Opinion When CEOs are ineffective

Essentially this means that there is no reason to expect the performance of these companies to swing with the presence of the top man. The companies in the 243-member club certainly do see peaks and troughs in their operations,but those occur independent of changes in the boardroom.

This is possibly a very comfortable thought for shareholders in these companies as more and more of them enter the stockmarkets. Data shows that since 2009-10,when the top-listed public-sector companies,along with their private-sector peers wobbled with the impact of the global financial meltdown,the highs and lows of their performance have been pretty much in sync with the rest of their sector. This is as one would expect. But,in the same period,several of them have seen their chairmen depart. But — unlike their private sector counterparts — these have not made any changes to their fortune.

In a sample of the 60 largest public-sector companies in India,one of the five with the highest return on net worth is the National Mineral Development Corporation. The company has a 26.61 per cent return ratio— better than Coal India at 25.54 per cent. And,even on the longer-term ratio,that of returns on net assets it beats its competitor: 24.15 against 22.17 per cent. NMDC has been without a CMD since December last year while Coal India changed captains early this year.

If you think that was slim basis for comparisons,watch how two commodity-producing companies largely focused on single states have performed with and without CMDs. Neyveli Lignite Corporation in Tamil Nadu is headless,while Nalco,operating from Orissa,has an acting chairman — since the last incumbent faces a criminal case. Both the companies have pretty close returns on net worth,of 12.6 per cent and 8.08 per cent. Neyveli actually does better,showing how deeply the chiefs matter to these companies.

The best evidence,of course,comes from the oil sector. The company which outperforms ONGC,IOC,BPCL and HPCL is the smaller Oil India. The company has been without a guy at the top since January,but it is generating more value for its shareholders for each rupee they have ploughed in than its bigger competitors. At 22.6 per cent return on net worth,the company is doing better than mighty Reliance Industries Limited in the private sector.

Of course this line of argument does not mean the best days of the public-sector employees are those when they do not have a chief. But it does show the companies are not dependent on their leaders in a very significant way.

But even if one uses other measures,the conclusion is that public-sector chiefs are not a key ingredient to the performance of the companies.

As the chart shows,of the top ten PSUs listed in the BSE,the price-to-earnings (PE) ratio of all of them have trailed the Nifty as on March 31,2011. These companies have all had their chairmen in the saddle; but,head-to-head,they have underperformed the markets. Of course there is a reason in the wider economic environment for their lack of steam. The oil companies,for instance,have bled because of the government’s subsidy policy for the sector — and NTPC has been held back by the return of crisis to the state electricity boards. But this is precisely where one would expect a chief to make a difference.

Yet neither have successive chairmen of oil companies been able to take an aggressive line with the ministries,since the government is the majority shareholder; nor have power companies been able to argue about the need to allow them to aggressively tender for equipments from abroad,to cut the cost of generation.

This picture of a chairman-agnostic sector is unlikely to change soon. The problem reads bigger when you factor in that almost all the top companies in our chart are Navaratna companies — which means in theory they have just that much freedom that a dynamic chief can bring in differences. Possibly we also need to do a more detailed analysis of how this is playing out,plotting the ratios on a longer timescale. But even the limited numbers here show just how indifferent the performances of PSUs are to board-room directions.

This is a pity — as the period since 2009 was a fantastic window of opportunity to do better by these companies.

The writer is Executive Editor (News),‘The Financial Express’
subhomoy.bhattacharjee@expressindia.com