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!