Focus on how to man institutions

Every appointment is the prerogative of the government of the day. However, an appointee simply needs assurance of tenure and a fair assessment of performance coded into the law

By Somasekhar Sundaresan

It perhaps takes a controversy over the re-appointment of a “rockstar” central bank governor to highlight attention to a serious problem – the problem of how we effect appointments to institutions that run the republic. A republic functions through its institutions. Institutions function through the people who man them. And yet, the weakest link in governance is how we appoint men who staff the institutions. Acknowledging the existence of a problem is the first and biggest step towards solving it.

Every institution in the system suffers from the ailment. There is abundant recent literature on problems with judicial appointments. Reams of newsprint have been devoted to the attempt at constitutional amendments, judicial rejection of the amendments, and debates over whether accountability trumps independence. This column will not devote more space to the subject. However, the bottom line is clear: there is a sense of unease with the robustness of how judicial appointments are made. The appointment of lawmakers holding office in legislative bodies, too, is a subject matter of political science. The accountability imposed by having to get re-elected works well in the Lok Sabha. However, appointments to the Rajya Sabha are increasingly being rumoured to be fraught with all the elements of corruption and subterfuge that can be imagined.

Problems with appointments in the executive are intense and complex. Currently, the supply of human resources in the civil services primarily comes from those who do clear one competitive entrance examination at a very young age – typically under 25. The pecking order is cast in stone with that one examination, and substantially determines “merit” for the rest of the career path. There is little attention to real performance on the job, emotional degeneration during the career, appropriateness for specific roles at work, and building of specialised domain knowledge and skill-sets in playing specific societal roles on behalf of government.

There is hardly any osmosis that enables external human resources, who have not taken that one examination in their lives, to come into government service. After the first two decades in the life of the Indian Republic, when a role in government caught the imagination of the likes of V Krishnamurthy (of BHEL, Maruti and SAIL fame), former Prime Minister Manmohan Singh and Varghese Kurien (of Amul fame), it is tough to come up with many names of external non-UPSC graduates who have even been allowed entry into the civil services club. Besides, once appointed to an office, there is hardly any assurance of tenure. There may be court rulings on tenure protection for civil servants, but assurance of a reasonable term in one job is all on paper.

Appointments to regulatory agencies – institutions that are mini-states thanks to them playing legislative, executive and quasi-judicial roles all at once – suffer the most. Regulatory agencies such as those in the areas of banking, capital markets, insurance, pensions, telecommunications, electricity, petroleum and natural gas etc. fall in this category. First, although when an appointment is due is (or at least should be) known well in advance, replacements and re-appointments are never planned for. After one is thirsty, one starts thinking about where to dig a well. Many a regulatory head has had the ignominious wait on the last day in office with eyes riveted to the fax machine. Someone who chooses not to do that is a misfit for the system.

Second, there is still no statutory standard to the tenure length of a regulatory head. A high court judge, for example, once appointed, is immune from removal unless impeached by Parliament. However, a regulatory head has no such assurance. She is quite dependent on staying popular to secure her tenure. This is why judges are more likely to take unpopular decisions that are necessary, while regulatory heads are more prone to taking popular decisions, however wrong. Appointments for a period of say, three years, with a line about how it may be extended by another period, say two years, lead to perverse incentives.

Third, even when appointed, an incumbent has to increasingly face public interest litigation on validity of appointment. After the Supreme Court’s ruling negating the appointment of PJ Thomas as the Chief Vigilance Commissioner, every appointment of significance has become susceptible to legal challenge on some ground or the other. Bizarre situations such as the incumbents engaging their own legal counsel to ensure that they are not tainted in the course of the legal proceedings abound. Worse, there have been cases of incumbents who are not even party to proceedings getting strictured by the judge. More recently, even re-appointment of incumbents who have already held office for years has been subjected to litigation on grounds of vigilance clearance not having been obtained.

Even more bizarre is the fact that while regulators mandate that those they regulate should implement performance appraisals for incumbents, including self-appraisal for independent directors on boards, no governor, deputy governor, chairman or whole time member of any regulatory agency has a performance appraisal to worry about. Therefore, while there is every reason for an appointee to worry about validity of her appointment, there is no cause at all for her to worry about her performance.

Every appointment is the prerogative of the government of the day – the people vote the government into office empowering it to do so. However, an appointee simply needs assurance of tenure and a fair assessment of performance coded into the law. Once appointed, unless the incumbent is clinically proven to have become insane, bankrupt or is fairly appraised as a non-performer, tenure must be assured. Prohibition on renewal on tenure without a reasonably long cool-off period too would be a novel way to address perverse incentives, if the tenure is a reasonably long one.

