Corporate Governance provides a framework that defines the rights, roles and responsibilities of various groups within an organization. (a) Elaborate the need to incorporate the principles of Corporate Governance to enhance the effectiveness of the public sector enterprises. (b) Identify the challenges specific to the public sector when it comes to the application of good practices of corporate governance.

a) Need to incorporate principles of corporate governance in PSUs. → PSUs are in fact companies. They make profits, acquire assets, they have shareholders thus principles of corporate governance should apply to them. → it will help them to take ethical decisions → as corporate entities PSUs need to undertake social responsibility. → interest of shareholders will be protected in a better way.

• any mismanagement of resources or corruption in top level of administration can have deep negative externalities.

b) Challenges • Government is a majority share holder in PSUs. • PSU still are highly bureaucratised structures; they are more rule based, they have more rule based functioning. • They are constantly under Government vigil therefore there is no need of application of Corporate Governance norms. • Unlike private companies their leadership pipeline is smooth and new norms are not needed.