Monday, August 31, 2009
When this issue was raised in the acrimonious AGM held on 28th July, 2009, the company categorically stated that there was no default at all. This raises the question : Why did the directors not insist that the Auditors should avoid misleading words? Am I wrong in assuming that the directors go through the Auditors' Report?
Saturday, August 29, 2009
In India the most recommended folic acid drug is FOLVITE . This tablet contains 5 mg folic acid ! The ministry of health should study the possible harmful effects of such abnormally high dosage of essential chemicals.
Friday, August 28, 2009
Justice K.Kannan of the Punjab and Haryana High Court recently shot into limelight for voluntarily disclosing his assets to the public though he also opined that demanding voluntary disclosure from judges is fraught with risk to independence of judiciary.
His blog is atypical of a judge. He expresses his views on various judgements, mostly in agreement. Recently he posted his views on a judgement from the Punjab and Haryana High Court on the right of a mentally retarded person to carry a child to term.The person was a serial victim of bestial behaviour of people. The High Court had decided that the victim did not have an inviolable right to deliver the baby in view of various disturbing circumstances. On appeal, the Supreme Court reversed the decision and said the victim cannot be forced to terminate the pregnancy.
I commented on the views expressed by Justice Kannan as follows:
" Your succinct reasoning reminds us that the Supreme Court is not supreme because it is infallible, but it is infallible because it is supreme". This is a quote from an American judge. I thought that this comment was innocuous, meaningful at best and irrelevant at worst. However, the comment was deleted by Justice Kannan.
I wonder what could be the reason for deletion. Perhaps judges do not want to be seen as even remotely enabling people to express even tangentially hurtful views on the majesty of the Supreme Court, however truthful they are.
Saturday, August 22, 2009
Freedom of expression is a sacred right. At the same time, nobody has the right to indulge in defamation. What is libellous is a matter of fact and sometimes difficult to judge. It ill behoves any government to take advantage of this judgemental dilemma and sinisterly silence an inconvenient view-point. In the present case, the Gujarat government has not covered itself with glory.
Wednesday, August 19, 2009
Annual General Meeting of Indbank Merchant Banking Services Ltd was held today (19th August). Chairman of the company, Mr. Anup Sankar Bhattacharya , in his address said, "Your company has complied with the requirements prescribed with respect to code of corporate governance as per clause 49 of the Listing Agreement". This is in stark contrast to what is mentioned in the Certificate on Corporate Governance issued by the auditors in the Annual Report which remarks, "In the Audit Committee meetings held on 16.04.08, 29.07.08, 21.10.08 only one independent director has attended the meeting contrary to clause 49 II (B) stipulation of minimum two independent directors' attendance ".
Needless to say, Mr.M K Narayanan was reelected as a director !
Monday, August 17, 2009
Is it correct on the part of the student to have travelled while being a carrier of the scary flu? When the person becomes hopefully a CEO, would her behaviour not be the same? It is indeed difficult to be ethical in a crisis, but that is when ethics is needed most.
Saturday, August 15, 2009
SRK was detained (?) at Newark airport for 2 (?) hours. Was he detained or was he only frisked? Was it over a period of two hours or a much lesser duration? Is it also true that he was not allowed to make telephone calls?
SRK figured in the list of 50 most influential persons in the world published by Newsweek sometime last year. Assuming that the airport immigration officials were unaware of SRK's identity (which is quite possible), they could have easily verified through Google search or any other method they were comfortable with. Is it possible that SRK did not suggest anything like this?
SRK was in America ,inter alia, in connection with his soon-to-be released movie "My name is Khan" where he acts as a Muslim who is not a terrorist. There are cynics (?) who claim that the "detention" was arranged by 20th Century Fox as a trailer.
If he was detained only because his surname is 'Khan' and the immigration officials made no sensible attempts to satisfy themselves about SRK despite his attempts to prove his identity, the episode can only be termed as religious prejudice masquerading as 'security consciousness'.
Flu is a seasonal ritual. It gets christened differently each time. Thus we have bird flu, swine flu, Spanish flu etc. Diseases cannot be eradicated totally. However, impact of the disease can be managed both at societal level and individual level.