No institution can be better than the persons manning it, and we need to focus on how we appoint those who man our institutions.

This was published in the June 20, 2016 edition of Without Contempt, a fortnightly column in the Business Standard.

Public consultation for law-making is no fetish

Consulting those governed by the law enables society to know the intent and purpose – it is only a consultation and not a vote

The need for before bringing in any new legal requirement keeps coming up every now and then. Most recently, it made it to the headlines yet again when the ruled that the manner in which the telecom regulator conducted public consultations and dealt with the inputs received was arbitrary and unconstitutional. The court had even remarked that India should have a law that makes it mandatory forto conduct public consultations in an objective manner when writing new law.

Interestingly, the had already directed in February 2014 that every government agency and department to follow a pre-consultative process when making law. The Union law secretary had communicated the Cabinet decision to all departments asking them to strictly abide by the requirement to conduct prior consultations with the public. The then United Progressive Alliance (UPA) government had burnt its fingers badly with civil society led by andover the draft law to create the not having been properly discussed with the public. It had yet gone on to make this a self-complying requirement without getting Parliament to make law. The new National Democratic Alliance (NDA) government has not reversed this decision in the two-year-plus tenure it has had so far.

However, this requirement is followed more in the breach by government agencies uniformly – both under the residual term of the UPA and the newly-elected NDA. Worse, many government agencies provide lip service to the process by getting public comments on draft policy and draft legislation on some proposed actions even while pushing through numerous decisions, both routine and serious, with no at all. For some reason, it appears that this self-imposed requirement had either not been highlighted to the by any of the parties, but many writ courts are now being called upon to determine the legitimate expectation of Indian society arising out of the requirement to be consulted.

What is the charm in a pre-consultation? Asking those who are to be governed by the law for their views on the proposed law enables a society to know the intent and purpose underlying the law. The consultation process helps clear out unintended consequences and unforeseen difficulties that could be posed by the proposed law. Having this dialogue could enable addressing loopholes that the proposed law would leave, and removing unnecessary and onerous requirements that do not meet the objectives – the subjects governed by the law are best placed to give this feedback. This includes the beneficiaries of rights under the proposed law (those the law seeks to protect) and those on whom obligations are imposed under the proposed law.

A pre-consultative process is only a consultation. It does not give a veto to the public. When members of a society express reservations about the efficacy of the measures in the new law, it gives the lawmaker a chance to address the concern – demonstrate that they are wrong, or acknowledge that they may be right but still have good reason to overrule their concerns. The sovereignty of the lawmaker – be it Parliament, or a regulator, or a department of the government – would be intact and majestic. After the law is brought in, the society would know what was really expected under the law. When anyone is in doubt about what course of conduct to adopt, such clarity would enable them to choose the conduct most responsive to the objective of the law. In the field of business and industry, this process would contribute immensely to the ease of doing business in India.

Yet, all these arguments are usually wished away as Utopian by the bureaucracy that proposes law and policy. Indeed, there can be abuse of the consultative process, but the abusive feedback has to be stated to be rejected. For example, regulators have found numerous similarly worded responses from different members of the public, making it evident that one vested interest supported one point of view, outnumbering the contrary view. But no one said pre-consultation was a public vote. The telecom regulator has indeed made the point well on theover net neutrality when social media companies abused the process.

Every law requiring a pre-consultative process would also naturally protect the lawmakers’ right to bring in requirements on an emergency basis. Such requirements would hold good for a reasonably long period during which the consultative process can run its course. After applying the process, the law could be reiterated, modified or removed. Indeed, the Union government’s requirement that every government department and agency should follow pre-consultative process does not cover presidential ordinances.

In the absence of a pre-consultative process being mandated under a binding law governing how law should be made, it is left to the whims and fancies of the bureaucrats writing the law to sidestep the governmental directive to have pre-consultation. Any government officer worth her salt would be able to write some reasons on why she cannot wait for the pre-consultation process and how it would hurt public interest to do so. In much the same way that she would be able to decry the debilitating impact of the law on the right to information. This is how regulators get away with giving society no clue of when they provide the avenue, how they deal with inputs and why they accept or reject any suggestion even while creating a mirage of on some matters of law-making. It is time to intervene with a formal substantive law – which too may entail public consultation.

