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"Often, Fi Nominees Are In The Dark"

S.K. Mitra has been on both sides: Managing Director of GIC Asset Management Company and Birla Global Finance. Excerpts from an interview with Shekhar Ghosh:

"Often, Fi Nominees Are In The Dark"

On problems faced by FI nominees: In general, nonexecutive directors face a lack of transparency from the family members on the board. In most cases, the working members of the board or the family promoters will inform them of the agenda just a few hours before the board meeting. Often FI nominees do not have the time to even go through the agenda properly. None of the important information is provided by the promoters to the board members in advance, as a result of which more often than not the FI nominees are in the dark about most of the operational details.

On FI responsibility: Yes, the institutions themselves are not organised properly. If the FI shareholder is also a lender, the problems increase. The institutions have a cell system which studies the reports made by its nominees on companies. For instance, any note or adverse comment a nominee might make after a board meeting goes to a different cell which is so overloaded with backlog that often the nominees’ recommendations get buried. And even good intentions are thus negated. On other pressures at work: If a non-executive director questions the board more than the comfort level, initially he becomes unpopular. If the questioning continues, often the CEO of the institution is asked by the family chairman of the corporate entity to replace the nominee. The nominee generally gets the hint. There are other subtle ways as well: withhold facts, make excuses, postpone the meetings, and so on.

On the call for FI vigilance: It’s simply a matter of market forces that will perforce put responsibility on both the parties. And it will be for their mutual benefit. Even restricted economies like Germany and France have only recently paid heed to shareholder or lender activism. It’s the investors who will demand good corporate governance. Now that the government has allowed voting rights for the mutual funds, even they will insist on all directors to perform their responsibility more prudently and judiciously. While the government mutual funds may act in tandem with their parent bodies, the competition among private sector mutual funds and FIs will ensure that corporate governance does not remain mere lip service. 

On what happened at ITC or Shaw Wallace: The ITC case has to be seen against the backdrop of the prevalent environment. It was never a culture with the FIs nor with the "professional management" to pinch the back of the working directors. That kind of proactive involvement of the nonexecutive directors has never existed. Besides, if a company is making money for shareholders consistently, the nitty-grit-ties often tend to be swept into oblivion.

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