Collective failure

The CBI has levelled serious charges against ICICI Bank’s former CEO Chanda Kochhar in its latest FIR, filed after year-long investigations into a whistle-blower complaint. Its contention is that Kochhar is guilty of ‘criminal conspiracy, cheating and abuse of official position’ because she was the bank’s CEO and a member of its credit committee, when it sanctioned a term loan to Videocon International Electronics in 2009. It alleges that her husband’s firm received a cash infusion from the Videocon group immediately after the loan sanction. As these charges are of a far more serious nature than conflict-of-interest issues initially flagged in this case, this could mean an extended period of uncertainty for ICICI Bank’s shareholders. CBI charges also underline the folly of ICICI Bank board’s actions, in rushing to stand behind its CEO and absolve her of all wrong-doing, as soon as the complaint came to light last year. It remains to be seen if the CBI, given its patchy record, furnishes adequate proof to make these charges stick, though it does appear to be indulging in ‘investigative adventurism’ in blaming the bank’s entire credit committee for loans that later turned into NPAs.

It is certainly not bracing for domestic investors to see yet another marquee name from India Inc embroiled in a governance controversy. In the last couple of years, Axis Bank and YES Bank have been in the dock for chronically under-reporting NPAs. The unlisted IL&FS has blown up in a spectacular fashion, with glaring process and accounting gaps coming to light after supersession of its board. Sun Pharma is presently fending off whistle-blower complaints on related-party deals. The NSE itself is being investigated for preferential access to select market players. Apart from causing direct destruction of wealth for investors, the frequency of such episodes dents the credibility and confidence of stakeholders in India’s corporate governance superstructure.

It is a pity that domestic companies should throw up so many instances of mis-governance when there are multiple built-in mechanisms to protect investors — from board scrutiny of operations and management, to internal and external audits, to a battery of public disclosures, and oversight by the RBI, SEBI and the Ministry of Corporate Affairs. Corporate boards have clearly stumbled in their stewardship duties to shareholders, in failing to ask hard questions of the incumbent management and letting the guilty bail out when the going got tough. SEBI and the Centre need to look beyond numerically large boards to demand greater accountability from the individual board members. The significant role that third-party whistle-blowers have played in blowing the lid off these scandals also needs to be recognised. There’s a crying need for SEBI to immediately acknowledge whistle-blower complaints and commit to a specific timeline on establishing their veracity, to avoid prolonged uncertainty for investors. Watertight laws that protect public and private whistle-blowers from persecution are critical too, but Indian laws fall quite short on this score.

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