China says that though many have contracted swine flu, there was no death due to swine flu there. Is it possible? Given the state of authoritarianism, anything is possible in China. They doctor statistics as much as they doctor people. At the same time it is possible that China did indeed handle the swine flu threat exceptionally well.
What is happening in India is a matter of deep concern. People's hygiene levels and doctors' diagnostic capacity are crucial determinants of impact of flu. Sadly it is not uncommon to witness patients coughing on one another's face in a nursing home in the presence of medical professionals who blissfully turn a blind eye and a deaf ear to what is happening.
Personal hygiene with a concrete set of dos and don'ts should be taught at primary school levels. It is a mockery of our educational system if we need the outbreak of a pandemic in order to teach people how to cough and where to spit. Government should carry out educative campaigns wherever people gather to enable them to imbibe good hygiene.
Many doctors seem to have lost basic diagnostic skills. Instances are aplenty of prescription of antibiotics for viral cold and fever and of irrelevant antibiotics for bacterial infections. Diagnosis is poor and prescription is poorer. I wonder who can solve this problem.
Sunday, August 09, 2009
I looked for the earlier annual reports. I could lay my hands on 2006-07 report only. During that year also, he was a director and a member of the audit committee. His attendance record was the same. The two reports also mention that he did not attend the earlier AGM of shareholders.
He is likely to be re-elected to the Board in the AGM to be held on 19th inst.
No doubt, the person is eminent. His work in Delhi is of national importance. But can he spare time for a small company and be a member of the audit committee? Auditor's certificate on corporate governance for the year 2008-09 says, inter alia, " In the audit committee meetings held on 16.04.08, 29.07.08 and 21.10.08 only one independent director has attended the meeting contrary to Clause 49 II (B) stipulation of minimum two independent directors' attendance."
Whither corporate governance?
Wednesday, August 05, 2009
Report and its significance : Sir David Walker released a Consultation Document titled "A review of Corporate Governance in UK banks and other financial industry entities" on 16 July 2009. This is a comprehensive report incorporating preliminary recommendations on various aspects of governance including 1) Board size, composition and qualification, 2) Functioning of the Board and evaluation of its performance, 3) the role of institutional shareholders, 4) Risk Governance and 5) Remuneration.
Expectedly, the report has already attracted criticism from various quarters. It is worthwhile studying the report with the twin objectives of knowing (a) whether recurrence of a similar crisis in future can be prevented and (b) relevance of the report to India. It is note-worthy that after meeting the chiefs of major banks in connection with First Quarter Review of Monetary Policy for the year 2009-10, the Governor of Reserve Bank of India issued a press statement wherein he emphasised the importance of governance in following words: "A big medium term challenge is to improve the investment climate and expand the absorptive capacity of the economy by giving a big thrust to Governance reforms , without which it is difficult to inspire the trust and confidence of potential investors". Earlier on 1st July 2009, RBI issued a master circular on corporate governance which inter-alia states," The need for good corporate governance has been gaining increased emphasis over the years. Globally, companies are adopting the best corporate practices to increase the investors' confidence as also that of other stakeholders". It is clear therefore that RBI is keen to benchmark governance standards of Indian banks with global best practices. Hence, studies on corporate governance in the UK and other countries are relevant for our country also.
Sir David Walker has observed that it is clear that governance failures contributed materially to excessive risk-taking in the lead up to the financial crisis. He is further of the opinion that weaknesses in risk management, Board quality and practices, control of remuneration and exercise of ownership rights need to be addressed in the UK and INTERNATIONALLY to minimise the risk of a recurrence. However, he acknowledges that better governance alone will not guarantee that there will be no repetition of the recent highly negative experience for the economy and for society as a whole but will make a rerun of these events materially less likely. In other words, corporate governance is a necessary but not sufficient condition for preventing global economic crises.
The report contains 39 recommendations ; the more significant among them are discussed below with relevance to India.
