Corporate Governance
UNIT 7 ACCOUNTABILITY TO LEGISLATURE and Corporate Social
Responsibility
Objectives
After going through this unit you should be able to:
• Understand the concept of accountability to parliament;
• Discuss the ways and extent to which PEs are held accountable through
parliament;
• Understand the importance of different legislative committees.
Structure
7.1 Introduction
7.2 Accountability to Parliament
7.3 Methods of Parliamentary Control
7.4 Legislative Committees
7.5 Summary
7.6 Self Assessment Questions
7.7 References and Further Readings
7.1 INTRODUCTION
Public enterprises are created and owned by the state and therefore in a democracy,
parliamentary supervision and control are essential features (Mathur, 1999). With the
growth of PEs in India, the significance of sufficient and effective accountability and
control over these enterprises has increased manifolds. To have a check over PEs,
different agencies are operating so as to ensure public accountability. Out of these
agencies, parliamentary, ministerial, audit-control and control through Bureau of public
enterprises seem to be more effective as compared to the other agencies.
The crux of all this is that government agencies and public enterprises are
accountable to the government, the legislature, in turn becoming accountable to the
people. The existence of PEs, all along depends on the government and legislature
being satisfied with their performance within the objectives set taking into
consideration the public interest.
In this unit we will confine our discussion to accountability to legislature, whereby we
will discuss different aspects like legislative questions, legislative debates and
legislative committees.
7.2 ACCOUNTABILITY TO PARLIAMENT
Legislature enjoys full powers to scrutinise the working of PEs in India (Batra &
Bhatia, 1996). The legislature ensures that the financial and managerial policies
followed by the PEs are sound and effective. Therefore, legislature control becomes
one of the most important and effective method of enforcing accountability,
especially in the Indian context.
The role of Parliament could be that of either a trustee or custodian of the public
money or that of a shareholder. The difference in these two roles is important
because as a trustee, it would be more or less satisfied with seeing that the public
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Public Enterprise: funds are properly utilised, and from this standpoint, parliament should not be
Accountability and prepared to take any risk with the public money, but prefer safety and security. On
Governance
the other hand, as a shareholder it can exercise all powers and privileges that vest in
a shareholder. In this case, it should also be prepared to take all reasonable risks with
its investments, if necessary even by increasing investment in a losing concern to
enable the enterprise to become economically viable and to turn the corner.
Therefore, it becomes important to understand these two roles of parliament, which
are not necessarily conflicting.
Another point about parliamentary control is that the more social or macro-economic
the role of a public enterprise is, the greater is the need for parliamentary concern
with its operation, and this concern is bound to end in control. Therefore, the question
of parliamentary accountability must be considered with reference to the nature of
the enterprise, and the social and public policy contents which go into the decision-
making. Enterprises like LIC and the Food Corporation of India are likely to have
more policy implications as compared to, say, enterprises like the Indian telephone
Industries Ltd., and the Electronic Corporation of India Ltd. However the social
content of an enterprise may change over a period of time and with the change of
circumstances.
Limitations of Parliamentary Accountability
a) Parliament is very much hard pressed for time and it is often not able to devote
the necessary attention to complex and important issues involved in the
Management of PEs.
b) Parliamentary review is not likely to be sufficiently detailed and thorough-going,
as parliament does not always have the necessary expertise for the purpose.
Need to Distinguish between Policy and Routine Matters
The real problem of parliamentary control as of public accountability is how to strike
a balance between the autonomy necessary for commercial operations and the right
of parliament to discuss the working and performance of PEs. Theoretically,
parliament will concern itself with matters of overall policy and achievement of broad
general objectives, leaving the enterprises free to carry on their day-to-day
operations. This however, does not work in practice because of the difficulty of
distinguishing with any clarity between “matters of policy” and “day-to-day
operations”.
7.3 METHODS OF PARLIAMENTARY CONTROL
By and large, PEs come in for parliamentary control in the following ways :
• Legislative Questions;
• Legislative Debates;
• Legislative Committees.
Legislative Questions
In a democratic set-up, the parliamentary questions is the most immediate and
convenient way to open to MPs to obtain information about public matters. It broadly
serves the following purposes :
i) It enables the MPs to ventilate grievances against the working of PEs or obtain
information which may not be available in the published documents and
reports;
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ii) It is an effective way to keeping the minister on his toes as regards his formal Corporate Governance
interventions as well as his informal contact with a PE, for which his and Corporate Social
Responsibility
responsibility is not apparent;
iii) It can have a desirable moral influence on PE managers;
iv) It gives the Member of Parliament a quick opportunity to direct the government
in the policy implementation.
