The Hindu Business Line : Bankable directors

Interference in the routine operational decisions of public sector banks by part-time directors with political affiliations has, for long, been the subject of coffee table conversation and cocktail circuit gossip. But that has now come out in the open with the Punjab and Sind Bank Chairman and Managing Director, admitting in public, to such interference in his bank. It is just as well that the issue has surfaced in the manner it has. For, the Government can no longer hide behind the façade that directors appointed to the boards of public sector banks are chosen solely for their professional credentials and that their affiliation such as it may be to the ruling party is purely incidental. Nor indeed can it sustain the illusion that the directors appointed to guard public interest come on board of PSU banks to setting the bank's strategic agenda so that they can occupy the `commanding heights' of the economy in the best Nehruvian tradition and not for furthering their own partisan personal ends.

The concept of corporate governance in its broadest sense deals with protection of minority shareholder interest from the excesses of executive/majority shareholder authority. In the context of public enterprises, it covers in its scope the interests of the general public, as their position is not dissimilar to that of minority shareholders in a private enterprise. In the event, corporate governance norms must protect against the excesses of state authority as well. If the board is packed with too many government nominees, including whole-time directors (whose number has been increased in recent times), it effectively rules out the constitution of autonomous sub-committees that act as a bulwark against the excesses of the executive management or the government. For instance, in the Punjab and Sind Bank case, the constitution of committee independent directors that approves credit decisions that do not conform to the standard operational guidelines could have prevented from being considered precisely those cases that the Chairman says that independent directors were putting pressure on him to approve. But in the present legal scheme of things, there is a provision for the appointment of a maximum of three directors that the minority shareholder can elect to the board. Clearly, such a structure is not conducive to the establishment of the highest standards of corporate governance.

The system of appointment of chairmen and other whole-time directors too has over the years become highly politicised. In specific cases contenders themselves have shown themselves to be not above canvassing their candidature with the political class. Having proved their utility, politicians cannot be faulted for extracting their pound of flesh in the form of loans or waiver/restructuring of loans on more favourable terms for their chosen clients. This too must change.

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