Your extrapolation from corporate governance literature is far-fetched and misleading - the best institutes of higher education the world over (and certainly those dealing with management/business education) are not run by government-shareholders - Harvard, Wharton, Stanford, INSEAD, etc. are all run by independent boards/societies. Wharton is part of the Univ of Pennsylvania (a state university) but is independently governed. How about looking at the record of our government at our vaunted public sector undertakings where it is the "dominant shareholder" - I am sure you know that their performance on tangible growth metrics (e.g., revenue growth), or efficiency metrics (e.g., return on capital employed) is dismal.
..........There are some rumblings about the Sterlite group or the Ambanis or Naresh Trehan Medicity establishing a big corpus for a private university in the American mould (e.g., Carngie Mellon Univ) or a teaching hospital (e.g., Johns Hopkins) - if this were to really happen i.e. a private university established with a corpus / trust funds, and not a for-profit entity disguised as a trust in order to launder money and evade taxes (which is what most of our "private colleges" are today), 15-20 years after that, you would be justified in pointing fingers if those universities did not measure up to the IITs or AIIMS.
Let me now respond to two substantive questions arising from Juno's comments.
1. Why not substitute private, non-profit institutions in education for government-run ones?
Juno is right, the private, non-profit model in higher education has been a great success in the US. Please note, however, that the US has great successes among government-run institutions as well- eg Univ of California and UT, Austin.
Indeed if, as Juno says, the private, non-profit model were to emerge in Indian education, that would be an experiment worth watching. But, this model is widespread only in the US and it is sustained by a tradition of private (including anonymous) philanthropy that is unique to that country.
Individuals and corporations in the US make huge endowments to universities without asking for any say in how it is used- they are happy to leave this to the board of trustees. That is because they have confidence in the governance model at the universities in the US, a model that has evolved over years and is not easily emualated elsewhere.
In India, however, the private donor is also the management. Most of the time, as Juno notes, the donor is in the game for profit. Some institutions may be registered as non-profit and they may conform to the technical requirement for tax-exempt status, namely, that the surplus must not exceed 20% of revenue. But the fee structure and other elements are geared towards producing surplus.This model has not produced outcomes superior to those produced by the better government institutions.
If the Ambanis and Sterlite aim to produce world-class universities, good luck to them. But we need to see whether they will remain in control or will hand over management to independent trustees. It is rare for a corporate-run university or school to have been an outstanding success in academic terms.
2. Why not move the IITs and IIMs towards the governance model of non-profits in the US?
The American private, non-profit university governed by independent boards operates in a milieu where market forces are strong. There are several top quality universities and schools and competition is fierce. Universities and schools are systematically rated, so are individual departments at schools. Declines in ratings provoke strong responses from management- departments and faculty can be severely penalised for slipping in rankings. There is a tenure system for faculty that is rigorous and peer pressure ensures that even tenured faculty do not take their jobs lightly.
India does not have an academic market that is as competitive. The market has been closed to foreign universities and the non-profit, private model is yet to emerge as a strong competitor. The IITs and IIMs have substantial first mover advantages and the advantages of huge infrastructure and subsidies provided by government. Faculty accountability is nowhere near what you have in the US.
It is unrealistic to expect that the entire system of market discipline can be replicated overnight. It will take decades to evolve towards the American system. What do we in the interregnum? There are only two instruments of discipline known to man: the market and the state. Where market discipline is not strong enough, what choice do we have other than to fall back on regulation by the state?
Government withdrawal can only be a gradual affair and for it to happen the IITs and IIMs must propose credible mechanisms of accountability and governance. The key issue that is unanswered by those who want the govt out of IITs and IIMs is: who holds management accountable? The answer that I seem to hear is: just leave it to faculty. In governance terms, this is most unsatisfactory. There must be somebody who delivers performance and somebody else who monitors. A governance vacuum created by government's precipitate withdrawal is the worst of all outcomes.
I believe that in higher education, there is room for different models: state-un, private non-profit and private, for profit. The intention must not be to convert the IITs and IIMs into something else. We must try to improve governance at IITs and IIMs within the framework of government control (not impossible in light of the improvements in governance in listed PSUs in recent years) . At the same, we must allow competing models to emerge freely. It is important to have not just competing institutions but competing models. May the best model win!