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.

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