Governance Reforms of IIMs or Privatization?

Governance Changes or Privatization? A Critique of Recommendations of the Bhargava and Balakrishnan Reports

 

N.V. Krishna and Vinod Vyasulu[1]

 

 

Abstract

 

The Government of India, acting through the Human Resource Ministry, is actively considering a series of drastic changes to the governance structure and the role of faculty in the IIM system, based on the recommendations of two Committees chaired by Mr. Ajit Balakrishnan and Mr. R.C. Bhargava. The proposed changes have potentially far reaching consequences on the future of   IIMs and  raise important questions on the methodology followed, the lack of participation by key stakeholders, the lack of public consultation and, in general,  a lack of professionalism in formulating such important policy recommendations. The present paper contains a discussion of   some of these issues, with a view to promoting active participation by various stakeholders and improving the policy making process.

Background

 

The IIM system presently comprises 6 institutes and will grow to 13 in the near future. Each IIM is managed by a registered Society which in turn is controlled by the Government of India, and includes as members, representatives of the State government and others. Each IIM also constitutes a Board of Governors charged with the responsibility for the operation of the institute. In addition, most institutes have a Faculty Council in place, to deal with academic matters, though this is not a statutory requirement.

The Government of India had constituted two separate committees last year, chaired by Mr. R.C.Bhargava and Mr. Ajit Balakrishnan, the former addressing “New Governance Structures” and the latter focusing on “Faculty and Research”. The Ajit Balkrishnan Committee included the Directors of IIMs at Ahmedabad,Lucknow, Tiruchirapalli and Rohtak as members, and its report was published in July 2010. The Bhargava Committee’s other members included the directors of IIMs at Bangalore, Kozikode and Kolkata, in addition to Mr. Subash Dhar, Member and BoG, IIM Bangalore and an alumnus. The recommendations of the 2 committees were discussed by the Hon’ble Minister with all the directors of IIMs, and the same was minuted in November 2010.

These two reports have been considered together since both of them address certain overlapping issues related to governance, faculty and research. Indeed, it may be argued that these issues cannot be viewed in isolation given that all of them are key aspects of the IIM system.

Ownership, Management and Accountability Issues

 

Of all the recommendations of the 2 committees, those relating to the structure and  constitution of the Society and Governing Boards of the IIMs have the largest potential for impacting the future of the IIM system, the brand value of IIMs and the quality of the outcomes achieved by these institutions.. The Committee’s report mentions a number of reasons for the proposed changes, but without any attempt at adequate substantiation. For example, the primary reason mentioned is the need for the “Society to function like an enlightened owner…in practice this is not happening”. Earlier in the same report it is mentioned that “the IIMs have always been the best management schools in India, have attracted the highest quality of students and are the preferred source of recruitment by both Indian and foreign companies” Surely, if the present system is able to produce such excellent outcomes, it cannot be simply brushed aside by a cursory statement that it (the system) is not doing its job. Even if the system is proved to be not doing its job, it is obviously important to establish that such non performance can be attributed to governance issues, something on which the report is silent. Hence, the first problem we wish to highlight is the lack of any systematic effort to identify key areas for improvement, or key problems needing resolution. It is only such an analysis which will throw up the requirements for the reorganization effort. Else, it is theAlice in Wonderland syndrome in which the lack of clear goals leads to an indifference level in terms of strategies.

Another reason cited in support of the proposed changes is that “The Government has not been able to perform the role of (enlightened owner) due to the lack of continuity, and lack of expertise on the part of the officers”. As we observe earlier, it is far from established that the system is not doing its job. It is even less logical to blame the lack of expertise and lack of continuity in respect of officers of the Government for the alleged woes of the institutes. And is Government only an enlightened owner? Is this what our Constitution envisages?

It is pertinent to consider the historical background of Higher Education inIndia, and, in particular, institutes of excellence such as the IITs and IIMs, which have a special place in the Indian educational system. All these institutes, and several others, were established during the Nehruvian period (1947-64), and have flourished within the same governance systems, notwithstanding the purported and largely unsubstantiated limitations mentioned in the Bhargava report.

