Monday, June 04, 2007

Governance of IITs and IIMs-II

Juno, NYC, has a detailed comment on my earlier post on Governance of IITs and IIMs. Let me quote a key section of his comment:

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!


Anonymous said...

I realize that trifling details are not important to most of us Indians. However, I would like to point out that U Penn is not a state university.

T T Ram Mohan said...

Thanks, anonymous, for this input- I saw the mention in Juno's note and had my doubts myself.


Anonymous said...

Dear anonymous - thanks for pointing out that UPenn is not a state univ - I stand corrected! I was a bit amused by your comments on "us Indians" :-) (a rather gross generalization, and I must point out that, for around 12 years around the American War of Independence, UPenn was a state university).

Prof. TTR - I don't believe the case you have laid out is fully supported by the facts:

a) Firstly, the tradition of private philanthropic funding of education or research is hardly unique to the US. Even in India, TIFR, TISS and BITS Pilani were all set up with private philanthropic funding (and maybe a wee bit of state help, such as free land). In the case of TIFR, it was only in the late 50s/early 60s that control moved indirectly to the state from the Tata trusts.
In Mexico, Tech de Monterrey (their equivalent of the IITs) is private. In Germany, the Max Planck Society which runs 78 institutes and research facilities (equivalent of IISc+TIFR+CBT in India) is extensively funded by contributions from Siemens, ThyssenKrupp, etc. (it also receives state funding). In Canada, McGill University (established in the early nineteenth century) is named after its original benefactor. More recently, ISB, the Vinod Gupta School of Management (within IITKGP) or Kanwal Rekhi School of Information Technology (within IITB) were established with private funding. In the 40s, 50s or more recently, in the 90s, there was no shortage of rich businessmen (or trusts established by them) willing to commit significant resources towards this purpose.

b) In the field of higher education/research, there are a number of known governance models other than "state" and "market" - in fact, "church" is another extremely successful model - 7 out of 8 Ivy league schools in the US were founded and built their reputations while they were administered by various denominations of the Christian faith; ditto for Oxford and Cambridge in the UK, or for that matter, St Stephens (Delhi), St Xaviers (Calcutta), etc. The "independent society / board" (consisting largely of academics, researchers and practitioners) is another succesful model - this is what was envisaged for the IIMs, and happens to be the current model at the Max Planck Institutes in Germany (all researchers and professors). MIT and Harvard are similarly run by "corporations" - these are self-perpetuating and in the case of Harvard, dominated by academics; in the case of MIT, there is a fair sprinkling of corporate honchos and researchers as well. Tenured professors or fellows govern Oxford and Cambridge university. Given a choice between a board managed solely by academics and one dominated by "government", or even one with significant government influence - I think recent history in India as well as a study of international benchmarks convincingly shows that the former is distinctly superior. Of course, a slight variation which incorporates practitioners (e.g., researchers, businessmen, professional managers, external faculty) is still better.

c) If you look at the funding model of the successful US state universities you have mentioned (UT Austin, UC system), you will see that a key characteristic is the near complete financial autonomy and significant separation in governance - UT's endowment fund is called the "Permanent University Fund" and rivals that of private Ivy league universities such as Yale/Stanford/Harvard (it is over $10B) and owes its origins to land, oilfields and other assets permanently transfered by the state to the university. The Max Planck Society describes itself as "a non-profit organization under private law in the form of a registered association" (sounds uncannily similar to how IIMA's founders conceptualized it - as being run by an independent "IIM Ahmedabad Society", doesn't it?). Per its website, it started out with an agreement on permanent federal and state funding of research facilities by the German state and federal governments. The commitment to "permanent funding" or a corpus/endowment, with no interference from the state (other than maybe, a representative on a transparently administered board/trust) appears to be a necessary condition for scholarship to thrive! Of course, even in the US, supplemental annual funding does come in the form of research grants from the National Science Foundation (NSF), defence research funds, etc.

d) I agree with your comment on the need to restructure the current tenure system and incentives of faculty members and having in place a system of checks and balances, similar to the system in the US universities (e.g., tenure driven by research performance, more peer review , funding driven substantially by renewable competitive proposal-based research, allowing faculty to do extensive consulting, freedom in setting faculty salary levels, teaching commitments, etc.) - I do not follow how any of this could even remotely lead you to suggest that perpetuating government control, as represented by people like A Singh, MM Joshi and their bureaucrat chamchas can be the solution. Correct me if I am missing something, but the best way to foster competition (the absence of which you are ruing) is by getting each of these institutes away from the government and controlling their own destinies (with the checks and balances from an independent board, no doubt). Once that is done, you will have some instititues hiking salaries (maybe, one institute giving a 200% salary hike to a star Finance faculty member), others crowing about the fact that their teaching load is only 2 courses per year, yet others boasting about their campuses abroad, and some others cracking the whip on some faculty who have ceased publishing and are just living off past glory!

e) No one expects "the entire system of market discipline to be replicated overnight" - the foundations already existed, and were strengthened in the early 90s thru the establishment of the corpus funds, and with the appointments of people like NRN Murthy, I G Patel to the boards, but are lately being eroded again by our politians and bureaucrats. If I substitute "Indian telecom sector" for "IIMs", your line of reasoning could be used to argue that the telecom should never have been liberalized - after all, in the early 90s:
- "India did not have a telecom economy that was very competitive"
- "The market has been closed to foreign companies"
- "DoT/BSNL and MTNL had substantial first mover advantages and the advantages of huge infrastructure and subsidies provided by government"

f) In terms of institutions (some of them, at least!), civil society and media, India is fortunate - for the IITs, we have had distinguished alumni such as Kanwal Rekhi and Vinod Khosla making formal proposals to the government to allow autonomy and backing up their proposals with financial commitments. I am fairly certain it should be possible to do so for IIMA, IIMC and IIMB to start with. Government withdrawal need not be any more "gradual" than it has been (it started in 1992 with the corpus funds being set up, remember!) and "a credible mechanism of accountability and governance exists" - for IIMA, it is called the "IIM Ahmedabad Society!" It only needs to be strengthened and made independent of the government!

myopic astronomer said...


I believe your arguments have a couple of holes.

1) Private institutions have not caught up with IITs:

correct, BITS Pilani is not in the same as an IIT. but the trouble is that, if any one wanted to start a college or a school, there is much "hafta" to be paid to the govt babus. for example, my aunt was asked to pay up 2 Lakhs to receive government recognition for her school for blinds, one WITHOUT any government subsidy/funding. apparently, BITS Goa campus was built on a land which was not transferred legally. Goa government minister wanted crores of rupees in bribes to legalise it, and it required PM's intervention to start the school.

so, when does one start a school or college?
A) one has tons of money, OR
B) one has loads of political connections

OR both :-)

NOTE: there is no mention of "interested in education" in the above.

2) Salaries in the colleges, schools:

if a student with BE receives a starting salary of Rs. 30,000, why would he/she think of teaching as a career. and, if someone with PhD is offered Rs. 1 million as job, why should she/he think of teaching in a shoddy college?

only a school/college established by a group of people interested in education would strive for quality and unrelenting in pursuit of its goals. schools in Maharashtra run by trusts (for example: Karmaveer Bhaurao Patil trust schools) do much better than government schools. the situation can be bettered by allowing all the interested persons or bodies to start schools or colleges, and then allowing some independent agency (not governmental) to rate the facilities...