ISB director faces flak

M Rammohan Rao, director of the Indian School of Business, has come under fire for his role as independent director on the board of Satyam Computers. There are other independent directors on the board but Rao is attracting more attention than others probably because there are highere expectations of academics. Rao also ended up drawing attention to himself by giving interviews to papers and appearing on TV (and in the latter, his defence appeared very feeble).

Now, a constitutent of the Left front has asked that Rao be asked to quit various government selection committees because his credibility is compromised. One newspaper today reported that the AP government has advised Rao to quit the Satyam board.

Is this excessive, a little too much? Well, I think the underlying principle- that one's role as independent director in a given situation can have serious reputation effects- is salutary. In an earlier post, I had suggested that, if independent directors are found wanting in a given board, then anlaysts and investors should monitor all other companies with which they are associated. There must also be a 'negative' list of directors associated with questionable decisions- and not just on corporate boards but even non-corporate boards.

One aspect of the deal, which hasn't been adequately highlighted, is that the cash transfer to the two Maytas firms was going to be through secondary market transactions- that is, through purchase of the Rajus' shareholding. This would have meant cash going into the Rajus' pockets, not even those of the cash-starved Maytas firms.