The Hindu Business Line : Above board?

THE DECISION OF the UTI Bank board of directors to first split the post of the Chairman and Managing Director into a non-executive chairman and a full-time managing director and then go back on it within a week is not the best advertisement of its commitment to maintaining the highest standards of corporate governance. Despite both decisions being epochal, warranting some explanation, the investing public has not been extended the courtesy.

Take the initial decision to split the CMD's position. Clearly, the bank was breaking some fresh ground on the question of governance structure for corporate organisations. After all, it has been customary for corporates to invest in one individual the twin posts of chairman and managing director though management text-books favour keeping the two separate. But, unfortunately, the communication last week to the stock exchange did not go beyond a terse announcement that the bank had decided to have a non-executive chairman while leaving the task of day-to-day operations to a managing director. The bank then worsened its poor record on explanations when it chose to remain silent on the circumstances leading to the total reversal its week-old decision. It merely confined itself to placing on record the contribution of Dr P. J. Nayak, the incumbent CMD to the growth of the bank. This was totally unnecessary. If he had not contributed to the growth of the bank, he obviously would not merit an extension of term of office. In any case, his contribution is something the board ought to have known even at the time of the original decision of splitting the CMD's post. Its silence on the issue has only given cause for people to suspect either extraneous considerations to the original decision or poor application of mind to the issues involved. Neither of these two interpretations redounds to their credit.

The ball is now clearly in SEBI's and stock exchanges' court. If they believe that changes in the composition of the board constitute price-sensitive information then they must seek from the UTI Bank an explanation for the circumstances leading to the change in its thinking. If there are no convincing answers, the board should be proceeded against for creating a false market in the shares of UTI Bank. Second, the regulator must also ascertain if in the opinion of the UTI Bank's board there exist dual classes of shareholders with differential ownership rights as between the Unit Trust of India, the promoter and principal shareholder on the one hand, and the rest of the public and private institutional shareholders, on the other. The latest board announcement informing the market that the appointment of Dr Nayak is subject to the approval of the UTI administrator raises doubts if the UTI Bank is indeed a board managed entity. The latest episode is only a manifestation of a larger phenomenon of listed corporates not viewing seriously enough the regulatory requirements about wider public dissemination of price-sensitive developments. They are being seen as mere technicalities to be observed, if at all, only in letter and not in spirit.

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