Role of non-executive directors : The report recommends that in order to ensure that NEDs (non-executive directors) have the knowledge and understanding of the business to enable them to contribute effectively, the Board should provide "thematic business awareness sessions" on a regular basis which may be reviewed by the chairman every year. Indian experience in this regard is different. Non-executive directors in our banks ( and other industries also) are generally well versed with the particular business. Unfortunately, they feel obligated to promoters or appointing authorities and this psychological nexus has prevented the non-executive directors from maximising their contribution. It speaks ill of corporate governance that banks' top managements take active interest in election of their favoured candidates as representatives of shareholders. Such "favoured" non-executive directors cannot be expected to be objective in their role. It is high time that RBI admonished banks suitably in this regard.
Chairman and the Board : The report expects the chairman to commit a substantial portion of his time, probably not less than two-thirds, to the business of the entity. In India, chairpersons of public sector banks are full time appointees. The governance problem here is that the same person wears two hats, one as an executive and the other as the chair of policy-making Board. RBI is advising private banks to split the post of Chairman-cum-Managing Director. This has already been done in some private sector banks. It is to be seen how much time is spared by non-executive chairman for affairs of the bank.
External assessment of Board's effectiveness : One salubrious recommendation proposes a formal and rigorous evaluation of Board's performance with external facilitation of the process. This is very much desirable for effective governance though the modus operandi may pose many challenges. In India, effectiveness of Boards of banks is assessed by RBI through AFI (Annual Financial Inspection). This is done mainly from regulatory viewpoint. In addition, banks may pro-actively subject themselves to assessment by professional bodies like National Institute of Bank Management. This becomes all the more desirable because corporate governance should not be treated merely as a regulatory requirement. It is useful for a bank as competitive strength to enlarge its business because depositors and borrowers trust a well-governed bank much more than a bank which is lackadaisical in governance.
Expectations from institutional investors : The report explicitly expects institutional investors to play a sustained role rather than act as traders in equity. Sir David wonders, "Should we make it easier for long-only institutions to exert influence by having different weighted voting shares? Should shareholders get more voting oomph if they have held stock for a year?" This is a suggestion worth studying in the Indian context also. Institutions should be encouraged to play a more dynamic role in ensuring corporate governance. RBI will need to take a second look at ceiling on voting rights which is acting as a dampener to more active participation by institutions.
Transparency promotes better governance. The report expects fund managers and institutions to disclose their voting record ; it is also suggested that policies in respect of voting should be disclosed on their websites. A similar initiative in our country will help institutions like the LIC to avoid getting into governance issues in investee companies.
Risk Management : Management of risk is an integral part of corporate governance.It is a matter of pride for RBI and commercial banks in India that proposals made by Sir David Walker are already practised here.For example, the report suggests establishment of a Board-level Risk Committee separate from Audit Committee. This has already taken firm roots among banks in India. It is to the credit of RBI that it recognised long time back that Risk Committees need to be forward -looking unlike Audit Committees which are essentially backward-looking and therefore it advised commercial banks to set up separate Risk Committees.
The report also recognises the need for a Chief Risk Officer (CRO) who should partivipate in the risk management and oversight process at the highest level on an enterprise-wide basis and have a status of total independence from individual business units. Removal of CRO from office would require Board's prior approval. The Risk Committee should have access to external inputs to its work as a means of taking full advantage of relevant experience elsewhere.
It merits observation that though risk management system is well in place in Indian banks, there is a need for better coordination among banks so that they can learn from one another's mistakes instead of being forced to "reinvent the wheel".
Importance of risk management in banks and financial institutions cannot be over-emphasised. Weakness in risk management in banks - both commercial and central banks - was a major causative factor for financial meltdown. Though banks in India have weathered the storm without much systemic impact, RBI should not let its guard down but instead should learn from the experience of other countries. In this exercise, reports of various committees in different countries which study the economic malaise provide us food for thought.
Conclusion: Sir David Walker's consultative document addresses a plethora of issues impacting corporate governance in banks. RBI can use this as a sounding board to initiate serious discussions on governance. Since our central bank has already taken many credible steps to bolster corporate governance in banks, Indian banking system can easily become a pioneer in promoting healthy corporate practices.