Air India: ready for self-regulation?

As AI goes private, it will have to address ethics and corporate governance matters itself, unlike in a PSU.

With the privatisation of Air India, no doubt the government will get rid of its baggage and perhaps, in a few years, Air India might even start making profits, but what about larger issues of ethics and corporate governance in Air India and other public and private sector enterprises today? What about the values that every government must champion?

A private sector enterprise transcends these obligations by self-regulation. We have seen how the Infosys imbroglio panned out, with founder N R Narayana Murthy’s frequent utterances on transparency and corporate governance. In fact, stakeholders in most companies are now raising ethical concerns themselves to rapidly and radically reshape the environment in which these companies operate.

Reputation has become a precious asset, which not only dictates the economic success of a company but its very survival. It is not at all like the advice Britain’s Prince Harry got from his mother, the late Diana: “One of her mottos to me was: ‘you can be as naughty as you want, just don’t get caught’.”

It is obligatory for private sector managements to comply with the requirements of the Securities Exchange Board of India (SEBI) with respect to listing and disclosures, and to employ an independent auditor to comply with the Companies Act, 2013. In comparison to their public sector counterparts, they have tremendous freedom while pursuing profits. Ethical and corporate governance concerns are addressed through self-regulation, as we noticed through the Infosys soap opera.

Typically, in India’s public sector, where the government assumes a dual role (a regulatory
enforcement role, and as the owner of the enterprise a self-regulatory role), there is an overkill.

Every central public sector enterprise is attached to a nodal ministry like heavy industries and public enterprises or the defence ministry where the departmental secretary oversees both performance and corporate governance. A joint secretary level officer usually is a nominated member of the board of directors of the PSU, effectively ensuring a regulatory role by ring-fencing the chairman and managing director (CMD).

Furthermore, the Central Vigilance Commission (CVC) deputes a chief vigilance officer (CVO) to head a vigilance department in a public sector undertaking (PSU). A senior person is exclusively assigned to the PSU and sits whole time in the company premises to ensure transparency in all transactions, to prevent leakage of revenue, to make people take integrity pledges, conduct vigilance awareness weeks, develop a corporate vigilance vision, enforce meaningful, workable and objective systems and procedures and related activities that are ordinarily within the purview of the PSU’s CMD.

Like in case of the private sector, the PSU’s financial statements, annual reports and balance sheets have to be in accordance with the financial reporting framework prescribed under the Companies Act, 2013.

While the Comptroller & Auditor General (CAG) of India appoints a statutory auditor to conduct an indepen-
dent audit and express his opinion on the financial statements, in the case of PSUs, the CAG then conducts a supplementary audit by scrutinising and commenting independently, without access to the working papers of the statutory auditors. Sometimes a third audit, a forensic audit, is also carried out to examine accounting records on a selective basis.

Mandatory compliance

While a certificate on compliance with the conditions of corporate governance is required by both sectors under the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and a Secretarial Audit Report based on an audit complying with the SEBI Act 1992, FEMA 1992, etc., has to be filed by both sectors, every PSU has to mandatorily comply with guidelines enumerated by the Department of Public Enterprises (DPE).

Again while Corporate Social Responsibility (CSR) is obligatory on both sectors, the brunt of the burden of government regulation is borne by the PSUs. All PSUs are subject to inspection by Parliamentary Standing Committees.

The committee on welfare of scheduled castes and scheduled tribes considers all matters concerning the welfare of the SC/ST by ensuring due representation for them in services and posts in the PSUs. The PSUs are also answerable to the committees based on their nodal ministry. For example, the Defence ministry organisations would be answerable to the Standing Committee on Defence.

Another Committee of Parliament on Official Languages — a Rajbhasha Samiti — reviews the progress made in the use of Hindi by the PSU by visiting its headquarters as also its far flung regional offices to check whether the staff is using Hindi. Most PSUs have a ‘Hindi Officer’ on its rolls as also adequate personnel to translate documents into Hindi, as also an official language implementation committee to ensure compliance.

Coming back to Air India, does the government realise it is relinquishing its hydra-headed PSU oversight role and feels that now Air India has become capable of self-regulation like its peers in the private sector? While pursuing profits, a privatised Air India of the future must clamour for transparency and corporate governance of its own accord!

(The writer is Associate Profes-sor, Sai Vidya Institute of Techno-logy, Rajanukunte, Bengaluru)