Rules Regarding Admissibility of Questions
In accordance with the parliamentary procedure, questions relating to policy, to an act
or omission of an act on the part of the minister or to a matter of public interest are
ordinarily admitted, and questions which clearly relate to day-to-day administration
are normally disallowed. The final admissibility of questions is a matter for the
Speaker to decide, who controls the question desk.
The following principles have been laid down by the Speaker as regards on PEs :
i) Where a question (a) relates to a matter of policy, or (b) raises a matter of public
interest (although seemingly it may pertain to a matter of day-to-day
administration or an individual case), it is ordinarily admitted for oral answer, that
is, as a starred question.
ii) A question which calls for information of statistical or descriptive nature is
general admitted for written reply, that is, as an unstarred question.
iii) Questions which clearly relate to day-to-day administration and tend to throw
work on the ministers and PEs incommensurate with the results to be obtained
there from, are normally disallowed.
iv) Questions seeking statistical information available in the published documents are
normally disallowed.
The Speaker, in his discretion, can admit a question involving a point of principle or
matter of public importance, even if it concerns day-to-day administrative details.
Efficacy of the Question Device
A sample study of 141 question on the policy and overall working of PEs, answered
by the Department of Public Enterprises, during March-September, 1990, found that
the questions did not reflect any in-depth understanding of the problems besetting PE
performance. In answering questions, the government adopted the line of least
resistance. Questions such as number of quest houses hired by PEs and the rent
paid, the amount spent on maintenance and fuel of cars could have been easily
avoided, as they hardly serve any purpose from the stand-point of control and
accountability.
Another study of 151 question on SAIL, asked in the Lok Sabha during 1988, found
that the questions covered most of the important dimensions of the working of SAIL.
The problem however is of the large number of questions which pre-empt much
valuable time of PE top executives. Further, the questions are against the principle of
“level play in field”: for the enterprises in two sectors. It may be rightly asked why
the public sector SAIL, which operates in competition with TISCO and other private
sector firms, alone be subject to question in Parliament about its day-to-day working.
One hopes that in the context of disinvestments of PE equity, the government will not
allow routine questions, day-in day-out, on various aspects of PEs’ working.
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Public Enterprise: Legislative Debates
Accountability and
Governance Debates cover a wide range of matters including PE policy and performance. The
debates, inter alia, may be on motion of Thanks on the President’s address, at the
time of amendment to an Act relating to a PE, or after the presentation of the budget.
Debates are generally diffused and do not often contain constructive criticism except
case of few members who take pain to study the problem. It is hoped that the
committee system introduced in 1993 will take care for the situation and the problem
afflicting PEs would get better attention.
In addition to debates, matters to PEs are raised in many other ways including the
Zero Hour. An MP may move a resolution relating to a Matter of General Public
Interest involving a PE, PE problems are also discussed under rules which allow the
Calling Attention Motion and Half-an-hour Discussion.
Some occasions on which debates concerning pubic enterprises are held :
• Half-an hour discussion
• Amendment of the statute
• Budgetary Demands
• Discussion on reports of the enquiry committee (if appointed)
• Annual reports
• The President Address
• Adjournment Motion
• Discussion on matters of urgent public importance for short discussion
• Calling attention to matters of urgent public importance.
The efficacy of such debates largely depends on their quality.
The MPs are obviously more interested in issues of topical nature and those affecting
their constituencies or State. Serious matter of policy hardly get attention of
Parliament. The MPs, it seems are more concerned with the survival than long-term
health of PEs. Most PEs have inherent strength to turn the corner provided the
required autonomy and adequate and continuous top management is ensured by the
government. Unfortunately, this dimension has been, more or less, ignored by the MPs.
7.4 LEGISLATIVE COMMITTEES
Legislative committees are one of the weapons to enforce the desired legislative
accountability and control over public enterprises. Here, we are going to discuss the
following three committees in brief :
i) Public Accounts Committee (PAC)
ii) Estimates Committee
iii) Committee on Public Undertakings
i) Public Accounts Committee (PAC)
Public accounts committee as the name suggest plays an important role in enforcing
accountability over PEs. It is the oldest of the three committees and was the first one
to raise the question of exercising parliamentary control over the accounts of PEs.
