India's oil import basket today is priced at $114-115!

 The media seems to have not given adequate attention to an important figure cited by CEA V Anantha Nageswaran. India's basket of imported crude is now priced at $114-115. The  CEA mentioned this figure at an SBI Conclave last week. He said this amounted to a rise of over 30 per cent from the price of $85-90 in June-July. 

The price of Brent crude is today $104. But that is the price of futures. The figure mentioned by the CEA probably takes into current spot prices which are ruling much higher.

India's basket of crude oil cost $71 in FY 26. So what we have now is a 61 per cent rise over the FY 26 price. It explains why the rupee is edging towards Rs 96 per dollar despite the inflows of  $143 bn through the forex swap route.

The interesting thing is gdp growth remains strong despite the huge increase in oil price we are facing- growth is projected at around 7 per cent by most estimates.

Trump will receive Xi at the airport in a first

President Trump will receive President Xi of China at Andrews Air Force base, breaking with six decades of protocol. In May, when Trump visited China, Xi did not travel to Beijing airport.

The  FT believes that Trump may have caged the China hawks in his cabinet.

Trump started off his term with hawkish measures, include stiff tariffs on China that went up to 140 per cent. China retaliated with tariffs and then used its trump card- it slowed down exports of critical minerals to the US. 

That brought about an agreement on scaled down tariffs between the two countries and a revival of critical mineral exports.

But why would Trump think it necessary to go to the airport to receive Xi? That is not clear from the FT story. Is is anything more than wanting to preserve the Busan agreement?

IIT Bombay suicide: crime and punishment

The debates on TV and in other places are along predictable lines and pretty sterile.

If a professor finds a student is cheating, is that a crime?

Is it right to invoke the SC/ST act just because an SC student is involved?

How can IITs maintain their standards if they cannot enforce academic integrity?

We need to be clear that the issue is not cheating but how an institution responds to it.

Cheating in exams clearly is not on- it is unfair to those who  are not cheating. So the issue is not whether the professor was right in intervening when he found somebody was using his mobile (assuming for the moment that is what happened, since the matter is under investigation). The issue is: How do you respond to acts of cheating? 

At IITs and IIMs in general, faculty tend to be behave as though copying or plagiarism are the ultimate crime worthy of capital punishment.

Sorry, no. There are much bigger sins in this world than cheating in exams. And the answer to cheating is not to act in ways that would ruin a student's career or life. Some deterrence is required. If it is a major exam (such as the end term), perhaps an F grade may be  appropriate. For a 10-mark in-term quiz, you may mark down the student's grade by one or two notches.

But that's not how the system responds. Students are often told to repeat a semester. They may face suspension for a year (which, it is alleged, was the threat made to the IIT Bombay student). Or you may face expulsion from the Institute), which could means years of wasted time and money and utter devastation.

At IIMA, where I taught for more than two decades, I was taken aback at the sheer fury that faculty displayed when instances of cheating came to light. Many would howl for the severest punishment to be meted out. In one pathetic case, the mother of the student facing expulsion fell at the feet of the Programme Chair and begged forgiveness- she was asked to leave the room and the Institute went ahead with the punishment.

I found it difficult to digest faculty claims of uncompromising adherence to principle. The same concern for principle was notably absent where those above were involved, say, the director or even senior colleagues. Student  cheating was a petty transgression compared to the colossal violations perpetrated by those in positions of authority. Faculty's attitude towards these violations was one of benign indifference. 

So don't tell me about academic integrity. Academic integrity applies not just to students but to everybody in the system. It is just one aspect of institutional integrity. Show your adherence to scruple with respect to all violations of norms, not just violations on the part of students. Otherwise, what you are doing is nothing more than cheap bullying and abuse of power.

This morning, I saw a note by S H Patil, a distinguished professor of Physics at IIT Bombay, who taught me when I was a student there. He says he carried out an experiment with examinations. He would give open book exams with no time limit- you could take ten minutes or ten hours to finish them. At the end of the day, the answer sheets were to be dropped off at his office. He would tell students he expected them to observe norms of fair play. His experiment worked wonderfully except in a couple of cases. In those cases, he simply spoke to the students and reminded them of basic principles.

