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After crony capitalism, Crony Right rules the roost

The writer is Editor-in-Chief, Financial Chronicle; Visiting Fellow ORF and eminent author. He loves the space where politics and economics converge.
Published : Apr 24, 2018, 12:33 am IST
Updated : Apr 24, 2018, 12:32 am IST

Independent directors play an active role in various committees set up by company to ensure good governance.

ICICI Bank MD and CEO Chanda Kochhar
 ICICI Bank MD and CEO Chanda Kochhar

Life’s impermanence is not something you need to be reminded of. And yet, history’s learning are never transposed. Agreed that in a pride of lions, the female is always the care-giver and hunter, but that doesn’t necessarily mean that women on the fringes of a political formation have to be rewarded with trinkets. The crony Right. After the catchlines of the crony capitalism and crony socialism, we now have the crony Right where BJP’s angels sit on blue chip PSU boards. As former ICICI chairman K.V. Kamath’s angels destroy the gossamer thin veil of corporate governance in private sector banks, the role of independent and govt nominees on the boards of companies needs to be probed thoroughly. How are they performing as directors, are they complicit with managements, do they raise pertinent questions in board meetings? Who was the govt nominee on the board of the ICICI when the credit committee, which included CEO Chanda Kochhar, approved the disbursal of the Rs 3,250 cr loan to Videocon? Did he red flag it? Cronyism is a way of life in India.

The Congress did it, so the BJP should do it unabashedly — emasculate the boards just to give baubles to cronies and loyalists. Is there any merit in this thought process? We have seen in the recent past how Infosys Board chaired by R Seshasayee, headed by Vishal Sikka, stacked the Infosys deck before a full frontal assault by Infy founder N.R. Narayan Murthy took them head on, on corporate governance and transparency issues over Panaya and other sweetheart deals which included hush money being paid through a severance package. Now the new board under Nandan Nilekeni and Salil Parekh wants to sell the same Israeli IT company Panaya over which questions were raised to cauterise the festering sore. Who lost in the firefight — shareholders — while Sebi twiddled its thumbs.

Corporate anorexia is a dangerous disease, willy-nilly it is akin to pharmaceutical castration as it eats up the innards of an organisation. What were the independent directors doing on the Infy board while all hell was breaking loose? Weren’t they conniving with Mr Seshasayee and Mr Sikka? And this was one of India’s best-governed companies, if you please, where opacity was a dirty word.

Independent directors act as a guide to the company. Their roles broadly include improving corporate credibility and governance standards functioning as a watchdog, and playing a vital role in risk management.

Independent directors play an active role in various committees set up by company to ensure good governance. They are expected to be independent from the management and act as the trustees of shareholders. This implies that they are obligated to be fully aware of and question the conduct of organisations on relevant issues.

The primary role of an independent director is to maintain checks and balances on the acts of the board and management. There is currently no legislative or regulatory rule providing a difference in degree of duties owed by executive and non-executive or independent directors. Independent directors are nominated by the management and are thus at the mercy of the promoters. So, the independence of the directors is more a myth than a reality.

The Satyam scandal has put the role of independent directors in the spotlight. It is not only in Satyam that independent directors showed lack of commitment; earlier in the case of US-based corporations Enron, WorldCom et al, the same bogey of corporate governance as well as independent directors failing to perform effectively surfaced.

Earlier this month, Mr Amit Agrawal, government’s nominee director on the board of ICICI, was replaced by Mr Lok Ranjan, joint secretary, department of financial services.

The Kochhars have been under the lens since 2016 regarding the Rs 3,250 crore plus Rs 660 crore loans and alleged quid pro quo in the form of an identical 10 per cent foreign funding (Rs 325 crore and Rs 66 crore) in NuPower Renewables, the company owned by Chanda Kochhar’s husband Deepak Kochhar. Deepak Kochhar and Videocon promoters — the Dhoots — had together set up a 50:50 JV NuPower Renewables in 2008. These revelations led to allegations of impropriety, nepotism, integrity and conflict of interest.

