Do Boards Show the Spine To Question the Chairman?
Ashneer Grover and his spouse were halted at the airport departure gate when they were set to fly out of the country recently. Both had a lookout notice (LoC) on them in a case being investigated by the economic offences wing (EoW) regarding the alleged Rs81 crore fraud that took place in BharatPe, which they co-founded.
Pawan Munjal, the chairman of Hero MotoCorp Ltd, is charged by the enforcement directorate (ED) for the alleged use of foreign currency issued in the name of others for his personal expenditure abroad to 'override' Reserve Bank of India (RBI) rules. His assets worth Rs24.95 crore have been attached as part of a money laundering investigation and are under challenge before the court. 
Besides the above, he and the company, Hero MotoCorp, are also facing a probe by the income-tax (I-T) department and the ministry of corporate affairs (MCA) for the alleged diversion of the company’s funds through related parties for personal benefit.
Mohit Burman, the chairman of Dabur, along with many others, has been named in a first information report (FIR) registered in Mumbai for alleged involvement in a betting app scandal.
Rashmi Saluja, the chairperson of Religare Enterprises Ltd, the holding company of the Religare financial services group, has been accused by a proxy advisory firm of violating the norms on the issue of employee stock ownership plans (ESOPs) in an insurance subsidiary and of non-disclosure.
She has also been accused by the Dabur group, which has made an open offer for the acquisition of Religare’s shares, of an undisclosed sale of the Religare shares, amounting to insider trading.
These are not culled out reading the newspaper of the past few years but just the week gone by or, at best, the recent fortnight!
Even if one chooses to rummage the newspapers of the past few months or a couple of years, the list would expand ominously though it can never be exhaustive.
While Ashneer Grover has been exited from BharatPe after the allegations surfaced, the other head honchos under question are firmly in the saddle and the allegations have not resulted in any change in their role in the respective companies.
Contrast this to an ordinary clerk in any company being accused of some felony, like overstating the conveyance expenditure on official work. Hell would break loose and managers and the human resources (HR) department would get into multiple huddles and a few employee manuals would be scrutinised many times over and the person concerned would be placed under suspension.
Constitution of an enquiry committee would follow, furious consultations with a legal expert would ensue and, after following ‘due process’, the employee would be dismissed!
The accountant who identified the excess claim would get due appreciation for the watchfulness on the job and new procedures would be introduced for the reimbursement of conveyance expenditure thenceforth.
The internal auditor would be hinted to widen their audit scope to cover all claims of reimbursements and particularly cautioned on how medical bills can be easily manipulated!
While resolute in their intolerance to wrongdoing at the lower levels of the organisation, boards seem to feel little shame in letting the leaders, under the cloud of investigation or accused of wrongdoing, to chair the board and lead the company!
This can be equally said of not-for-profit and like organisations. It would be needless vocabulary to speak about the bureaucracy, the political establishment and even the judiciary!
The hypocrisy in the corporate world of shielding the high and mighty while pouncing on the lower-level acolytes is universal and not specific to India.
Persons in high office often remain nonchalant whether it is a financial impropriety or issues involving sexual harassment and the like about which greater awareness has emerged in recent years.
Two classic cases from the highly regulated financial sector, which have not yet seen the finality, are ICICI Bank and National Stock Exchange (NSE).
The ICICI Bank board, then helmed by MK Sharma, hastily exonerated Chanda Kochar when a whistle-blower brought out the nexus between the Videocon group, which had borrowed money from ICICI Bank, and a company owned by the husband of Ms Kochar. It was the persistence of the whistle-blower that nailed the matter finally and resulted in a jail visit for her and her husband.
Similarly, the board of NSE failed to do its duty when the misdemeanours of Chitra Ramakrishna first surfaced. It happily glossed over the tell-tale signs and, in fact, let her resign with due honours!
Among all the recent episodes, the case of Pawan Munjal deserves particular attention though the others are no less venal.
The income-tax authorities had brought out an allegation that Mr Munjal had used the vehicle of certain entities as service providers to Hero MotoCorp to siphon out money for his personal use.
While the issue is pending investigation and the company claims to be cooperating in the proceedings, the audit committee of the company appears to have made no effort to independently investigate if there is truth in the allegations.
