Corp governance will become dicey if Board chairman becomes independent director

Corporate governance about which the RBI Governor is talking has become a loose concept with the Chairman of the Board being an independent director, feel the experts.

Also, they believe that payment of meagre amount for the independent directors per sitting of the board meeting is also a reason behind the issue.

Normally, the board of a bank meets on the eve of announcement of its quarterly financial result. If there is any specific issue to be discussed, then in that case more meetings are held. As per SEBI, Rs one lakh is the ceiling on the payment to be made to independent directors as their fee for attending the board meeting.

The Reserve Bank has found gaps in banks’ corporate governance despite issuing guidelines on the matter, Governor Shaktikanta Das said recently.

Addressing directors of bank boards, Das said such gaps, which have since been mitigated, could have caused “some degree of volatility”.

Talking to Bizz Buzz, AK Dutt, Ex-ED, Dena Bank says, “Corporate governance about which the RBI Governor is talking has become a loose concept with Chairman of the Board being independent director (not a whole time director). When this concept was introduced it was believed that he will have a neutral view on matters where independent directors specially Audit committee Chairman and CA directors start pushing their own items in banks.”

The biggest reason must be the fact that the Chairman and independent directors, appointed by the government, were being paid a nominal sitting fee and they should not imagine that for sake of being on board they will bring their expertise in governance, he said.

The board has both RBI nominee director and DFS appointed director. When they fail to provide their best in governance, will the RBI think that the whole Board will resolve the how and why? he asked.

The proposed enhancement in their sitting fee, may ruing in changes in other perquisites. The Governor has also identified conflict of interest at Board level and internally, which is a reality. Every Board of PSU faces it as government nominated directors always try to prevail on any agenda. If the Managing Director is not wise enough, then balanced governance goes for a toss.

Devising mechanism to camouflage account: Some banks may have become successful by convincing the auditors/audit committee but in general it has become difficult.

According to Dutt, “The dominance of the MD will continue as otherwise the government-controlled organisation will lose out commercially.”

To make the organisations a profit-making entity, a measured risk cannot be avoided. How this will be practised is again based on how involved directors are in this pursuit, he added.

ALM is a real challenge as there is a huge mismatch in PSBs. Except for HDFC Bank, all other banks have to fine-tune, which is an area of concern, he said.

Bank boards and management should not allow such gaps to creep in, the RBI governor said, adding that the RBI has taken up such matters with the banks at an individual level in the past. It is the joint responsibility of the chairman of the board and the directors, both whole-time and non-executive or part-time directors, to ensure robust governance in banks, the governor noted.

However, Gopal Krishna Agarwal, national spokesperson of BJP’s economic affairs, who has already served as an independent director on

the board of Bank of Baroda in the past, thinks otherwise.

He says, “Suppose, a director is having personal interest in any contract being signed with the bank, then in that case, he will not participate in that particular board meeting.”

Moreover, every independent director has to make a self-declaration in the form of a legal document to the bank, saying that he doesn’t have any kind of conflict of interest with the bank, he added.