Last January, the BJP decided to appoint a clutch of fringe leaders to the boards of PSUs:

  • Delhi unit vice president Shazia Ilmi was appointed as an independent director of Engineers India Ltd (EIL). Ms Ilmi is a graduate of Jamia Millia Islamia University. She was a senior figure in the Aam Aadmi Party before she joined the BJP.
  • Ms Rajika Kacheria, a cosmetologist, will be the independent director of the Cotton Corporation of India Ltd.
  • Ms Asifa Khan will serve on the HPCL Board. A postgraduate in English literature, Ms Khan, is a teacher-turned-politician, who was earlier affiliated to the Congress but has now become a popular minority face for BJP.
  • Ms Kiran Ghai Sinha, who has also served on the local board of the Reserve Bank in Bihar, has been appointed as an independent director of NALCO.
  • Former Rajya Sabha MP Bharatsinh Prabhatsinh Parmar has been appointed to the board of State Trading Corporation. He is currently the state general secretary of the Gujarat BJP.
  • Former MLA from Odisha Surama Padhy will join the BHEL board.
  • Ms Sarnala Malathi Rani, BJP Andhra Pradesh unit’s Mahila Morcha head, is the independent director of Export Credit Corporation Ltd (ECGC), a PSU under the ministry of commerce and industry.
  • Ms Sipra Goon is the independent director of Andrew Yule & Company. She contested the 2016 Assam elections for the BJP.
  • Ms Shikha Roy, a former BJP candidate from Kasturba Nagar constituency in Delhi, has been appointed to the board of National Handloom Development Corporation Ltd.

A majority of them being women is good for women empowerment but I wonder what real purpose they serve on these behemoths and wherewithal and expertise they bring to bear at board meetings.

The UPA government, when in power, had also appointed its leaders in PSUs.

  • Mr C R Naseer Ahamed, a district Congress vice-president in Davangere, was appointed as a director on the board of Syndicate Bank in February 2013.
  • Mr Jagdish Raj Shrimali who served on the board of Syndicate Bank had also been an active Congress worker.
  • Ms Anusuiya Sharma, an AICC member, was appointed by the Union Bank of India on its board.
  • The Corporation Bank board had Mr Bonam Venkata Bhaskar, joint secretary of the Andhra Pradesh Congress Committee.
  • The Allahabad Bank board had Mr Ajay Shukla, a member of the UP Congress Committee.

The process of appointment of an independent director to a board of a PSU is similar to that of a functional director of such entities. The proposals for the appointment of independent (non-official) directors are required to be initiated by the administrative ministries concerned and submitted to department of public enterprises (DPE).

These proposals are processed in DPE and placed for consideration of the “search committee”. The committee scrutinises the list and finally recommends the name/names to the nodal ministry, which then approaches the ACC, chaired by the Prime Minister, for the final notification.

BJP leader Syed Zafar Islam was appointed as non-official independent director of Air India in May. Mr Islam, a former investment banker, joined the BJP on April 5, 2014. BJP’s national spokesperson Sambit Patra has been appointed as non-official director on the board of Oil and Natural Gas Corporation (ONGC) Ltd. Existing norms by the Securities and Exchange Board of India (Sebi) mandate companies to have at least 50 per cent of directors as non-executive or independent directors with at least one woman director. The BJP will say that they are only doing what is prescribed by the regulator.

One of the earliest appointments was journalist and political commentator Swapan Dasgupta who found himself on the board of director of Larsen & Toubro.

Mr Dasgupta joined the board as a nominee of the Specified Undertaking of the Unit Trust of India (Suuti), replacing Mr A.K. Jain. The L & T is a strategic company which has seen a takeover threat in the past and the Suuti nominee is crucial to the company’s interests. Another journalist, Ashok Malik, had joined the ITC board as an additional non-executive director, effective April 11, 2017. He too was a Suuti representative.

Again, BAT (British American Tobacco ) has played predator in the past, but was thwarted by the government’s shareholding which acts as a caveat.

However on July 22 last year itself, the government named Mr Malik as the press secretary to the newly-elected President Ram Nath Kovind and Mr Malik had to resign. With corporate stress increasing, the role of the independent director assumes greater significance and cronyism will only defile the very idea behind the idea of an “independent” director, one who doesn’t have fetters on him.

Tags: ram nath kovind, chanda kochhar, narayan murthy