The spate of governance failures at the country’s largest bourse National Stock Exchange — made public by SEBI on February 11 — was “unlikely to significantly damage” the equity markets nor will it end up disturbing foreign portfolio investors’ interest in India, said M Damodaran, former SEBI Chairman, and present Chairman, Excellence Enablers.

Participating in BusinessLine Knowledge Series webinar on ‘NSE’s Himalayan Scam’, Damodaran, who left SEBI 14 years ago, asserted that foreign investors are “intelligent enough” to understand that there is now a new dispensation in the exchange and several corrective steps have been taken in recent years, after the exit of the scam-tainted former MD & CEO, Chitra Ramkrishna, in December 2016.

“Some of them (foreign investors) would have already tried to figure out what NSE has done to address the issues at that time. Retail Indian investors anyway seem to be coming to the market in large numbers,” he said.

Damodaran said that he was “disagreeably shocked” at the revelation in the latest SEBI order, and said that what happened at NSE till the year 2016 were not lapses, but much more than that. Damodaran highlighted the practice of packing a board with people who had distinguished themselves in the past — having ‘flower vase’ directors that grace boardrooms will not ihelp. “You need people who can perform in your board. Public interest directors in NSE did not clearly do what was expected of them. You cannot have a system of peaceful coexistence between board and management. This NSE case seems to be a matter of peaceful coexistence,” he said.

He highlighted that NSE’s reputation has been damaged by the recent unravelling, and that the current NSE management should be more communicative so as to “signal to a much larger audience” as to how the situation has improved, and thereby bring more investor confidence in them.

“You think the rest of the world is happy that NSE has grown to become the largest derivatives exchange in the world. They are not happy. They would like body blows to be administered to such institutions that threaten the once famous institutions in this area. Therefore, we need to address the reputational damage. There is clearly some reputational damage. I don’t think it is going to go away. To the extent possible, you need to fix it very quickly. There is no escape,” he said.

He also said that SEBI needs to ask itself if it has the right number of people and the right kind of people in three areas — surveillance, investigation and enforcement. SEBI is not a regulator that only has to police the market, it has to focus on developing the market as well besides regulating the market.

“SEBI must arm itself with the right kind of people with right experience and skill sets to be on top of the job”, he said. Damodaran said there was a need for a system where young qualified people can get attracted and give the kind of energy levels that an organisation needs. “If energy levels in an organisation are sapped, it does not matter what kind of expertise lies in it,” he said.

Damodaran also highlighted that the same two persons (Chitra Ramkrishna and Ravi Narain) had run NSE for nearly two decades, leading to concentration of power. This should not have been allowed and ensured that it is not repeated. 

J N Gupta, Founder and Managing Director, Stakeholders Empowerment Services, a proxy advisory firm, suggested that there is a need to keep SEBI away from the appointment of public interest directors (PIDs) in stock exchanges. He felt that PIDs should be appointed by a third party. Gupta’s contention was that if SEBI were to appoint PIDs and if some governance failures were to occur due to lapses of PIDs, then it could always be argued that SEBI was equally responsible for the situation as it had appointed the PIDs.

‘Our exchanges are world-class’

Gupta also felt that it would not be right to paint everything black and pointed out that NSE had in recent decades grown to be a large institution. “Our exchanges are world-class. Systems we have are better than the NYSE. We have to learn to distinguish between individuals and institutions.”

He also highlighted the culture aspect which prevented board members — who mostly owed their existence in boards to company promoters — from being vocal or raising issues at boardrooms. Except for one or two cases, one rarely saw independent directors or other nominee directors coming out to talk or convey the governance lapses of their companies in which they are performing their role as directors, he noted. If the identity of any such whistleblower is known, then they would find it difficult to get a board seat in the remaining listed companies universe, he added.

BusinessLine Editor Raghuvir Srinivasan moderated the webinar, which also saw the participation of Lokeshwarri SK, Associate Editor and Palak Shah, Senior Assistant Editor, BusinessLine. You can watch the webinar through the link bit.ly/3LMQD2S.

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