Dilemma over corporate governance disclosures
An iconic figure of the banking sector, Chanda Kochhar, who is the MD and CEO of ICICI Bank, is facing a personal crisis. She is accused of granting a loan to Videocon group in a quid pro quo arrangement between Videocon and her husband (Deepak Kochhar). ICICI Bank is a private sector bank, in which the promoter’s shareholding is zero and combined shareholding of domestic and foreign institutional shareholders is 89.41 per cent. Others hold 10.59 per cent shares. The bank is managed by professionals under the guidance of an independent board of directors (board) with a non-executive chairman.
In 2016, one Arvind Gupta highlighted a series of financial dealings between the entities related to Videocon Group promoter Venugopal Dhoot and Deepak Kochhar, which according to him, indicates quid pro quo arrangement and impropriety in granting loan (~32.50 billion) by ICICI Bank to Videocon group companies in 2012. The allegation resurfaced in 2018 when The Indian Expresspublished an investigative report on the issue of impropriety in granting the loan to Videocon group of companies. The Central Bureau of Investigation (CBI) has initiated preliminary enquiry (PE) into the dealings between Deepak Kochhar and Venugopal Dhoot. PE may or may not lead to the filing of an FIR (first information report) by the agency.
On March 28, the ICICI Bank board had issued a statement reposing its confidence in Kochhar and her integrity. Kochhar has the support of N Vaghul, ex-CMD of ICICI Bank and a man of impeccable character. This reminds one of the Infosys crisis last year. In case of Infosys, the board supported Vishal Sikka, the then CEO, against the complaint of impropriety against him. Eventually, Sikka had to leave the company although no impropriety could be established by an independent investigation by a law firm. The board’s position in both the cases highlights the advantage of an independent board with a non-executive chairperson, particularly, in case of companies where there is no concentration of ownership. In a crisis situation, the board supports the CEO, who enjoys its confidence and where the board is convinced that he/she is not guilty of any wrongdoing. This is desirable for the stability of the company.
In theory, a board with an independent non-executive chairperson enjoys more power than the CEO and the board can effectively perform its supervisory function. But, Infosys and ICICI stories, as presented in the media, give the impression that power is always tilted towards CEO and he/she can override internal control and corporate governance norms at will. Perhaps the media presentations reflect the general perception. Therefore, in most of the times, stakeholders are not content with board’s assertions that whistle blower’s complaints are not true or that the stories floating around are nothing but rumours. They look for detailed information and explanation from the board.
The board is always in a quandary as to how much to disclose to dispel a perception created by an allegation against the CEO or the company. In case of Infosys, in spite of insistence by Narayan Murthy, the board decided not to disclose the full report of the investigating law firm. Even the Nandan Nilekani-led board, that has been constituted after the resignation of most of the board members of the erstwhile board, declined to make the report public. In case of ICICI Bank, the board has not provided information regarding the loan granted to Videocon, except that the bank’s exposure is less than 8.5 per cent of the total loan granted to Videocon by a consortium of banks with common interest rate and common tenure. The chairman of the board also gave a statement that Kochhar was making all disclosures and that internal investigation did not find any impropriety in granting the loan to Videocon. Many experts feel that the information provided is insufficient. They may be right. But board weighs pros and cons in deciding how much to disclose and often falls short of expectations.
Both Infosys and ICICI Bank cases show that a whistle blower’s complaint creates turbulence when it comes in public and the media or some powerful individuals take it very seriously and go by the saying, ‘there cannot be smoke without fire’. Therefore, boards should proactively respond to those complaints before the negative perception takes root. In case of ICICI Bank, the board could have responded to the allegations appropriately when it surfaced, for the first time, in 2016. The board could have accepted the suggestion to institute an external investigation.
The ICICI Bank board could have responded to the allegations appropriately when these surfaced for the first time in 2016