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Features of PAC Corporate Governance
and Corporate Social
• It was first set up in 1921 but was constituted from 1950; Responsibility
• It functions under the direction and control of the speaker of the Lok Sabha;
• The chairman of PAC is monitored by the speaker and the secretarial assistance
is provided by the Lok Sabha Secretariat.
Functions of PAC
The functions of PAC are stated in Rule 308 of the procedure and conduct of
Business in Lok Sabha (Shrivastava, 1992).
The Following are the Main Functions of PAC :
• To examine the appropriation accounts showing the appropriation of the sums
granted by the parliament for the expenditure ;
• To satisfy itself that the money shown in the accounts as having been disbursed
were legally available for, and application, to the service or purpose to which they
have applied or charged;
• To satisfy that the expenditure confirms the authority which governs it;
• To examine the statements of accounts showing the income and expenditure of
public corporations, government companies, trading and manufacturing schemes
and reports of C & AG;
• To examine the statement of accounts showing income the expenditure of
automounous bodies, the audit of which may be conducted by C & AG; to
consider the report of C & AG, the President may have required to conduct and
audit of any report or to examine the accounts of the stores and stocks;
• To examine the money spent on any service during a financial year in excess of
the amount granted by the parliament for that purpose.
The PAC works on the report the controller and Auditor, General, who acts as its
advisor/comptroller and expert guide. The approach and conclusion of the
committee, are therefore not much different.
ii) Estimates Committee
It was constituted on April 10, 1950 for examination of the estimates and the
problems of the government companies. It was the most powerful committee to
review the operations of most of the public enterprises before the establishment of
CPU.
Functions
As mentioned in Rule 310, the function of the Estimates committee are as follows :
• To report what economies, improvements in organisation, efficiency or
administrative reforms, consistent with the policy underlying the estimates, may
be effected;
• To suggest alternative policies in order to bring about efficiency and economy in
administration;
• To examine whether the money is well laid out within the limits of the policy
implied in the estimates;
• To suggest the form in which the estimates shall be presented to parliament.
Though the estimates committee does not enjoy the same authority as the PAC but its
recommendations are the only source of objective and critical information about
public enterprises. 25
Public Enterprise: iii) Committee on Public Undertakings (CPU)
Accountability and
Governance
The most effective and important instrument of parliamentary control is the Standing
committee of Parliament, which comprises 22MPs, 15 from the Lok Sabha and 7
from the Rajya Sabha. Functions To examine the reports of accounts of PEs, To
examine the report of the comptroller and Auditor General of India on PEs , To
examine, in the context of autonomy and efficiency of PEs, whether their affairs are
being managed in accordance with sound business principles and prudent commercial
practices.
The CPU shall not examine (i) matters of major government policy as distinct from
business or commercial functions of PEs and (ii) matters of day-to-day
administration.
Working of the Committee
The term of the Committee does not exceed one year, though the chairman, who is
appointed by the Speaker from amongst the members of the Committee, in practice,
is re-appointed for another term of one year.
The Committee selects from time to time specific PEs or such subjects as it deems
fit. The committee asks the ministry/enterprise to furnish necessary material relating
to the subjects chosen. The Committee often visits the enterprises chosen for
scrutiny. After the study tours, and after receiving memoranda and other information
from concerned parties, witness from the Government and the enterprise are invited
to give evidence at sittings of the Committee held at Parliament house, New Delhi.
The Committee comments upon important aspects for the working of PEs with a
view to making an evaluation of their performance. The reports of the Committee
provide much useful data and analysis of the enterprises studied by it. The
Committee makes recommendations which are replied by the Government. The
replies along with the comments of the committee, if any, are published by the
Committee in what is called “Action taken Reports”. A great advantage of these
reports is that they commit the Government in respect of the action promised to be
undertaken on a particular recommendations.
All Central Government companies and statutory corporations established by Central
Acts, e.g. Airports Authority, Food Corporation and Life Insurance Corporation, are
covered by the Committee.
Since its inception in May, 1964, till the end of the Ninth Lok Sabha, the Committee
produced over 400 reports. Of these about half are “action taken reports:. A new
reports cover some specific aspects with reference to all PEs. These are called
“horizontal reports”. Some examples of these reports are : Materials Management in
PEs (40th Report, 3rd Lok Sabha), Financial Management in PEs (15th report, 4th
Lok Sabha), foreign Collaboration in PEs (89th report, 5th Lok Sabha), Appointment of
Auditors in Government companies (55th Report, 6th Lok Sabha) Productivity in 2Es
(97th Report, 7th Lok Sabha) and Social Responsibilities of PEs (24th Report, 8th
Lok Sabha).
