Corporate Governance Norms in State Owned Enterprises: Can Apples be used to assess Oranges?

Abstract

it was nothing but mere financial engineering to shift money from one pocket of the exchequer to the other…The committee would, therefore, recommend that IRDA should enquire into this issue and investigate whether LIC has violated prudent investment norms and exceeded the limit stipulated by them," - Standing Committee of Parliament on Financei “According to the Parliamentary Panel, this act by the government will adversely affect 29 crore policy holders of LIC.”ii These views largely reflected the public sentiment surrounding the divestment of 5% stake in the state owned Oil and Natural Gas Corporation (ONGC) on 1st of March 2012 and subsequent rescue act by another state owned enterprise Life Insurance Corporation (LIC) which bought 95% of the offloaded stake. This episode has drawn renewed attention to governance in state owned enterprises (SOEs) and the role of government- the sole (in some) or majority shareholder (in most) of the cases. Using this episode as the backdrop, this paper seeks to explore the issues surrounding corporate governance in SOEs and seeks to understand whether existing norms adequately address the governance challenges. In what follows, we begin by briefly describing the episode, the protagonists and the governance challenges which they present in the current scenario. In the next section, we discuss the role of SOEs and the norms of their governance as they have evolved till recent times. In the concluding section we debate whether the norms as they exist are adequate to provide effective governance of SOEs in the light of the challenges identified previously.