ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Corporate Governance of State-Owned Enterprises: The Case of BSNL

A missing element in the reform process in India is the restructuring of the incumbent state-controlled monopoly operator prior to or simultaneously with the opening up of the sector to competition. This places the state-owned operator at a serious disadvantage relative to competitors. This has been the case with Air India/ Indian Airlines with adverse consequences. This paper argues that Bharat Sanchar Nigam Limited/Mahanagar Telephone Nigam Limited may be headed in the same direction. The restructuring of the state-owned enterprises must begin at the top with a complete reorientation of the corporate governance mechanism which establishes the relationship between the government and the enterprise. With the growth of private operators in these sectors the state-owned enterprises are no longer of strategic importance to the government for sector development or providing "universal service". To the extent privatisation is not feasible or desirable at least in the short run, the corporate governance mechanism should be designed around the objective of growth and efficiency as in the case of private enterprises.

Bharat Sanchar Nigam Ltd (BSNL) may become the latest casualty of economic reform and liberalisation which does not include restructuring of the incumbent state monopoly.1 While the telecom sector was opened up to competition in the early 1990s, the Department of Telecommunications Services (DTS) was corporatised into BSNL only in 2000. Even after corporatisation there has been no attempt to put in place suitable corporate governance mechanisms consistent with the new industry structure characterised by erce competition. Even the absorption of the Indian Telecom Service (ITS) ofcers, who constitute the top management of BSNL but are formally employees of the Department of Telecommunications (DoT), is yet to be completed. This is unfortunate since corporate governance determines the quality of the most crucial decisions that a rm faces corporate strategy, top management recruitment, compensation policy and major investment decisions.

Recent studies have highlighted the role of corporate governance for rm valuation. In the private sector a distinction is made in the role of corporate governance on the basis of the nature of ownership and management control. In the US and UK, where ownership is relatively diffused, corporate governance is aimed at ensuring that managers do not pursue private interests at the expense of the interests of the rm. In addition managers are also supposed to be disciplined by the market for corporate control in the form of takeovers and proxy contests.

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