That is the way to go. Repose trust in students, try to develop a peer culture  of enforcement and overlook or respond mildly to the occasional transgression. Cheating in exams is not such a big crime that one has to pay for it with one's life. 

Post-script: IIT B has set up a ten member committee, including student representatives, to look into the incident. The press report says the Institute has shared the composition of the committee with the Ministry and awaits its approval. Clearly, the government has waved the danda at the Institute. The government understands that an internal committee appointed by the director would have little credibility. 

Why boards fail at succession planning

The heads of Tata Sons and HDFC Bank are due to depart soon. The boards are looking for a successor. Good succession planning means a tentative list of successors should be available long before an incumbent's departure.

Succession planning is poor because CEOs don't want to leave. And boards don't have it in them to challenge the incumbent on this matter, as on any other matter.

We will get sound succession planning when boards cease to be dysfunctional. That requires an overhaul of how board directors are selected in the first place.

More in my column, Why boards fail at succession planning.

FINGER ON THE PULSE
T T RAM MOHAN

Why boards fail at succession planning

You have done your job, we are grateful, but we feel the time has come for you to make way for somebody else. 

If only boards of directors had it in them to deliver the simple message to the chief executive officer — and in time — the world would be a different place.  

At Tata Sons, N Chandrasekaran was at the helm for over nine years. Going by Tata Group’s policy, he had two more years to go for his retirement. Yet, according to media reports, all board members except Noel Tata favoured another term of five years for him.  

At HDFC Bank, Sashidhar Jagdishan, who had served as managing director for over five years, declared just a few months ago that he was raring to go for another term. Clearly, he had the backing of the board then. Things changed dramatically after Rajiv Kumar took over as the bank’s chairman.  Mr Jagdishan announced last month that he would not offer himself for reappointment.

One is not getting into the merits of what transpired. The point here is that boards seem congenitally incapable of telling an incumbent that it’s time for them to move on. 

At Tata Sons, it was left to a scion of the house of Tata to overrule the other directors. At HDFC Bank, it required a former IAS officer and Constitutional authority to take a position very different from that of the board until then. Board members, other than the promoter, seem incapable of asserting themselves in such a fashion — not just in India but the world over. 

As a result, professionally managed boards seldom ask an incumbent to leave. The incumbents carry on until they reach their age limit or term limit — or until disaster strikes. Succession planning at most boards is a farce. The only succession planning that happens is done by the CEO — and it is all about ensuring that no successor emerges. 

Boards fail at succession planning for the same reason that they are largely dysfunctional and ineffectual: They lack the ability to seriously question and challenge the CEO (or executive chairman). The result is underperformance at several places — often hidden while the incumbent is around — and disaster at some, after a star CEO leaves. 

One notable disaster was the failure of the Royal Bank of Scotland in 2008, the biggest in the history of banking. The 17-member board did not have it in itself to challenge the decision of the CEO, then a celebrated figure, to go in for the acquisition of ABN Amro. The decision led inexorably to the implosion of the bank. After the Global Financial Crisis of 2007, it turned out that the story was not very different at the boards of many of the biggest banks and investment banks in the world.

One of the best diagnoses of the underlying problems of governance came, not from a panel of finance or management experts, but from the UK Parliamentary Commission on Banking Standards  , mostly comprising career politicians. The bane of most boards, the Committee noted, was that there was too much “collegiality” on the board. One veteran corporate executive caught the spirit of boards beautifully in his testimony to the Committee:

You have dinner with people the night before and one of them says, “Do you want to borrow my house in Tuscany and the rest of it?” It doesn’t happen to me, but you know what it mean(s). Then the next day at the board meeting, do you say to them, “Look, I have three questions for you and I’m not going to stop until you've answered all three of them properly”? People don’t do that.

How true! It’s awkward to pose tough questions to  management. Nobody likes to strike a jarring note in the proceedings. And that has partly to do with how board members are selected.