This was published in the September 5, 2016 edition of the Business Standard column titled Without Contempt

Need to change approach to legislation

Enhancing powers without investment in capacity building to administer the powers leads to fall of the majesty of law

Ask any sane and reasonable person how she thinks undesirable conduct should be prevented. Most likely she would say: “Pass strong laws and give powers to the enforcers to put the wrongdoer in prison.” Ask when a provocative development is making news, and the certainty of this response would go even higher. When the subject is proposed law to govern conduct of business, the certainty of the desire for criminalisation would almost be assured.

Yet, no matter how sane the person, such a reaction is purely intuitive and the outcomes from such policy can prove to be quite counter-productive. History teaches us that merely criminalising undesirable conduct does not lead to such conduct coming to an end. Despite murder leading to potential death penalty and although that is the most well-known reality across the country, someone is getting murdered somewhere even as you are reading this piece. The gruesome in Delhi led to the then existing criminal laws being amended to bring in the death penalty, but crimes like the assault in Shakti Mills in Mumbai continued.

Securities law provides a classic example of the story playing out in India’s financial sector. Every time a scam takes place, the law is amended to give the capital market regulator more powers. The Harshad Mehta scam led to the Securities and Exchange Board of India (Sebi) being given statutory status in 1992. Since 1988 when it was set up, was just a government agency without statutory backing. The vanishing companies scam in the mid-1990s led to powers to issue directions “in the interests of the market” under Section 11B, by far the most controversially used provision in India. The led to another round of power enhancement in the early 2000s. Sahara and the slew of collective schemes found to be active led to even more sweeping provisions – now, any scheme entailing a size of Rs 100 crore would be regarded as a collective scheme.

The clamour for making laws more stringent is quite a routine demand from those manning regulatory agencies. When scams occur, they are hard-pressed to explain why it occurred rather than be given an environment to study the root causes and address them. A pre-build-up of a narrative of not having enough powers always comes in handy on such occasions.

However, such an approach also leads to the society coming to expect from the regulator anything and everything that is not due from the regulator. The regulator’s own approach of being expansive in overreach contributes to this. For example, the battle against money laundering has an entire legal framework with a distinct enforcement system, check and balance in a tribunal and a full-fledged apparatus to actually seize assets, auction them and expropriate proceeds of crime. The legal framework requires financial regulators such as and the Reserve Bank of India (RBI) to only assist this apparatus. Yet, because the capital market regulator often uses securities laws to meet enforcement objectives of anti-money laundering law, public expectations get built up accordingly.

For example, has in the past used its powers to enforce circulars issued under the anti-money laundering law. Likewise, it has used its powers under Section 11B to allege disruption of securities market integrity on the grounds of suspected money laundering. It is but natural that the regulator then gets pulled up, unfairly, by agencies such as the Supreme Court-appointed special investigation team comprising retired judges for not addressing money laundering issues properly – it was never Sebi’s task to begin with.

Misdiagnosed problems leading to wrongly prescribed medicine is another outcome. More recently, despite those with deep experience in the space of women’s and children’s rights expressing serious concerns, our Parliament passed laws to treat children like adults in delivery of criminal justice. The objective was not so much a desire to placate the relatives of crime victims but to address the widespread belief in society that the lacuna in existing law was the hurdle in achieving crime-free society. In the process, any one pointing out flaws in the medicine being prescribed is painted as a perpetrator of the virus being protected against. Yet another law then gets passed, with challenges to enforcement, and the inevitable consequence of stronger belief that we are a nation that does not care for law. What we need is care for how we create law and how we think about issues with administering it before writing it.

Corresponding to the power enhancement, there is hardly any in capacity building for administering the powers and enforcement of the provisions that grant new powers. When cheque-bouncing was made illegal, no one gave thought to whether the nation has enough prisons to house those whose cheques may bounce, much less if we have enough magistrates to try the increased volume of cases. When the scale of non-performing assets has ballooned inviting judicial comment, yet another law on insolvency has been thrown at the problem, but for that law to be effective, the still-being-physically-established national company law tribunals and the near-broken debt recovery tribunals would need to function phenomenally well, way above current capacity. Yet another regulatory agency would need to be set up registering insolvency professionals under this law even while we struggle to find resources to man and head existing regulatory agencies.

The easy presumption that every problem would get solved by providing even greater enforcement powers has to be addressed to stop the vicious cycle of more laws being thrown at society without any corresponding capacity building or contemplation on the root causes of misconduct. Continuously redefining what the “wrong” is, to make it easier to prove that someone did wrong, risks treating rights as wrongs. With that comes the fall in the majesty of the law and an even greater clamour to address the disrespect for the law.

This column titled Without Contempt was published in the Business Standard on September 20, 2016