Sonia and PM are like Chairman and CEO – what’s the big deal????

Yesterday, the BJP yet again called the PM “weak”. After having made yet again demand for his resignation – for what the 40^th time I think (have lost count now!). What’s the reason for this latest jab? Apparently because the PM had to be “pushed” by Sonia to sack Ashwani Kumar and Pawan Bansal and hence – according to the BJP –Sonia had “interfered”. Ergo the PM must quit! This kind of thinking smacks of poor intellect in general, and lack of understanding of the principle of “separation of powers” in particular.

In the corporate world, from where the BJP’s PM aspirant Narendra Modi derives much strength, separation of powers between the Chairman and CEO has been a topic of much debate. More and more companies are now opting to separate the two positions. As per a story in the Nov/Dec 2012 issue of “The Corporate Board”, a magazine that describes itself as “The Leading journal of Corporate Governance” (http://tinyurl.com/crmlkru), “A record 44 percent of S&P 500 companies now have separate executives holding the Chairman and CEO roles. This is a marked increase from seven years ago when 29 percent of companies had such a corporate governance structure, and 21 percent with separate roles in 2001. Similarly, analysis shows that 62 percent of companies in the NASDAQ 100 had split CEO and Chairman roles in 2011 compared to 45 percent with split roles in 2005”.

The combining of the two roles is in fact an antiquated management concept. Modern management prefers separating the powers. “Traditionally, in the American corporation, the same executive held the roles of Chairman of the board and CEO. It was believed that the executive under such a structure would possess multiple perspectives as well as the power to quickly enact corporate initiatives. However, critics of this form of corporate governance have come to believe that it allows little transparency into the CEO’s actions, and as such these can go unmonitored, paving the way for conflicts of interest and corruption. With a single executive holding both titles, it has been argued that the company’s entire decision-making process lies in the hands of one person, with little in the way of checks and balances. In essence, the CEO has absolute authority and, if the CEO also chairs the board, it might be difficult for that board to objectively evaluate his decisions and performance”.

Even in Indian politics, the roles have been separated, except that typically the party president is “weak”, while the PM is “strong”. The BJP’s strongest Presidents were there at a time when the party was not in power – Vajpayee between 1980-86, Advani from 1986-90, 1992-98 and 2004-5 and MM Joshi between 1990-92 (when he spearheaded the Babri demolition movement). When the NDA came to power, the BJP put weaklings as its party president; first Kushabhau Thackeray (who???) from 1998-2000, then the corrupt Bangaru Laxman from 2000-01, then the unknown K Jana Krishnamurthy from 2001-2 and finally the loud Vankaiah Naidu from 2002-4. Likewise, it’s state party presidents are all weaklings, but the CMs are powerful. The Left is no different. Typically, the party chiefs (Prakash Karat now) are less important than the CMs (Jyoti Basu for long). So separation of powers has been around, though in the reverse fashion. When both the party president and the PM/CM are elected by the people, how does it matter which way the separation is structured???

What kind of separation of powers should exist between the Chairman and CEO (and hence between the party president and the PM)? I found an interesting piece on this on the website of the natural gas company, BG group (http://tinyurl.com/cqzpbnc):

The Chairman (Sonia Gandhi) must a) ensure effective operation of the Board (the CWC???) and its committees (AICC???) in conformity with the highest standards of corporate governance b) ensure effective communication with shareholders (the public???), c) set the agenda, style and tone of Board discussions to promote constructive debate and effective decision-making. d) chair the Nominations Committee and build an effective and complementary Board, initiating change and planning succession on Board and Group Executive appointments (appoint ministers???). e) Ensure that all Board committees (EGoMs???) are properly established, composed and operated. f) support the Chief Executive in the development of strategy and, more broadly, to support and advise the Chief Executive g) ensure that the performance of the Board, its main committees and individual directors is formally evaluated on an annual basis and lastly h) establish a harmonious and open relationship with the Chief Executive. Which of these roles has Sonia Gandhi not played? Does her interest in selection of ministers or evaluating their performance or asking them to resign constitute any breach of propriety?

The Chief Executive in turn is responsible for leadership of the business (running the country) and managing it within the authorities delegated by the Board. In particular, he will: a) develop strategy proposals (policies) for recommendation to the Board and ensure that agreed strategies are reflected in the business. b) develop annual plans (budgets, laws), consistent with agreed strategies. c) plan human resourcing to ensure that the Company has the capabilities and resources required to achieve its plans (choosing ministers). d) develop an organisational structure (cabinet and its subcommittees, GoMs, EGoMs, CoS) and establish processes and systems to ensure the efficient organisation of resources (cabinet meetings etc) e) be responsible to the Board for the performance of the business consistent with agreed plans, strategies and policies f) Lead the executive team g) ensure that financial results, business strategies and, where appropriate, targets and milestones are communicated to the investment community (the corporate sector, foreign investors???) and finally and very importantly h) establish a close relationship of trust with the Chairman, reporting key developments to him in a timely manner and seeking advice and support as appropriate.

Has the conduct of Sonia and the PM been any different? Is Sonia unnecessarily interfering in the PM’s job of is it her responsibility to supervise ? If the PM had to be pushed to sack the two ministers, does that make him weak and her dominating, or does it just show that two executives can have a difference of opinion? Do all responsibilities have to be assigned to only one person? Cant some of them be shared? Does everyone have to agree with all the above??? Digvijay Singh may think the separation of powers isn’t a good idea. That’s his thinking. In a democracy, everyone has a right to an opinion. It’s a sign of maturity that he can comment on something that his party believes differently in, not an admission of fault.

The real truth is that separation of powers between Sonia and the PM is a reality – one largely taking care of the party organization and the other of the government. But both interact frequently and hold each other in respect and trust. Sonia’s graciousness towards the PM is well documented. And vice versa. All this criticism of the BJP is just a case of sour grapes since it is worried that a Modi may fold everything into one and become a de-facto dictator – of his party and the country….