This appears to be a case of non-disclosure of related parties resulting in the due process not being followed in carrying out the transactions. This issue falls squarely in the domain of the audit committee, the board and the statutory auditors to independently commission an agency to find out the truth, notwithstanding the one done by the I-T wing.
Even if the allegation did not emanate from the income tax department but from a stray whistle-blower, there would exist an obligation on the board to get the same independently verified.
In June 2023, the MCA also initiated some investigation which the company initially denied but later confirmed. Both, the statutory auditors and the board, seem to be appeasing their respective consciences by an innocuous note of an ongoing enquiry by the government agencies for which the company was extending cooperation!
The recently reported case, under the Prevention of Money Laundering Act (PMLA), seems to be an independent one slapped on the chairman. Importantly, in this matter, the company has made no official disclosure to the stock exchanges, though the news is widely reported in the media. Even if it has been made, it is not traceable in the exchange filings.
No one is to be held guilty unless proven so, is valid from a punishment standpoint. But to uphold some semblance of moral values, persons in high positions should demonstrate better behaviour when accused of some wrongdoing and, if they fail to, systems should be put in place to hold them to such standards.
In a situation of this type, there is a clear untenability of the person remaining in a critical role as chairman.
A former chief justice of India (CJI) exonerated himself as he sat as a judge in his own case of an alleged sexual harassment charge levelled against him by an employee of the court.
A worthy and binding precedent that the corporate world conveniently follows!
These are the situations where an independent board should rise above the limitations of familiarity or friendship with the chairman or the chief executive officer (CEO) and make itself count. In all the cases mentioned above, and many that dot the corporate annals of the country and elsewhere, they failed to act.
Dabur India has also made no disclosure to the exchanges about the FIR against its chairman. If it has been filed, it is not locatable in the relevant portal.
Recently, the Economic Times reported that the remuneration paid to independent directors had doubled in the past five years and the median remuneration is over Rs70 lakh.
Even if a person holds the position of an ID in, say, two companies, at this level of remuneration, the income arising just from this occupation, which at best is a few hours of work every three months, is equal to what a C-suite executive in a mid-sized company may earn while the level of effort and accountability is immensely different.
So, an important question arises: if the silence, if not the acquiescence, of the independent directors is being purchased with gold.
Though the question may have been asked many times, it is seldom answered explicitly.
Maybe it is too rhetorical to need an answer!
(Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies)
Ramesh Popat
3 months ago
Babade gulastan karne ko bas ek hi ullu kafi hai , yahan her pad pe ullu baitha hai anjme gulistan kya hoga ?!?
Kamal Garg
3 months ago
Question does not arise questioning the chairman because your appointment, perks and remuneration depend upon the Chairman.
3 months ago
Every one is aware of the goings on in the Corporate World. The top people think that no one can touch them even if it means taking the Company to ruins. Independents Directors are toothless and owe their position to the Chairman. They are silenced with generous money and perks to keep silent. Audit committees are only namesake. Less said about Auditors the better. Whole system is rotting.
Pragna Mankodi
3 months ago
Very well articulated. IDs should be more vocal and should be more demanding for accountability in such situations. Any financial misdemeanor by those in position of power should attract scrutiny by Audit Committee of the Board irrespective of the fact that such matters are under scrutiny by \"agencies\".
Meenal Mamdani
3 months ago
I think this malady of not questioning those in authority starts in the home.
A child is taught to be obedient to the parent, no matter how idiotic she/he is.
A child who questions her/his teacher in class is reprimanded.
A letter of recommendation used to have a sentence about how obedient the job seeker is.

Then to the above you must add the almost unspoken requirement that you must get along with your group, whether it be a Board of a company or a social group.

I think that unless the Independent Directors are held legally liable for these acts of omission and made to pay a significant penalty, monetary mainly but could include penal sentence, these easy ways of making money will not stop.

The least that can be done by those who want to expose the rot is to publish the names of the directors of ICICI Board and NSE Board who rubber stamped these egregious decisions.
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