The non-executive chairman has a key role in selecting board members. Behind the scenes, the CEO has an important input in the selection of board members and a key role in the selection of the chairman himself. The individuals the chairman and the CEO select for the board are those with whom they have been on back-slapping terms at the clubs where they hang around. 

Board members are well remunerated — the median pay at the top 50 companies in India is ~70 lakh. To challenge the CEO is to risk non-renewal of one’s term and possible ostracism from boards in general.  

The UK Parliamentary Commission proposed some remedies. One was that the Nominations and Remuneration Committee or NRC be chaired by a senior independent director, not the chairman. Another was advertising independent director positions so that a wide enough pool was available. Neither proposal has taken off because it’s not clear how they improve matters.

If we want directors to exercise their independence, we need to tackle the problem of self-selecting boards, of which the CEO is a member and influencer. The process at public-sector enterprises in India is instructive. The concerned ministry appoints independent directors through the Bureau of Public Enterprises and without reference to the chairman/CEO. Independent directors are not beholden to management for their appointment. Independent directors are required to submit a note annually to the BPE outlining key issues at the company on whose board they sit. 

This principle must be applied to the private sector as well. One way is to have at least some independent directors nominated by key stakeholders, such as institutional shareholders, institutional depositors, large lenders and retail shareholders. The NRC must not select all the independent directors. A less intrusive alternative is to have major stakeholders generate candidates for the NRC to choose from.  Involving multiple stakeholders in board selection is the key to creating true diversity and independence in the boardroom.

Board membership must be seen as serious work, not as providing opportunities for a lunch outing. The UK Parliamentary Commission referred to the fact that independent directors at banks are required to devote 30-36 days in a year to their boards. The chairman’s position, it said, must be seen virtually as a full-time one. The chairman of a large bank “should usually not hold any other large commercial non-executive, let alone executive, positions.”

These proposals are not the end of the matter. But they are a good starting point. We need radical reform in the boardroom, not the tinkering that has failed to alter the reality of zombie boards. 

 

Chairman's exit at Coforge Ltd is truly extraordinary

Some months ago, the world was shocked when the Chairman of HDFC Bank chose to resign from the board on what he regarded as point of principle.

What has happened at Coforge Ltd (formerly NIIT) is quite extraordinary. It is the company -or the board- that has caused the resignation of the Chairman, OP Bhatt, on a point of principle.

It appears that Mr Bhatt resigned following an internal audit of the board evaluation process. Boards are required to conduct an annual evaluation of board members. This typically involves an outside agency seeking the view of board members on their peers and producing a rating. The ratings and the general assessment of the agency are presented, first, to the NRC of the board and then the whole board.

The internal audit showed that only Mr Bhatt and the Chairman of the NRC had access to the full rating report. In  making a presentation to the board, they concealed material facts, including the fact that Mr Bhatt had received the lowest rating.

Now, getting the lowest rating in itself is not a big problem. If the others get a score of 8 and the Chairman gets, say, 6 or 7, it doesn't look good but boards can live with it. Even if the Chairman's rating is much lower than that of the others, it's a problem only if it persists year after yar.

There are two facts that should make people sit up. One, that an internal audit of the board evaluation process was conducted at all. Such an audit is unusual or even unknown. Did the internal audit team propose it ? Or was it commissioned by the Audit Committee of the board? Why was it undertaken in the first place? Was there an apprehension that  all was not well with the board evaluation findings?

Secondly, the fact that Mr Bhatt's peers on the board apparently gave him a lower rating than they gave others. Typically, the Chairman gets high ratings and even  the highest from other board members. Board members are keen to have their terms renewed and would not like to give a low rating to the Chairman. The ratings are supposed to be confidential but everybody knows that confidentiality can be easily breached in some matters.

Mr Bhatt was due to leave the board in any case end  April 2027 as he had failed secure the votes required for another term. The internal audit findings have merely hastened his departure.

In effect, a company Chairman has had to leave on a point of principle. And the rest of the board has been instrumental in bringing about this outcome. Two cheers for the triumph of corporate governance!