When former chief election commissioner T S Krishnamurthy was appointed chairman of Central Depository Services (CDSL), he became part of an exclusive club of retired bureaucrats heading a critical market infrastructure institution. While Krishnamurthy is a former Indian Revenue Service officer, others are all from the Indian Administrative Service (IAS).
Earlier this year, former finance secretary and ex-chairman of the Competition Commission of India, Ashok Chawla, was appointed chairman of the National Stock Exchange, while former chief secretary of Karnataka Sudhakar Rao took over chairmanship of the BSE from S Ramadorai.
Former chief information commissioner Satyanand Misra is chairman of Multi Commodity Exchange (MCX), while the National Commodity & Derivatives Exchange (NCDEX) is chaired by former Gujarat-cadre IAS officer R N Das. C M Vasudev, another finance ministry veteran, heads the National Securities Depository. Former Forward Markets Commission chairman and former petroleum secretary S Sundaresan is chairman of Indian Clearing Corporation.
A cursory look at the board composition of market infrastructure institutions (MIIs) shows that there are over a dozen former bureaucrats and regulators, apart from the chairmen discussed above. Many of them are appointed in the position of public interest directors (PIDs), which are mandatory for these institutions. Naved Masood, Sumit Bose, D Swarup, Sudhir Mankad and Saurabh Chandra are the other former IAS officers who are PIDs in MIIs.
While the Indian Administrative Service dominates the boards with as many as 11 board seats in MIIs, there are others as well from the Indian Revenue Service, the Reserve Bank of India and state-run institutions such as the Life Insurance Corporation of India and public-sector banks.
As PIDs, they are expected to bring objectivity and independence to the board and board committees, and are required to bring insights and leadership to the institution's "strategy, performance, risk management, financial probity and corporate governance". From the point of view of the institutions, retired government officers form a strong pool of board-level talent, especially for these important institutions which are critical for integrity of the market. These are veterans of many special situations and have seen many crises in their long careers and can come in handy, when such situations arise. Also, the exchanges have a limitation in terms of hiring talent from the market, especially people-associated listed entities or intermediaries, due to concerns of conflict of interest. The institutions also might feel that the very presence of these people might give them a better position while dealing with the regulator, which is usually headed by an IAS officer and the government.
For these retired bureaucrats, the board positions are fulfilling, monetarily and otherwise. The recent changes in the Companies Act, lifting the cap on sitting fees and numerous board committees mean that a visit to Mumbai can fetch a couple of lakhs of rupees, sometimes even five.
While it appears to be a win-win proposition, past evidence shows that just appointing a former IAS officer is neither a guarantee for governance standards nor an insurance against life-threatening crises. Both MCX and MCX-SX had former IAS officers as chairmen, when they ran into trouble.
Although a retired officer is very close to the government, his loyalty no longer lies with it. Also, in his long-winding career, a bureaucrat could have or not grown friendly to certain sections of the market. Also, too many buddies, junior-senior, mentor-mentee relationships in the same space among rivalling institutions might not be healthy in the long run. Cosy clubs in Dalal Street have often led to messy hangovers. It might be too early to raise the alarm. But, it is important for policy makers to think of ways to ensure that there are enough checks and balances on everyone.
