Friday, April 15, 2011

'A problem with IIMs is they have no real stakeholders'

Faculty at the Indian Institutes of Management (IIMs) have objected to quite a few of the Bhargava committee recommendations on restructuring these B-schools. Such as the one that the managing society at each IIM should function as an ‘enlightened owner’, wherein corporate entities can become members on payment of Rs. 20 crore (Rs. 200 million), individuals on payment of Rs. 5 crore (Rs. 50 million) and alumni by paying Rs. 3 crore (Rs. 30 million). This, the faculty say, will lead to privatisation of the IIMs. R C Bhargava, Chairman of Maruti Suzuki India and author of this report on new governance structures, tells Kalpana Pathak the teachers haven’t understood. Edited excerpts:

What was the committee’s rationale behind this idea of allowing membership by accepting donation?
It is not a new idea at all. I believe two or three existing IIMs have been allowing this since inception and nobody objected to it so far. The amounts were considerably smaller. All we have done this time is to have increased the amount. If you convert the money that IIMs accepted in, say, the 1960s, it will work out to be a very large figure anyway. So, no new principle is involved.

Why did the committee increase the amount?
Two fundamental reasons. One, to build a corpus for the IIMs. All these years, they have not been able to build any significant one for themselves. Whatever money is available is largely in the form of government grants. The IIMs have not been successful in getting any significant donation from outside parties and using that corpus to do things leading to academic excellence.

Today, the bulk of the money that IIMs generate is through the Management Development Programmes (MDPs) or executive education programmes they conduct. If they did not have these, they would all still be running at a loss or just marginally breaking even.

Every IIM has a scheme that the money earned via MDPs is shared between the faculty member who carries it out and the institution. Of a 100-odd faculty in the IIMs, only 50-60 per cent are able to do MDPs. Some of them are able to earn as much as Rs 60 lakh each year.

Thus, there is a strong interest in carrying out MDPs. However, a result of doing so is limited teaching and research. When the Ajit Balakrishnan committee recommended that about 160 hours of teaching be put in (a year) against around 90 hours at present, which is the case in most IIMs, this was made in the interest of bringing in a healthy development, as you want more MBA teaching and more research to happen. The issue is how to make up for the loss of revenue from the MDPs.

A corpus is a way out and building one is a priority. If we implement the other recommendation of more teaching and more research, it means less MDPs and in turn less income for not only the professors but also for the IIMs. To make up for that income, either you increase the fee or find some other source of money. Else, the budget of IIMs may go for a toss. The corpus income can be used both for making IIMs financially viable and giving extra income to professors who do good work in teaching, research or in conducting MDPs.

Are you implying the IIMs should stop MDPs?
No. But the IIMs have not been set up by the government to carry out MDPs as the main objective and earn money. They are supposed to create managers and leaders. We looked at the kind of MDPs being done. By and large, these are for fairly lower levels of people from the public sector. Higher level management people do not come to the IIMs for MDPs. They are being done for these lower level people as they generate money. A corpus would lead to people getting more time for research and MBAs.

We also thought a corpus would be required as the new IIMs need professors. There is dearth of faculty and if you suddenly add seven new IIMs, where do you get the teaching staff from? One way is to get Indian faculty teaching abroad. They need to be paid. However, they cannot be paid over and above the government’s salary structure fixed through the Pay Commission. So, you can compensate them with board approval through money generated from the corpus. The ministry has recognised this need and approved this method.

Have the professors approached you to clarify the recommendations?
No, none of these professors have spoken to me. I would like to ask them what they mean by privatisation of IIMs. In public sector units, privatisation means reducing government equity to below 50 per cent. This is not happening here. The IIMs will remain Board-managed. The government will remain the promoter and its overall power of control and superintendence will not be diluted.

So, how will some corporate donating money and joining the Society hurt? How will it lead to privatisation? Today, people can give a few lakhs and become members of the Society. Have those IIMs become privatised? If much fewer number pay a few crores, the IIM gets privatised? The logic is hard to follow.

IIMs will always have to seek grants from the government because in the next 20 years, I do not see any of the IIMs having enough resources to fund their capital expenditure. If the faculty members mean the board will suddenly get controlled by the Society, it’s not valid. The Society does not elect the board. You may be a member of the Society but the latter has only one or two members out of 14 on the board.

The issue of privatisation is misconceived and misunderstood. Faculty members are not the governance of an IIM. They certainly do, and should continue to, determine the academic side of the IIM but they are not responsible for governance of the IIMs.

Under the law, the board is supposed to manage and administer an IIM, nobody else. That is the legal position. Subject to whatever powers the government keeps to itself by virtue of its actually being the person who has promoted the IIM and funds the IIMs.

How does alumni being on the board help?
That alumni should be part of the management of the IIMs is something that has been supported by even faculty members. This is how it works with international B-schools. Alumni members take interest in an institution; we talk of people with some sense of ownership and commitment, and who are worried about the reputation of the alma mater.

Getting people who are on the board for three to five years and then leave will serve no purpose. You need people who can care about the institution and have some stake in the institution. A reason why IIMs have not progressed the way they should have is because there are no real stakeholders. Alumni are clear and important stakeholders.

Source: Business Standard, April 15, 2011

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