The State of India has enormous task ahead of it to ‘rebuild well’ the underdeveloped economy before the Kovid epidemic. Did not produce enough jobs and incomes for workers and farmers. Did not provide good public health and education to its citizens. The government has a financial problem: it needs to find money to provide public goods. Therefore, public sector companies (PSEs) are being privatized for funding, and private companies are stepping up the accelerator to make these businesses more efficient.
Last month, the U.S. Securities and Exchange Commission (SEC) listed companies were required to report their all-round performance against ESG indicators, which means the impact their businesses have on the environment and conditions of society. Financial investors are increasingly concerned that they can no longer escape their financial performance — reporting only the growth of their earnings, profits and shareholder value. All organizations need to be more transparent about what value they are creating for society. The U.S. business roundtable, the chief executive officer (CEO) of private-equity firm Blackrock, and other business leaders have already recognized the urgent need for private companies to serve the wider public interest. The SEC knows that the time for official reinforcement is imminent. ‘Total shareholder income’ is no longer a good measure of a company’s health and gross domestic product (GDP) is no longer a good measure of an economy.
If the pandemic teaches a lesson to global problem solving, it is this: Beware of the side effects of robust solutions such as lockdowns and vaccines, which can do more harm to the health of the system than problem solving. Therefore, the Government of India should be careful in prescribing medicine to an economy whose toxic side effects are already known.
Privatization can provide much needed financial resources to the government, first making the formulation and dosage of the drug drug unresolved can harm the economy and society in other ways. Privatization is the strongest medicine drug applied by Margaret Thatcher to the UK economy, although its national health service has not escaped. Private health services are a drug addict who is addicted to the US, although its ineffectiveness has long been known and was even more apparent during the Kovid epidemic. Private health care is not very useful to the public.
In India, the performance of many PSEs needs to be improved. The public accountability of private companies should also be improved. Improved design of the organization is required to manage all resources efficiently and provide against the public needs scorecard. Patterns of new design are emerging. Responsible business leaders created the ‘National Voluntary Guidelines’ for Indian businesses 10 years ago. These are further evolving. At the same time, the Second Administrative Reforms Commission recommended ‘agency’ as an institutional solution for the governance of PSEs, which should be managed professionally as the best private companies, while at the same time creating public value. New elements called ‘social institutions’ are also emerging from the economic and social spheres. New companies should be formed with these ideas in mind before handing over PSEs to the private sector. Of course, these new solutions should also apply to the private sector.
A professionally managed organization that serves the public interest must be established on three pillars. One is a clear statement of its purpose. Whether a company is public or private, its purpose is not limited to the production of profits and financial wealth for investors. Objectives and dimensions must be defined and consistent with that purpose to ensure the performance of the organization and its managers.
Second, enterprise managers must have the freedom to find the best ways to achieve its goals, not count on any bureaucratic intervention to create public value. Supervise independent board managers who are accountable for fulfilling the purpose of the organization.
The third requirement is that the board must be able to exercise its freedom within broad limits that are consistent with social values. Guidelines are needed for financial decisions and human resource management. The need for prudence in financial decisions is well understood in private sector companies. However, most of the barriers to executive compensation with financial compensation have been set aside. This has led to a tenfold widening gap between CEOs (and other executives) and workers’ compensation packages in private sector companies around the world over the past 30 years. There is no doubt that those at the top have more responsibility and contribute more to the overall performance of the organization. I don’t understand how they have started to add ten times more true value in the last three decades.
Companies run by financial controllers do not live long despite making short-term profits. The economies of countries these days are mainly run by central banks and finance ministries, which have economic theories on money and financial management. While good financial management is essential, it is only a tool and not the ultimate goal for the management of companies and countries.
All private companies use public resources to generate profits, although they may not cause them. For example, the great financial performance of Indian IT companies has been initiated by publicly funded educational institutions that provide high-quality resources at low cost. Creating an enterprise fit for the 21st century requires answers to ethical questions. The so-called ‘wealth-creators’, that is, for whom businesses create wealth? What resources are they using to generate that wealth? And how much wealth do they give back to society (and when), and how much do they keep to themselves as cashiers in our economy?
Arun Myra is a former member of the Planning Commission and author of ‘A Billion Fireflies: Critical Dialogues to Form a New Post-Pandemic World’