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Candles in the Dark: LUMS and IBA

Making the case for governments leaving sufficient space for organizations to thrive without having their initiative stifled

by Khaled Ahmed

Mahmood Ali Ayub and Syed Turab Hussain have put together Candles in the Dark: Successful Organizations in Pakistan’s Weak Organizational Environment (OUP 2016), giving insight into the objective conditions of educational institutions in Pakistan—two of which were discussed in the book.

Pakistan’s main problem—in sustaining macroeconomic stability and delivering public services to the poor—is weak governance and a gradual but perceptible decline in institutional capacity. This reflects the elitist nature of the state and society and the simultaneous conflict and collusion among the various power structures of the country. The situation is aggravated further by a lack of capacity to implement policies. Implementation capacity is in turn a function of the objectives of the political leadership, the competence of the civil service, and the strength of public institutions. Needless to say, these qualities are mostly lacking in Pakistan.

Restraining the state

There has, however, been some progress during the last decade in selected areas of institution building. Since 2008, the judiciary has assumed significant power to check the arbitrariness of various state actions. This exercise of judicial review has increased to a point that judges of the Supreme Court have occasionally been criticized for being excessively interventionist and going beyond their jurisdictional domain. The legislature, despite its delays in lawmaking and excessive polarization, was able to pass overwhelmingly important legislation, such as the 18th Amendment, which transfers power from the president to the prime minister and the legislature. The amendment has also led to important delegation of power to the provincial governments, while strengthening the role of the Council of Common Interests, a joint federal-provincial forum. The last Pakistan Peoples Party coalition government was able to survive its full term of five years, with an unprecedented transfer of power in May 2013, from one democratically-elected government to another. This change took place on the basis of elections that were considered generally free and fair by outside observers and were marked by a high turnout despite terrorists’ threats to subvert them.

Low ranking in education

Unfortunately, despite these gains, Pakistan remains among the worst of the 144 countries for which data is available on the business costs of terrorism. This is clearly a reflection of the prevailing terrorism and violence, including organized crime, in Pakistan, especially in Karachi, the hub of the country’s business activities. The reliability of the Pakistani police in enforcing law and order is better only than Bangladesh in Asia, with India, Sri Lanka, China, South Korea and Nepal all faring better. In short, Pakistan trails in almost all aspects of governance and institutional development behind India, Sri Lanka, China, and South Korea, while only faring favorably in some aspects with Bangladesh and Nepal.

Rich countries are rich because they have ‘inclusive institutions’, that is to say, economic and political institutions that include the large majority of the population in the political and economic community. Inclusive institutions tend to be democratic, allowing masses to vote and protect free speech in a manner that enables institutions to respond to the interests of all citizens. Inclusive institutions also set out clear property rights that are reliably enforced and have sufficient central authority to be able to provide basic social services such as education, health, water and sanitation, and social safety nets. Also key is allowing organizations sufficient room to grow without being hampered by stifling policies.

Two that broke through

Among organizations that have succeeded despite the odds are the publicly-owned Institute of Business Administration (IBA) of Karachi and the private Lahore University of Management Sciences (LUMS). The former was established almost 60 years go in the formative years of the country itself, and went through its share of ups and downs. The latter is younger, slightly over 30 years old, and despite issues to be addressed, has managed to maintain a sustained record of excellence.

Both LUMS and IBA have received accreditation of the South Asian Quality Assurance System (SAQS), the only two Pakistani higher education institutions to do so. LUMS’ graduates continue to be hired by top companies in the country and the region, as well as in academia. A large number of its graduates are admitted in the masters and doctoral programs of reputed universities in North America, the U.K., and Australia. Graduates of LUMS also hold jobs in many countries abroad, and its faculty is involved in providing consulting advice to the federal and local governments, as well as to international donors.