The division of responsibility between the Government, the Board, the Director and Faculty is cited as another reason calling for change. However, it may be argued that such a division is only logical and that a bicameral structure is a well accepted model for the management of academic institutions. Academic institutions need to work in an environment of creativity, free of bureaucratic and political constraints. It is for this reason that, all over the world, there is a separation between the administration and the faculty. Further, the Faculty is a collective, working in a collegial way—hence the word College.

The problem appears to be that the Committee has pre judged the issue in favor of a corporate structure with little justification.

What is the price of an IIM?

Having set a shaky foundation in terms of articulating the need for change, the Bhargava Report goes on to recommend that the size of the Society be limited to 20 members and that a donation of Rs 3 crores (alumni), Rs 5 crores (individual) and Rs 20 crores (corporate) be prescribed. While the stated intentions are certainly noble, such a structure would enable a company or a group of individuals to gain control over the Society with a reasonably modest investment. The older IIMs have evolved over several decades and have received significant contributions from the Governments at the State and Centre in terms of land and infrastructure. They have built significant brand equity, in national and international markets and have created valuable intellectual property.

What would be an appropriate method for valuing such institutes, if they are to be converted to a corporate model, as envisaged? There seems to be no attempt at addressing this question of valuation, surely an important consideration in prescribing donation levels, which are a proxy for management control. The report seems to be laying the ground for privatization on the basis of inadequate analysis, and without considering some of the consequences in adequate depth. The proposed membership of the Societies will result in a group of individuals and / or private enterprises gaining control over IIMs, while the Government continues to be saddled with the onus of providing financial support, both for capital and operating expenditure. The Report explicitly states that “Government will have to continue to fund capital expenditure, even for the old IIMs. Revenue expenditure in the new IIMs would have to be met by the Government, to the extent of the deficit.” Thus the proposal would result in reducing the variety in the membership of the societies, ceding management control to unknown private entities, while supporting these institutes with public funds, which is, however, now divorced from management responsibility and control. This very formulation needs to be subjected to a close scrutiny from the perspective of basic management principles.

Whose IIM is it anyway?

 

The other impact of the proposed restructuring is to reduce the diversity currently implemented in the membership of the Society. Surely this calls for a much wider debate and consultation amongst key stakeholders. Given that the society at large is a key stakeholder, does it make sense to restrict membership to only those who are willing to pay for the privilege? Given the diversity of the society within which the IIMs operate, is it desirable to promote a kind of monoculture in the governance model?

The entire process followed by the ministry and by the Committees has completely excluded some of the most important stakeholders- a term coined by Freeman (1984) to describe a group of individuals who can affect the achievement of an organization’ objectives, or be affected by the organization’s achievements. In this perspective, faculty, alumni and students are all key stakeholders, they contribute the most in terms of value to the institute’s brand equity, and yet the powers that be see it fit to neglect all of them in developing such a major set of recommendations. This approach suggests that there is an unstated agenda which is being promoted, and this will succeed only in an opaque approach.

Disciplining the Dons

 

Both the Reports under discussion contain several recommendations with regard to the role of the faculty in the proposed new look IIMs. Our first observation is that neither Committee was headed by Chairmen with any significant experience in academia, teaching or research. The committees also saw fit to exclude (rather pointedly) any faculty consultation while framing the recommendations. Both these aspects are causes of serious concern. Why should we expect that a senior public sector executive is the right choice to prescribe the way ahead for premier educational institutes? If the intention is to reduce flexibility and enforce compliance to various (seemingly arbitrary) norms, would it be better to look for an Army General to head the reorganization initiative? The same issue comes up when we look at Mr. Ajit Balkrishnan’s credentials in the context of improving faculty and research in the IIMs. Even with this limitation in their backgrounds, the committees would have been far more credible had they included eminent academics, serving faculty and alumni, all of whom were excluded. A recent article in the weekly news magazine Outlook (dt April 18, 2011) titled “IIM Pvt Ltd ?” mentions the somewhat extraordinary steps taken to implement gag orders on the faculty, which has now been rejected by a number of faculty members. The faculty of IIMC have come out with a position paper on the recommendations which contains strong criticism of the committees, the processes followed (or not followed) and the attempt to reduce the role of the faculty while imposing strict work norms.

