Leadership roles are assigned early in residential schools. I was at Mayo and, when I was appointed a house prefect at the age of 12, our then-headmaster, Padma Shri Jack Gibson, OBE, had only one piece of guidance to give: always be fair but, more importantly, you must always appear to be fair. Actions of leaders need invariably to be judged not by legal correctness or their own sense of fairness but by how their actions appear to others.
Whether or not the CEO of ICICI Bank had any illegal involvement in the Videocon case is under investigation. It would therefore be premature to judge her actions on the basis of media reports. However, she, her family and the bank’s board seem to be convinced that there was no conflict of interest, and that their internal controls and processes are robust. But, crucially, does it all appear fair? Her spouse partners with an industrialist, there are circuitous fund transfers around the time a large loan is sanctioned, and her brother-in-law advises defaulting debtors of ICICI Bank on restructuring their loans. Perhaps these are all legitimate businesses, but could not the Kochhars have used their entrepreneurship and financial acumen with firms not linked to a bank where a member of their family was one of the key decision-makers?
Quid pro quos are difficult to establish unless the bribe-giver turns approver. The allegation of conflict of interest is also premised on the loan becoming an NPA, as the interests of the bank are compromised only if Videocon defaults. It will need to be established that due diligence was not exercised while sanctioning the loan. The claims in the bank’s statement—that it was not the lead lender and that the amount sanctioned was a small part of the overall package—are facile arguments. Each member of the consortium should have carried out its own due diligence, and the equivalent of half a billion US dollars in debt is a significant amount by any standards.
Excluding the entrepreneur-managers, India has seen three distinct types of corporate managers: loyal managers of family-owned businesses, public sector leaders, and leaders of professionally-managed companies in which foreign investors have a majority stake. Ironically, some of the best leaders in the first half of our republic’s existence came from the public sector stables. They built great institutions and nurtured generations of competent leaders. Not anymore. Political and bureaucratic interference, and failure to keep up with rapid technological advances, have created a huge leadership deficit in the public sector. Senior managers from family-dominated businesses have rarely come out of the shadows of their bosses.
In the last three decades, most great corporate leaders have emerged from non-family-owned businesses in IT, banking, insurance, civil aviation, construction etc. They have created companies comparable to the best in the world, and appropriately their compensation too has been set at global levels.
Chanda Kochhar is a prime member of this cohort, a role-model, not just for women, but for all our best and brightest. The onus on her to behave in an ethical manner was not just for the sake of her bank, her team or her customers, but for the sake of a whole generation of young, ambitious and bright minds.
Entrepreneurs—with exceptions—are known to have manipulated systems to their advantage. The mediocrity of public sector managers has mostly drawn ridicule. We did not, however, expect this from the best of our professional managers. Apart from adding to the widespread cynicism about moral standards, this has also resulted in vested interests raising doubts about privatisation as a solution to the ills of the banking sector. The damage is done whatever be the outcome of the legal process.
Equally worrying is the fact that, notwithstanding the stringent provisions for corporate governance regarding independent directors, board-level committees, disclosures and liabilities by directors etc., boards continue to work as clubs protecting their CEOs. How else would one explain the hurry with which the ICICI board rushed to issue a statement? Investors and depositors need an assurance that their savings are safe, but they also need an assurance that there exist enough checks and balances to ensure that no individual becomes larger than the institution. It is obvious that independent directors are not independent enough.
(The writer is a former additional secretary in the Government of India.)