Tuesday, January 06, 2009

Woes of independent directors

Independent directors at Satyam came out with their reputations tarnished. M Rammohan Rao of ISB has since resigned from the search committee to select the Deputy Governor of RBI. But these reputation effects are small beer compared to what can happen when things go seriously wrong with a company.

Nimesh Kampani, chairman of JM Financial and a highly respected figure in the Indian financial community, faces an arrest warrant for having served on the board of Nagarjuna Finance, a now defunct Hyderabad-based NBFC, in 1999. The company defaulted on a fixed deposit after he resigned. But the Andhra Pradesh police will have none of it. Presumably, Kampani is being held responsible for FDs collected in his time.

The ET report on this yesterday mentioned the Supreme Court rulings to the effect that independent directors cannot be held responsible for lapses in day to day management. It could also be argued that in matters such as default on fixed deposits, any liability should be civil, not criminal unless mala fide intent or culpability for misuse of funds ( in the sense of illegal use) is established. I mean, companies, including NBFCs, can go under. Does this mean independent directors should face criminal charges?

3 comments:

Kanan Jaswal said...

The culpability of the independent directors in the Satyam fiasco is proved beyond an iota of doubt. If the Andhra police was after them, one could have understood it as its misplaced enthusiasm. But its pursuing Nimesh Kampani defies all logic. The police has to appreciate the difference between the accountabilities of executive and non-executive directors.

Anonymous said...

I feel question on true credibility of "M Rammohan Rao". Being director of such renowned School ISB, which builds so called world class MBA profiles, how he extricated himself when Satyam actually needs him for its rejuvenation. If he were with Satyam and helped fight its turmoil situation, students of ISB would get real world case study to glorify their CVs. Pompous lectures inside AC room of renowned business school are far simpler than actual implementation of all those ideas and experiences in real scenarios. His resignation from Satyam’s directorship not only questions his credibility but also calls true leadership skills of ISB, which ISB teaches to its students, into question.

Preaankoor - an Aesthete said...

I feel question on true credibility of "M Rammohan Rao". Being director of such renowned School ISB, which builds so called world class MBA profiles, how he extricated himself when Satyam actually needs him for its rejuvenation. If he were with Satyam and helped fight its turmoil situation, students of ISB would get real world case study to glorify their CVs. Pompous lectures inside AC room of renowned business school are far simpler than actual implementation of all those ideas and experiences in real scenarios. His resignation from Satyam’s directorship not only questions his credibility but also calls true leadership skills of ISB, which ISB teaches to its students, into question.