No reason for IIMs to be alarmed

ttempts by successive governments to inject a modicum of accountability into the Institutes have been construed as threats to autonomy, but this is not the case

The Indian Institutes of Management Bill, placed for comments in the public domain until recently, intends to bring the IIMs under an Act of Parliament. An IIM Act would enable the IIMs to confer degrees, instead of diplomas and fellowships. The leading IIMs are up in arms against the Bill. One wonders what the fuss is all about.

The framework that the Bill intends for the IIMs is more liberal than the IITs Act. For instance, the Bill intends only a Coordination Forum for the IIMs, unlike the IIT Council which has powers of policy-making and oversight. The IITs have a higher standing globally than the IIMs. Admissions, curricula and faculty recruitment at the IITs have all remained free from government interference. If the IIT Act has not cramped the IITs, why should we believe that the proposed IIM Act would erode the autonomy of IIMs?

The issue here is what the leading IIMs mean by autonomy. These IIMs have long taken the position that what they need is not just academic autonomy (which they have always had) but financial and operational autonomy. Since the early 2000s, they have enjoyed financial autonomy as well, meaning they are self-supporting. They now demand operational autonomy.

The expression ‘operational autonomy’, as used by the IIMs, is rather misleading. It’s not just the freedom to implement policies, as the expression would seem to connote. It includes the framing of policies, including those related to matters of governance. The leading IIMs have long contended that all appointments and decisions related to the institutes should be left to their boards of governors.

They would like the chairperson, board members (other than the government nominees) and the director to be all selected by the board. Faculty compensation too should be set by the board. The government should have no say on the fee structure. Defining the powers and responsibilities of the director should be left to the board. And so on. The government’s role, these IIMs believe, should be confined to setting broad objectives and ensuring that these objectives are met.

The IITs do not have these privileges. Nor were these privileges intended for the IIMs in the memorandum of association under which they are governed. In 2004, V.K. Shunglu, a former Comptroller and Auditor General, submitted a report on the finances of the IIMs. In his report, he remarks caustically, “IIM (Ahmedabad) continues to implicitly assume authority it arguably does not possess and explicitly seeks autonomy and ownership which does not emerge from the Articles of Association.” Leaving aside the legal position, how appropriate are the IIMs’ demands? The question is best answered by addressing three issues. What are the conditions, in general, for boards to be effective? How are public universities in the U.S. and elsewhere governed? What has been the track record of the leading IIMs on matters of governance?

Boards do not become effective because they are composed of wise men and women who will offer sage counsel. They are effective when they are held to account. In the corporate world, three conditions must be met for boards to be effective. There must be competition in the market, and large or dominant investors who monitor performance closely. The financial markets must be efficient. Even where these conditions are met in large measure, boards are seen to be not effective enough.

American universities

Universities in the U.S. may not be subject to the discipline of financial markets but they certainly face fierce competition. There’s very little difference amongst the top 20 universities or, for that matter, amongst the top B-schools. Rankings and research output are closely monitored by the various stakeholders. Alumni are big donors and often sit on the boards of universities. As a result, boards are under pressure to deliver. Non-performing presidents and deans are shown the door.

“The IIMs have not had fixed tenures for board members, something that one would regard as a basic axiom of good governance”

The IIMs lack serious competition. The pecking order amongst the IIMs themselves has hardly changed over a very long period. Board members, including the chairperson, come and go and have little stake in the institutions. IIM boards have not set performance norms for directors. Under these conditions, it’s unrealistic to expect that the boards can enforce accountability. It’s important for the dominant stakeholder and promoter, namely, the Government of India, to keep a watch. This will require monitoring of decisions, not just outcomes. It will be especially required if the IIMs come to be covered by an Act of Parliament as the government itself is accountable to Parliament.

Although American higher education is dominated by private, non-profit universities, there are also State universities of the highest quality. How are they governed? Well, California has one of the best State systems in higher education. The board of governors at California — called the Board of Regents — has 26 members, of whom seven (including the governor of the State) are ex-officio members. The governor appoints 18 members. The board appoints one student as Regent. At Texas, the nine-member board is likewise appointed by the governor. These highly regarded universities don’t bleat about any threat to their autonomy.

The functioning of the IIM boards itself has left much to be desired. In September 2008, a committee headed by R.C. Bhargava made scathing observations on IIM boards. It said, “Board agendas are filled with routine administrative approval requests…only rarely do boards discuss strategy and prepare any long-term plans.” Even today, murmurings are heard in the IIM system about the perfunctory nature of board meetings.

Shortcomings

The government has had to step in to fix serious shortcomings in governance in the IIM system. For decades, some of the IIMs had outsized boards with some 25 members. The government had to persuade the IIMs to prune their boards to a more compact number of around 15 (and even this was construed as a threat to autonomy!). IIMA has not thought it necessary to change its statutory auditors for 50 years; the IIM Bill now has a sensible provision for rotating the statutory auditor every four years.

The IIMs have not had fixed tenures for board members, something that one would regard as a basic axiom of good governance; the IIM Bill limits the terms of board members to a maximum of six years. In 2012, the five-person committee constituted by the IIMA board to select a director did not have a single academic on it; it was composed entirely of people from the corporate world. The IIM Bill wisely mandates a desirable composition of the selection committee.

There has never been any threat to the autonomy of the IIMs. It’s the attempts of successive governments to inject a modicum of accountability that have been construed as threats to autonomy. There are provisions in the IIM Bill that, perhaps, require discussion — for instance, the provision that states that all regulations made by the IIM boards require the prior approval of the government. However, the IIMs can hardly contest the basic thrust of the Bill, namely, to put in place transparent processes and clear norms for accountability in the system.