IBA and Ishrat Husain

In the late ‘90s and early 2000s, IBA was in major decline. Discipline was floundering, faculty was migrating out of it, research was weak, board meetings were rare, and the executive committee took decisions in a non-transparent and top-down manner. Adding to these difficulties was the deteriorating security situation in Karachi. IBA stopped attracting foreign faculty, and international conferences at IBA attracted few foreign participants. The board finally realized the magnitude of the problem and changed the management of the institute. IBA director Danishmand steadied the decline during his six-year tenure and helped rebuild IBA’s reputation, but the real turnaround took place after Ishrat Husain was appointed the dean/director in 2008. Highly respected in the country for his successful stint as the governor of the State Bank of Pakistan, and internationally recognized as a scholar and strong manager, he set about addressing the key issues confronting IBA.

Husain provided the leadership that IBA desperately needed at a critical time for the institution. He developed a participative manner, a longer-term vision for IBA. He instituted regular weekly meetings in a collegial atmosphere of the executive committee, where decisions were made as unified team. He developed the IBA Code Book, which incorporates in a single document all the relevant rules and regulations at the institution and is updated regularly. He improved the working conditions and salaries of the staff also. Given his reputation with the private sector in Karachi, he was able to raise large donations for upgrading the badly depreciated building and information technology infrastructure. In short, he brought a change of culture and excitement in the institution.

Rise of LUMS

By contrast, LUMS was established by sponsors belonging to the country’s leading private and public sector corporations as the first private university in the country. The goal of the sponsors—led by the well-known businessman Syed Babar Ali—was to establish a high-quality business school comparable to the leading business schools around the world. It was also created with a view to provide a peaceful environment for the pursuit of learning at a time of disarray and strife in Pakistan’s universities. Over time, the vision was expanded to transform the institution to a full-fledged university that would provide rigorous and broad-based academic and intellectual training. LUMS was granted a charter by the government in March 1985. This charter gave it the legal right to establish degree-granting programs. Initial staffing was put in place, and Javed Hamid was named the first director. He brought a great deal of experience to the new institution and was responsible for adopting the Harvard Business School case-method for the LUMS curriculum.

For several years, the MBA program was the only program at LUMS. Infrastructure, consisting of LUMS’ limited facility in the Liberty area of Lahore, was inadequate. However, good standards were already established. The staff was relatively well-paid and the faculty recruited was high-quality and disciplined. There was feedback on faculty teaching. A visiting committee was established with individuals from Harvard business School, IMD Switzerland, Stockholm School of Economics, and the Asian Institute of Management Studies in the Philippines. In terms of sources of income for operations and maintenance, the largest component comes from tuition fees (between 55 percent and 70 percent), followed by other incomes and receipts from the executive development programs. During the fall of 1993, there was a shift to the new 100-acre campus in Lahore’s Defense Housing Authority, with $10 million funding from USAID and its own matching funds. In 1994, the first B.Sc. class for undergraduates was added, so the institution went beyond the business school.

Syed Babar Ali’s Role

LUMS aims to provide equal academic opportunities to students of all social walks across Pakistan. To achieve this aim, and to fully harness the potential of the human resources of the country, LUMS endeavors to provide a broader access to its programs across the country. One critically important factor in the success of LUMS, particularly in its formative years, was the quality of its leadership. The pro-vice chancellor of LUMS, Syed Babar Ali, is a successful corporate leader of the country and is internationally well known and well-respected. He perceived the need and the opportunity for an institution that would meet the industry’s demand for good managers and leaders. His international stature was critically important; both for funding and attracting and retaining a competent faculty, and for exposure of the faculty and students to the business community. Business leaders were invited to lecture, and field visits were arranged for students. Quality staff was selected so that even with just about a dozen faculty members at that time, the institution became recognized for excellence. All this would have been impossible without the leadership of Syed Babar Ali.

What are some of the lessons that emerge for policymakers, managers of public organizations, and international development partners in the success of IBA and LUMS? First, the government should leave sufficient space for organizations so as not to stifle their initiative. There is nothing more distractive and destructive to organizations than interference by public owners in their human resource and investment decisions. Rather than meddle in their day-to-day operations, the government should set benchmarks for organizations in terms of meeting agreed-on objectives and goals. Typical arrangements have included performance contracts between organization managers and their controllers.

Finally, governments should not cram enterprises with extraneous and burdensome objectives that detract them from their core mission and objectives. If the government requires an enterprise to pursue an activity that diverges from its core functions, the government should compensate the enterprise up-front in terms of financial and non-financial support.

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