vision, guidance and supervision for such institutions. But on the other hand, giving unfettered powers to the IIM boards without accountability would also not work.

Therefore, we need to device some other via media, for which the Pan IIM Board has been proposed. You create a body of people with the requisite experience and the knowledge and a proven track record of managing businesses or education institutions in different parts of India or even the world.

You could also pick eminent professors from top US business schools to this board. Let the board do what the Government is now doing in respect of the IIMs. Once that happens, the Government does not have to interact directly with the IIMs.

Coming to your earlier question of an extra layer being created, it is actually not an extra layer but a substitute for the Government. Whatever managerial functions the Government is currently discharging in IIMs since they are public institutions, we are saying you delegate these to the pan-IIM board and the Government stops dealing directly with the IIMs.

Could you be more specific about the responsibilities of the pan-IIM board?

The board will not have any executive responsibilities. In the structure that we have proposed, the individual IIM boards will be given full authority to propose their chairman, appoint their own director, hire faculty on contract, create posts, raise money and use their corpus the way they would like. Currently, all these powers reside with the Government and the boards are bogged down in routine administration without any financial powers to create posts or sanction capital expenditures.

Today, the chairman of any IIM is appointed by the Government without even consulting the board, whereas in any company it is the board that elects the chairman. The IIM director or CEO is also decided by the Government. They set up a search committee, which makes recommendations that is processed in the Ministry and the final name is cleared by the Appointments Committee of the Cabinet. The board is then informed of the proposed appointment and the chairman signs the order of appointment.

We have recommended all these executive powers be given to the IIM boards. The pan-IIM board’s responsibility is to each IIM to prepare four-year rolling plans, approve their business plans every two years and review their performance once in two years on the basis of their achieving the targets underlined in these plans. The board will approve a vision and mission statement for each IIM and provide broad policy guidelines within which the business plans would be framed.

Also, with as many as 13 IIMs expected to become functional in the next few years, a lot of coordination would be required to ensure that their resources are used to the best advantage. The Government would take action based on the review reports and recommendations submitted to it by the board.

Who will decide the annual budgets of each IIM?

The boards will approve their own budgets with the stipulated two-year, four-year plans. The capital expenditures, of course, will be met by the Government. For the new IIMs, the revenue expenses will also have to come from the Government.

What is the cost of setting up an IIM?

If they start with a 120-seat IIM, we are told that expansion alone would cost them Rs 30-35 lakh per seat. That means Rs 350-400 crore per IIM, that too for brownfield expansion.

But will starting so many new IIMs not lead to dilution of their brand equity and ultimately their quality?

The new IIMs will definitely be better than 95 per cent of the existing privately-run management institutions. The bulk of these are just money-making bodies with hardly any faculty and who will give you a diploma if you pay them Rs 3-4 lakh. The new IIMs cannot certainly be worse than that.

The sad part is that the IIMs all these years never thought of expansion and the only time that they started talking about it was when the decision to enforce admission quotas for Other Backward Classes (OBC) was taken. The six IIMs today have an annual MBA student intake of 1,800, which is proposed to be increased to 2,950 by March 2011.

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