No one to take ownership

R.C. Bhargava        Print Edition: September 4, 2011

The Indian Institutes of Management have been established jointly by the Central and state governments. Of the 13 IIMs, seven have either been very recently started or are in the process of being established. While the funding for capital expenditure has always come from New Delhi, the states have provided the land for the institutes. In the initial years of an IIM, the deficit in revenue expenditure is met by the Central government. The money for IIMs is provided through the Budget and thus the administrative ministry, human resource development, or HRD, is answerable to Parliament for proper utilisation of the funds.

This has resulted in the HRD ministry controlling key financial and administrative powers relating to IIMs, though the latter have full academic freedom. IIMs are governed by a society whose members are appointed by the government. The chairman and directors are selected by the HRD ministry. The board members are also appointed by the government. Pay scales, as well as faculty and administrative staff strength, are determined by the government.

R.C. Bhargava, Chairman, Maruti Suzuki
R.C. Bhargava, Chairman, Maruti Suzuki
The government has the power to give directives to the IIMs and also carry out an external review of its functioning. Over the years, many IIMs have felt that their functioning is impaired by the lack of financial and administrative autonomy. This feeling grew stronger in the older IIMs, which had started generating a surplus on the revenue account. This led to some informal relaxation of controls.

An IIM review committee, established in 2007, found that the existing system needed considerable modifications, partly due to the growth in the number of IIMs and also because of the much larger number of higher educational institutions which had to be supervised by the ministry. It also found that the management of IIMs was fragmented between the government, the board and the director, and was not leading to excellence. It was recommended that the boards should be professionalised and given full powers to manage the institutes. This had to be accompanied by a system that made the boards accountable and also enabled the government to fulfil its obligations to Parliament.

This report was followed by another dealing with more detailed ways of achieving these objectives. While proposing powers for the board and the director was easy, devising a system of accountability was not. The HRD minister expressed his willingness to make IIMs fully autonomous provided there was a satisfactory system of accountability.

In companies and businesses, accountability of management is achieved through shareholders, particularly the larger ones. In promoter-controlled entities, the promoter, as the 'owner', is very much concerned with the progress and results of the company. In companies where ownership is not concentrated in a family, financial institutions, insurance companies and so on function as 'owners' and ensure accountability of the management.

The problem with IIMs is that there is no 'owner', except the government. For various valid reasons, the government is not equipped to discharge the functions of the owner as in companies and businesses. Hence, the committee has recommended that the IIM society, which is the equivalent of the shareholders for an IIM, should be so constituted that it can have a genuine and long-term interest, as well as ability, to function as the 'owner'. This would require some society members remaining as such for long periods of time, and having a stake that could be either financial (but not for profit) or of reputation in the IIM. While this matter is under debate, in many areas the IIMs have already become more autonomous.

The author headed an HRD ministry appointed committee in 2007/08 to review the status of the IIMs

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