Fall from grace: Kochhar or ICICI board?

Business Standard - - BUSINESS LAW - ASISH K BHAT­TACHARYYA The writer is di­rec­tor, In­sti­tute of Man­age­ment Tech­nol­ogy, Ghazi­abad Email: asish.bhat­[email protected]

On Jan­uary 30, 2019, the board of di­rec­tors of ICICI Bank de­cided to treat the res­ig­na­tion of its for­mer CEO Chanda Kochhar as ter­mi­na­tion and de­cided to ‘claw back’ all the bonuses paid to her from April 2009 to March 2018, and to block her ESOPs. The board’s de­ci­sion is based on the re­port of the en­quiry panel led by re­tired Supreme Court judge B N Srikr­ishna. The panel found Ms Kochhar guilty of vi­o­lat­ing in­ter­nal bank poli­cies and mis­con­duct. The panel, by ex­am­in­ing doc­u­ments, con­cluded that Ms Kochhar lacked dili­gence with re­spect to an­nual dis­clo­sures as re­quired by the bank’s in­ter­nal poli­cies. Ms Kochhar should have re­cused her­self from the case of grant­ing a loan to the Video­con group, be­cause of the busi­ness re­la­tion­ship be­tween Mr Dhoot (founder of Video­con) and Ms Kochhar’s hus­band. She has de­cided to chal­lenge the panel’s find­ings in the court. The panel did not ex­am­ine the al­leged quid pro quo ben­e­fit toMs Kochhar and her fam­ily for grant­ing the loan to Video­con. The En­force­ment Direc­torate (ED) has in­ves­ti­gated the com­plaint and filed an FIR against Ms Kochhar, her hus­band and oth­ers for cheat­ing, etc. At this stage, it is dif­fi­cult to say whether the ED will be able to pro­duce be­fore the court con­clu­sive ev­i­dence of quid pro quo ben­e­fits to Ms Kochhar and her fam­ily. The episode is far from over.

Till re­cently, Ms Kochhar was a cel­e­brated leader and role model for the young gen­er­a­tion and par­tic­u­larly, young women. She care­fully man­aged her own brand by pre­sent­ing her­self with grace on ev­ery oc­ca­sion. A blem­ish on her ca­reer has not only dis­ap­pointed and hurt her, but it has caused a huge dis­ap­point­ment for young pro­fes­sion­als who took her as the role model. This is un­for­tu­nate.

The loan sanc­tioned by the bank to Video­con was a small com­po­nent of a con­sor­tium loan. It is yet to be es­tab­lished that the loan was not granted on merit. More­over, the loan was granted by a com­mit­tee and it is stretch­ing too far to as­sume that Ms Kochhar could in­flu­ence the com­mit­tee to take a de­ci­sion in favour of an ap­pli­ca­tion, which does not merit the grant of a loan. It is quite likely that even if Ms Kochhar re­cused her­self, the loan would have been granted. At this stage, Ms Kochhar is found guilty only of not dis­clos­ing the con­flict of in­ter­est, with or with­out mo­tive. If the ED proves quid pro quo, it will be es­tab­lished thatMs Kochhar was driven by greed. We have to wait for the out­come of the case.

Ms Kochhar, who has a bright aca­demic ca­reer, joined ICICI in 1984 as a trainee, when it was a de­vel­op­men­tal fi­nan­cial in­sti­tu­tion. She was men­tored by Mr Kamath and in 2009 she, at the age of 48, suc­ceeded Mr Kamath as CEO of the bank. Fail­ure ofMs Kochhar to com­ply with eth­i­cal stan­dards af­ter spend­ing long years with the bank clearly shows that the bank was never se­ri­ous in im­ple­ment­ing those stan­dards, even dur­ing Mr Kamath’s regime. In or­gan­i­sa­tions with strong eth­i­cal cul­ture, em­ploy­ees, par­tic­u­larly at the ex­ec­u­tive lev­els, com­ply with eth­i­cal stan­dards metic­u­lously. It­maynotbe wrong to con­clude that the suc­ces­sive boards of ICICI Bank failed to es­tab­lish an eth­i­cal cul­ture. This is a cor­po­rate gov­er­nance fail­ure.

The board of the bank had brought dis­re­pute to it­self by giv­ing a clean chit to Ms Kochhar in March 2018. The board gave the clean chit based on an in­quiry re­port sub­mit­ted in De­cem­ber 2016 by Cyril Amarc­hand Man­gal­das (a re­puted law firm), which had found no ev­i­dence of nepo­tism and con­flict of in­ter­est on the part of Ms Kochhar. Later, fresh al­le­ga­tions sur­faced and the bank in­sti­tuted a fresh in­quiry in May 2018. When the law firm was in­formed of this de­vel­op­ment, it with­drew its re­port in Oc­to­ber 2018. The board was caught on the wrong foot, be­cause it did not take the al­le­ga­tions too se­ri­ously and per­haps, lim­ited the scope of the en­quiry by the law firm. The boards of pub­lic in­ter­est en­ti­ties should take ev­ery al­le­ga­tion by whis­tle blow­ers se­ri­ously, par­tic­u­larly against the top man­age­ment, to pro­tect in­vestors, and in case of banks, de­pos­i­tors. The ICICI Bank board failed.

Sack­ing a pow­er­ful CEO by the board due to non-com­pli­ance with eth­i­cal stan­dards is un­prece­dented in the cor­po­rate his­tory of In­dia. It ap­pears that the board has taken the de­ci­sion to pro­tect its im­age and to demon­strate that cor­po­rate gov­er­nance in the bank is not weak. In re­al­ity, it will not build con­fi­dence among stake­hold­ers. The board needs to take con­crete steps to build an eth­i­cal cul­ture and to im­prove cor­po­rate gov­er­nance.


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