A K Bhattacharya: The PSU 'talent crunch'

Last Updated: Mon, Dec 03, 2012 04:10 hrs

Chandra Shekhar Verma is the chairman of Steel Authority of India Ltd, or SAIL, which is India’s largest steel producer in the public sector. He is also the chairman and managing director of National Mineral Development Corporation, or NMDC, which is India’s leading iron ore producer, also in the public sector. Both of them are large companies and in the past have had separate chief executives heading them. So, the decision to have one person heading both the companies is bound to raise questions about the manner in which the government has been dealing with two of its large public sector undertakings (PSUs).

Is there a shortage of talents to head large PSUs? Until about a year ago, NMDC used to have a chairman and managing director in Rana Som. On the completion of his tenure at the end of December 2011, there was no immediate appointment of a full-time chief executive for NMDC, although a few weeks later, N K Nanda, who was already with the company, was named to head it. However, that arrangement also did not last very long and SAIL Chairman Verma was asked to head NMDC in addition to his existing responsibilities.

From the manner in which NMDC’s leadership issue was handled by its majority shareholder, the Union government or the steel ministry, it is clear that there was a problem in grooming a reliable successor to either Som or Nanda. Nor can it be argued that a large profitable PSU does not have enough talent within the company who could be trained and nurtured to lead it. Either way, it is a comment on the performance and vision of both the company’s top management and its principal shareholder. The government, therefore, cannot disclaim its responsibility for having one person head two PSU behemoths.

The steel ministry may well argue that there is a lot of synergy in having the SAIL chairman to oversee NMDC as well. One, both the companies function under the administrative control of the steel ministry. Two, both the companies operate in similar areas. SAIL is primarily a steel producer, but has large iron ore reserves and it mines them for captive consumption at its steel plants. Indeed, SAIL is the second largest iron ore producer in the country, after NMDC. On the other hand, NMDC is not just a producer of iron ore, but is now actively pursuing a proposal to set up a steel plant. So, the two companies operate in similar areas and a person who heads SAIL can easily understand and handle the leadership challenges at NMDC. That is perhaps one reason why one cannot question the competence of Verma in heading the two companies. But there are larger questions that arise when the same person heads these two companies and the government, which is accountable to the entire industry including its private sector players, must be in a position to address concerns arising out of them.

Imagine a situation where the same person heads the state-owned airline, Air India, and the Airports Authority of India (AAI), which runs most airports in the country. Theoretically, the head of AAI can take decisions that benefit only Air India. And, these decisions might place the private airlines at a disadvantage in terms of landing rights or use of facilities at the airports. In such a situation, the private airlines can approach the airports regulator and have their grievances redressed.

This is precisely what may happen in the case of SAIL and NMDC having the same chairperson. Private steel producers may feel inconvenienced by pricing decisions or ore supply norms enforced by NMDC, which could indirectly benefit SAIL. Now this may not be done deliberately. But a situation may arise, where even a decision taken without such motivation may be subjected to some speculation that would be unhealthy for the growth of the sector. In the case of the aviation sector, the aggrieved private airlines could approach the airport regulator. But what can the private steel producers do? There is no steel regulator and they can only approach the steel ministry, which ironically is the body that decided on having the SAIL head to hold concurrent charge of NMDC as well.

If the availability of PSU talents is a problem, the government as a shareholder should be able to take quick decisions to tap the private sector to meet any shortage that might theoretically give rise to such distortions. It is not a question about Verma’s capability. He may well be competent to run both SAIL and NMDC without being biased against the private sector steel producers depending on iron ore from the latter. But the government as the principal shareholder of both these entities has the additional responsibility of putting in place a system where no doubts about governance can be raised. Separate heads of these two PSUs would also empower the managements of both the organisations and provide a clearer growth path for senior managers in the two companies.

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