A Review of the Committee Role
The CPU helps the PE system in many ways. It advises the Government to bring
about the necessary changes in its policy. For instance, it recommended against the
appointment of secretaries to the Government on the boards; for providing a minimum
tenure of five years to full-time board members, for a successor for the top posts
being designated well in advance; for avoiding frequent changes in the board
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membership; and for laying down of PE objectives with clarity. All these are critical Corporate Governance
for PE performance, and coming from a parliamentary Committee are of much value. and Corporate Social
Responsibility
The committee also provides counsel or advice to PEs on any matters including
policies, programmes, and day-to-day operations. All extract from a report is
illustrative : “develop an efficient commercial culture… the proposed incentive
scheme should be introduced without further delay…. Aim at complete customer
satisfaction…. Norms should be evolved for inventory holding and should be strictly
enforced … adopt a system for securing prompt payment of dues by customers and
disincentive for delayed payment … get over the losses by an imaginative market
survey and sales promotion.. avoid building up of inventory … charge interest at the
market rate on outstanding….” In a developing country with a serious shortage of
managerial expertise, many obvious and important managerial issues do not often get
adequate attention from those in charge of PEs and a reminder from a high powered
body like the CPU is of great value.
The CPU has not been able to cover every year more than 5 to 6 PEs, on an
average. Thus, a large number of PEs remain unscrutinised or are covered very
infrequently. This is a shortcoming of the system of accountability through CPU.
It is difficult to say how far the CPU keeps PE managements on their toes or helps in
preventing inefficiency, and whether PE behaviour pattern is influenced by the
existence of the committee, A survey of 92 top and senior executives in 41 PEs
found in 1991 that PEs consider the CPU’s role as positive, and most of the
respondents would like their PEs to be examined by the committee. But the
committee has a long a way to go to achieve the objectives stated by the Krishna
Menon Committee (1959), on whose recommendation it was established, namely, the
committee “should encourage both initiative and long-term planning” in regard to
which” government undertakings are normally backward or very shy” and “it would
take a long-term view rather than concern itself with the minutiae of administration”.
7.5 SUMMARY
No empirical assessment has so far been made of the extent to which the public
accountability affects PE performance. Accountability to Parliament through
questions, debates and discussions provides a feedback to PEs on many matters of
policy and operations. The questions also have a moral influence on PE managers in
as much as any of their actions can be questioned on the floor of the House. But the
serious problem is that much valuable time of the PE management is wasted in
replying to questions which are routine, superficial and fall into the realm of day-to-
day management rather than deal with matter of policy. Sometimes, motivated
questions are also asked, PEs are not happy with the way the ‘question device’ of
public accountability operates at present. So far as the debates and discussions are
concerned PEs are almost neutral to the situation.
The accountability secured through CPU is useful and substantial. Many
improvements have been effected by PEs based on recommendations of the CPU.
But as the CPU is not able to cover more than 5-6 PEs in a year, a very large
number of enterprises are either never covered or are covered only after a long time
gap. To this extent, the accountability gets diluted.
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Public Enterprise:
Accountability and 7.6 SELF ASSESSMENT QUESTIONS
Governance
1. Comment on the effectiveness of the questions and debates as instruments of
parliamentary control.
2. How is the CPU constituted ? How does it working affects PEs ?
3. Discuss the functions of PAC and Estimates Committees.
7.7 REFERENCES AND FURTHER READINGS
United Nations. (1974). Organisation, Management and Supervision of Public
Enterprises in Developing Countries, New York.
Narain, Laxmi and Murthy, B. S. (1984). Public Enterprise and Fundamental
Rights, N. M. Tripathi (P) Ltd., Mumbai.
Iyer, R. Ramaswamy. (1991). A Grammar of Public Enterprises, Rawat
publications, Jaipur.
Standing Conference of Public Enterprises. (1990). Reports/Recommendations of
various Committees on Public Enterprises, New Delhi, Chapter one :
Recommendations of the COPU on Accountability and Autonomy of Public
Undertakings
Shrivastava, M.P. (1992). Parliamentary Accountability and Supervision over PEs.
Deep and Deep Publications, New Delhi.
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