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Influence Capital in Boards: a study of ex-bureaucrats in India

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Abstract

One of the important roles which firm boards play is the resource provision role. In this study, we examine influence capital, a specific form of resource provision on boards. Two categories of government officials, i.e., Politicians and Bureaucrats tend to be the major providers of influence capital. While firm connections to politicians as board members has been examined in prior literature, connections to bureaucrats (and ex-bureaucrats) has not received the same level of attention. This is despite a sharp increase in the appointment of bureaucrats in company boards in the last few years. We analyze and provide evidence that industry regulation and foreign corporate ownership are major organizational determinants of selection of bureaucrats as board members. Further, it was also imperative to understand the differences in selection of various categories of bureaucrats as board members. We examined and find that generalist bureaucrats are more sought after by firms than specialist bureaucrats, usually as independent directors. Overall, this study provides an important initial thrust for studying bureaucrat board members as providers of influence capital.

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Notes

  1. We have elaborated on the differences between elected government officials/politicians and selected government officials /career bureaucrats in the next section.

  2. The same trend is confirmed by analyzing our dataset from India (Reference to Figure 1). One such statistics suggests that proportion of NSE listed firms having at least one bureaucrat board member went on from about 18% to 25% between 2007 and 2014.

  3. The use of “ex-bureaucrats” rather than “bureaucrats” in our study was necessitated by the context of the study. In India, and in many other emerging economies, serving bureaucrats are not permitted to hold any office including board positions in private organizations. Therefore, in order to have a meaningful sample of bureaucrats serving on boards of companies, we need ex-bureaucrats, as in most cases, bureaucrats join a private entity after leaving government service either upon retirement or when they voluntarily step down from government service. The exceptions to this norm for serving bureaucrats as board members are when they are occasionally appointed by the government itself in non-government/semi-government entities.

  4. A few studies have examined the impact of influence capital provided through government connections through the boards of directors using samples that have included both bureaucrats and ex-bureaucrats. Consequently, in the subsequent discussions in the paper on the role of government connections, we have drawn on the arguments for their influence from these studies.

  5. The reference here is to the federal legislature, executive and judiciary. The states also have their own legislative houses, executive and judiciary.

  6. About a million candidates apply for this exam which involves three qualifying stages –preliminary exam, main exam and interview. Finally, about a thousand candidates are selected (a success rate of 0.01%). Of these successful candidates, less than hundred are selected for generalist role (IAS) and rest are selected for various specialist bureaucrat roles.

  7. While bureaucrats are in a position to directly influence the obtaining of various licences and permits, ex-bureaucrats help by using their contacts and networks within the government.

  8. The differences may stem from the legal system, democratic and governance system, social differences, and specific requirements of the country as well as historical legacy among other reasons.

  9. We thank two anonymous reviewers for their suggestions on including country level institutional variables into the models to increase the robustness of our findings.

  10. http://indianboards.com/pages/index.aspx (last access date 17/10/2019)

  11. Appendix 2 provides an indicative list of various services.

  12. As mentioned earlier in the paper in footnotes 1 & 2, in the Indian context, the bulk of the bureaucrats serving on the boards of various companies in our sample are ex-bureaucrats, consequently, we refer to these bureaucrats as ex-bureaucrats in the subsequent sections of the paper.

  13. According to section 2(69) of the Companies Act, 2013, ‘Promoter’ is a person who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise.

  14. (e^1.382–1) × 100

  15. (e^0.027–1) × 100

  16. The authors thank the reviewers for several suggestions on the methods.

  17. https://www.upsc.gov.in/sites/default/files/Engl_CSP_2017.pdf (accessed on 18th October 2019)

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Acknowledgements

We are especially grateful to Sai Yayavaram for exemplary guidance and Trilochan Sastry for several valuable suggestions throughout the development ofthe manuscript. In addition, we gratefully acknowledge the valuable inputs of Mehmet Demirbag and two anonymous reviewers of APJM which greatlyhelped in the development of the paper. We would also like to thank the participants at the Academy of Management, Atlanta 2017 and seminarparticipants at the Indian Institute of Management Lucknow and the Indian Institute of Management Udaipur for their comments during the presentationsof earlier versions of the paper

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  1. Strategic Management Area, Indian Institute of Management Lucknow, Lucknow, Uttar Pradesh, India

    Kshitij Awasthi

  2. Strategy Area, Indian Institute of Management Bangalore, Bengaluru, Karnataka, India

    Rejie George

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Appendices

Appendix 1

Table 7 Differences between Ex-bureaucrats and Politicians with regard to what they bring to the board of which they are a member
Full size table

Appendix 2

List of various Services that UPSC conducts (based on the 2017 advertisement) Footnote 17

(i) Indian Administrative Service

(ii) Indian Foreign Service

(iii) Indian Police Service

(iv) Indian P&T Accounts & Finance Service, Group ‘A’

(v) Indian Audit and Accounts Service, Group ‘A’

(vi) Indian Revenue Service (Customs and Central Excise), Group ‘A’

(vii) Indian Defence Accounts Service, Group ‘A’

(viii) Indian Revenue Service (I.T.), Group ‘A’

(ix) Indian Ordnance Factories Service, Group ‘A’ (Assistant Works Manager, Administration)

(x) Indian Postal Service, Group ‘A’

(xi) Indian Civil Accounts Service, Group ‘A’

(xii) Indian Railway Traffic Service, Group ‘A’

(xiii) Indian Railway Accounts Service, Group ‘A’

(xiv) Indian Railway Personnel Service, Group ‘A’

(xv) Post of Assistant Security Commissioner in Railway Protection Force, Group ‘A’

(xvi) Indian Defence Estates Service, Group ‘A’

(xvii) Indian Information Service (Junior Grade), Group ‘A’

(xviii) Indian Trade Service, Group ‘A’ (Gr. III)

(xix) Indian Corporate Law Service, Group “A”

(xx) Armed Forces Headquarters Civil Service, Group ‘B’ (Section Officer’s Grade)

(xxi) Delhi, Andaman & Nicobar Islands, Lakshadweep, Daman & Diu and Dadra & Nagar

Haveli Civil Service, Group ‘B’

(xxii) Delhi, Andaman & Nicobar Islands, Lakshadweep, Daman & Diu and Dadra & Nagar

Haveli Police Service, Group ‘B’

(xxiii) Pondicherry Civil Service, Group ‘B’

(xxiv) Pondicherry Police Service, Group ‘B’

Appendix 3

Table 8 Results of Logistic Regression on Selection of Bureaucrat as Board Member (Odds-Ratio)
Full size table

Appendix 4

Table 9 Results of Multinomial Logistic Regression (Relative Risk Ratio)
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Awasthi, K., George, R. Influence Capital in Boards: a study of ex-bureaucrats in India. Asia Pac J Manag 38, 1525–1559 (2021). https://doi.org/10.1007/s10490-020-09704-2

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