Fall from grace: Chanda Kochhar or ICICI board?

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 to Ms 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 that Ms Kochhar was driven by greed. We have to wait for the outcome of the case.

Illustration by Ajay Mohanty

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 of Ms 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.  It may not be 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.  

The writer is director, Institute of Management Technology, Ghaziabad

Email: asish.bhattacharyya@gmail.com