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Governance: World's watching India
Rajeev Surana

Rajeev Surana
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December 15, 2006

Good governance (less corruption) leads to high levels of GDP/capita; not the other way around. -- Prof. C. K. Prahalad

Today, the hot topics of conversation range from double-digit economic growth to foreign investments and from the new highs of stock market indices to the emerging face of retail in India.

The world-class ambience of our newly designed offices or the plush hotel bar further enhances our aspirational quotient. It's the time to bask in our bullish beliefs about our economy.

But these flights of fancy are put on hold when we encounter the realities plaguing the widespread organs of our nation. Traffic snarls on roads and airports, red-tapism, power outages, poverty, apparent insensibilities of political approaches and abysmally low health standards aren't just the junk reminders of society that we could filter as spam with our hi-tech gadgets.

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Corruption and lack of accountability are serious social and political governance issues that need immediate attention.

In recent times, the private sector has pioneered a few measures to ensure effective corporate governance. An understanding of the key structural elements of those frameworks can provide insights to build up the initial blocks for better social and political governance.

The essential elements of effective governance comprise leadership selection, socio-economic performance management, accountability and transparency, stakeholder activism and capability development. An analysis of existing developments from corporate world can lead to a good head-start with social governance.

Leadership selection: Informed decision-making

In a democratic set-up like ours, leadership selection is primarily influenced by the majority public opinion and judgment. An informed decision-making requires basic understanding of the leadership requirements and the prospective candidate's suitability to fulfill the demanding roles of the position.

In corporate sphere, the chief executive and the management team are selected after careful deliberations on the academic profile, past track record and leadership qualities of the candidates. The leadership requirements for high-degree of growth creation and management are even higher.

In an electoral process, the masses could make an informed decision on their vote only if they are aware and educated. The intellectual and educated class needs to herald a significant responsibility of supporting educational and awareness drive for the public to ensure fairness and objectivity to the entire electoral process.

Performance mandate: What gets measured gets done

A private enterprise goes through an elaborate exercise in vision creation, strategy formulation, definition of performance metrics and targets. For social enterprises of the sizes as huge as ours, a performance management framework is a basic prerequisite to focus on the right priorities.

Balanced Scorecard is a framework that can help outline interests of all stakeholder constituencies -- citizens, government, neighbours, investors and trade partner countries. Scorecards at the country, state, district and city levels can effect alignment of the entire country's government machinery toward a common vision.

Accountability: Results not goals

An organisation with the finest performance measurement system may still struggle with execution if accountability for results is not clearly outlined. In a government set-up, accountability contracts could be defined initially at the Member of Parliament level and gradually percolated to specific ministries, departments and state legislative assemblies. Non-performance needs to be checked with pre-defined measures ranging from constructive feedback to punitive steps.

Similarly, pay for performance model needs to be suitably administered by way of fund allocations and budgets to various ministries and committees.

Transparency: Data, not dogma, driven

Without transparency of government's operations, new governance codes will do little good to build public confidence. Periodic reporting of performance is required at minimum half-yearly intervals.

Digitization of government affairs will significantly smoothen the reporting process. Interim information dissemination can parallel corporate mechanisms such as results summaries in newspapers, television news, Web sites, analyst presentations and roadshows.

Consistent disclosure requirements are needed regardless of the political party in force. An independent audit committee constituting members from multiple private sector accounting firms should attest all the disclosures. The governing philosophy should be simple - comply or explain.

Conflict of interests: The independent director pill

The corporate governance code outlines the role of independent directors on the board to monitor and control the conflict of interest of the managers. The opposition party is limited in its capacity to play similar role due to its inherent interest and role in government formation.

An entity with professional qualifications, for instance non-profits or industry bodies, can assume such role in an independent manner and participate in the sessions at Parliament or State Assemblies in the capacity of an independent member. The arrangement will ensure that politicians cannot misappropriate the office of power in favor of personal or private interests.

Stakeholder activism: Ownership is essential

In the capital market, most of us have effectively exercised our rights as shareholders by channelising our investments based on a company's performance on value creation. All of us recognise returns on investments (RoI), yet the term 'returns on taxes paid' sounds arcane. It's the citizens who are ultimate principal owners of an independent democracy. A corpus of over $75 billion from tax collections calls for attention by any economic standard.

Citizen bodies such as protection groups and non-profit organisations need to ensure proper utilisation of funds and play the role akin to that played by board on the corporate turf.

Community and hallway meetings, online blogs, television talk shows and newspaper columns could serve as conduits to people's voice. Right to Information (RTI) is another powerful weapon for the stakeholders. Exercising RTI at individual or small group level can bring about a transparency culture and induce action-orientation in the bureaucratic functions.

Capability building: Prepare for a change that's accelerated

Continuous improvement would require adequate learning for leadership roles. India's business schools can take a lead by initiating educational programs along the same line as those pioneered by Kennedy School of Govt. at Harvard or University of Georgia's Department of Public Administration and Policy. Mechanisms of public-private partnerships are still underdeveloped, and needs to be effectively utilised to leverage private sectors learning in corporate governance.

The suggested roadmap elaborates on a journey that is unarguably arduous, but a time-bound phased approach can help it see the light of reality. A top-down approach starting with the central government and gradually coming to the states can allow pragmatic progress.

Finally, an execution culture is required to establish quick-wins and help aspirations make up for limited resources. We don't need to be reminded that unexecuted plans, however good, will be mere good intentions. It's show time for India, and the world is watching.

The author is a BTech from IIT-Bombay and co-founder and managing partner of 2S Consulting India, which specialises in growth management for small and mid-sized companies.

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