Should retiring corporate chiefs be on the board?

The recent controversy over the appointment of Uday Kotak as non-executive non-independent director of Kotak Mahindra Bank has once again brought to the forefront the subtle but significant distinction between “Legality of regulations” versus “Intent of regulations”. The facts of the case are well known and available in public domain and not necessary to elaborate here. The short question is whether the appointment passes the crucial “optics” test with regard to the public at large?

Uday Kotak is undoubtedly one of the most respected professional bankers, having built the bank from scratch in 1985 to a ₹6.26-lakh crore institution, the third largest private sector bank in terms of market capitalisation. Most importantly, he has the distinction of nurturing some outstanding individuals who are more than capable of running the institution post his so-called retirement. Kotak, it is learnt, has obviously enough fire in the belly and would have carried on but for the regulatory time restriction. What is wrong if he continues on the board in a non-executive capacity post his retirement, more so since his past experience will be of immense value to board discussions? After all, banking is all about tiny incidents tucked away in memory and waiting to be recalled at the right time during discussions. These incidents cannot be sourced via Google or its equivalents.

Should the bank be deprived of this benefit? In the times we live in, which is dominated by technologically seasoned professionals, insights are vital to the management of banks. So, on this score, his appointment has to be given a thumbs up.

Views against

There is also the view that Kotak’s continuation in any capacity on the board would defeat the intent of regulation. Any individual who continues post retirement will by design indulge in back-seat driving, which will effectively thwart the so-called handing over of the baton to the next team/generation. This is more a behavioural issue rather than one of regulation.

Having been in the driver’s seat for about four decades and suddenly being asked to take a back seat is difficult to absorb. Physical presence in office, even if only occasionally, could force key executives to refer to the individual for his views. It requires enormous conviction and courage to say: “I am no longer in charge and please do not come to me.”

By force of habit, he will tend to give some directions which could run counter to the views of the incumbent CEO. Further, this trend, once set in motion, will trigger other similar situations. After all, a precedence is a good reference point to follow when there are shades of grey in regulations. Have said that, there are a number of cases, both in public and private companies, where individuals after retirement have taken up the post of non-executive and non-independent director subject to regulatory restrictions.

In today’s world, one cannot lean on regulations alone for ideal conduct or governance. As shareholders have voted for the appointment of Uday Kotak as non-executive non-independent director, their decision needs to be respected as that of the majority. It is up to the board of the bank to ensure that the executive part of the functioning lies with the new incumbent in charge. In effect, the board should make a strong statement: “Boss! You are there and also not there.”

The writer is a chartered accountant

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