The IIM Act of 2017 declared IIMs are institutions of national importance and sought to improve the governance at IIMs to help these institutions attain “standards of global excellence in management, management research and allied areas of knowledge”. The impact of this legislation is to be evaluated, though one can cursorily observe that IIMs have successfully promoted new programs and improved their global rankings.
As per the IIM Act, 2017, the chairperson of the board of governors and the institute’s director are to be appointed by the board of governors. The board of governors include the chairperson, director, government nominees, eminent persons, and faculty.
The recent amendment altered the selection process to include the involvement of the Visitor (President of India) such that the Visitor nominates the chairperson, and the selection committee for director will consist of one member (out of three) nominated by the Visitor. The Act and the amendments also cover other matters, but given the importance of the directors and chairpersons in the functioning of IIMs.
Various critics have suggested that this revised selection process, which includes the President (who shall presumably act on the advice of the central government), amounts to excessive interference by the government in the functioning of IIMs. Historical consideration of the relationship between governments and IIMs and carefully reviewing the reasons for the change will show that these criticisms are unjustified.
Before the 2017 Act, the practice was for the chairpersons and directors of IIMs to be approved by the government, so this is a return to an older practice. Irrespective of the party in power, this seldom resulted in any interference in academic affairs or how the institution is run.
On occasions, they have stepped in, such as fixing fees, opening campuses abroad or enforcing affirmative action mandated by policies. These can be easily justified and can hardly be considered an infringement on autonomy. This is an excellent track record, considering the pattern of other institutions supported by public funds.
The boards of IIMs consist of professional and independent members from industry and government but may need to devote more time to governance at the institutions. This means that governance boils down to the efforts and wishes of the chairperson and the director.
Between the two, given that the director is a full-time executive, the balance is likely to get tilted in favour of the director. This is similar to the equation between full-time CEOs and board chairs in companies where one often hears complaints about board capture.
There is fear that similar challenges may be faced with IIMs if institutional changes are not brought in to increase the accountability of directors. From this lens, it is possible to frame the intention of the Amendment Act as strengthening the institutions by providing adequate oversight and counterbalance to individual authorities of power.
Besides, throughout the journey of IIMs, the faculty of IIMs have played a vital role in ensuring Institutional Governance, and they will feel further empowered by this Act.
It is worth noting that accountability to the public is a feature that is also common in public universities in the US. The board of trustees (board of governors) in public universities in the US is elected by the public in the respective state where the university is situated. This is in recognition that the public funds them and ought to be accountable to the public.
A similar case could be made that the involvement of the Visitor in the selection process of the chairperson and director is a step towards creating accountability. Interestingly, between 2017 and 2023, several governance changes could be argued as making the institutions too director-centric — steps such as an increase in the frequency of second terms. Some also argue that selecting a chairperson and director would allow the government to dictate its preferences, resulting in downstream effects on academic freedom and standards. A corporate metaphor is again helpful to dispel such concerns.
In the context of the board of directors, directors’ fiduciary duty towards the company is independent of the specific shareholders who elect them. Selection does not imply they are bound to follow the dictates of the selectors.
Similarly, we can expect directors and chairpersons, who are eminent persons, to act in a fiduciary capacity rather than as puppets, as some critics may assume. Consequently, anticipating such downstream effects on academic freedom is unfounded.
In conclusion, this Act can be taken in good faith, and these Amendments are in the direction of strengthening Institutional Governance.
The writer is a retired Professor at IIM (Bangalore) and currently Director of Niti School of Public Policy & Leadership, Bangalore