The result is that we have series of recommendations, in both reports, purportedly aimed at improving the quality of faculty and research. Here again, we find very little data or logic being offered to justify the proposed changes. For example, the Bhargava Report states that “the Committee would like to reiterate the importance of faulty not only being competent, but also devoting more time to teaching and research, and less time to executive and management development programs” The implication here is that the faculty are guilty of neglecting their teaching and research obligations in favor of EDPs and MDPs, which are more remunerative for them. The other implication is that these programs are somehow unimportant in the scheme of things, surely questionable in itself.

We are unable to understand why the HRD Ministry set up these Committees, and are puzzled by the secrecy with which they worked. We are puzzled by the omniscient tone of the recommendations. We are intrigued by the complete lack of data. We wonder if Mr. Bhargava and Mr. Balakrishnan would take any action on reports of this quality in their own companies.

Apart from a hidden agenda of loot—privatization through the back door—there is nothing in these reports that will help the IIMs to improve. And if implemented, there is every likelihood that what has been achieved will soon be lost.

Our first question here is whether it is indeed true that such neglect is taking place. In a position paper brought out by the faculty of IIMC, it is stated that that current teaching and research loads are already high and projected to increase further, based on actual data. How is it that the Committee does not care to take cognizance of these facts before making its recommendations? As observed earlier, both Reports are deficient in terms of articulating problems, providing data, and connecting their recommendations to specific issues and this is one more such example. The Bhargava Committee Report goes on to recommend that quantified targets, in terms of hours of work, should be set for each faculty member. One has to wonder if there is any difference between the outputs and outcomes we expect from top quality faculty members, and a worker engaged in a repetitive task, in the Committee’s view. In a critique of the Bhargava Report (Economic and Political Weekly, 23 April 2011), the authors discuss the very many ways in which the role of faculty is sought to be diminished, their autonomy curtailed, and discipline imposed as per the Report, and the likely damage following from such actions.

In summary, we believe that this entire exercise aimed at laying out a roadmap for IIMs, is deeply flawed, and needs to be subjected to detailed reviews by various stakeholders, before progressing to any kind of implementation. The proposed structural and governance changes have far reaching implications and carry very many risks of compromising the valuable achievement of institution building, undertaken over many decades. The proposals also indicate a strong preference for privatization of these publicly funded institutes, but without providing any adequate background or analysis. Both reports come down hard on the faculty, and seek to limit their roles and autonomy, without due regard for the requirements of an academic institute. Proposed improvements in respect of faculty and research surely need far more discussion, particularly among peer groups, and cannot be substituted by arbitrary recommendations which are mainly mechanistic in nature. Participation of key stakeholders and public consultations are essential ingredients of any effective roadmap for the IIMs.

References

 

1. The Report of Committee on Faculty & Research, Chairman Ajit Balakrishnan (18 July, 2010).
2. IIM Governance Committee Report, Chairman R.C.Bhargava.
3. Minutes of the meeting of Hon’ble HRM with Chairpersons and Directors of all IIMs held in New Delhion 13^th October, 2010.

4.  Resolution and Recommendation of the Faculty of IIMCalcuttaon the Proposed Changes in Governance Structure.

5.  “IIM Pvt Ltd ?” : Article by Sugata Srinivasaraju in Outlook dated  April 18^th, 2010.

6. “Governance of IIMs – A critique of the Bhargava Committee Report  by Amit Gupta and Ganesh Prabhu (Economic and Political Weekly dated April 23^rd, 2010)

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[1]Krishna graduated from the IIM Calcutta in 1976 and Vyasulu was on the faculty o f the IIM Bangalore between 1974 and 1988.