Monday, May 07, 2018

Chairperson and CEO

It is almost unanimously argued that the Chairperson and the CEO  need to be different persons so that corporate governance will not be adversely affected.

The Uday Kotak panel on corporate governance listed six advantages of such a split. These are 1) It provides a structural advantage for the Board to remain independent, 2) it reduces excessive concentration of authority in a single individual, 3) the split clarifies the respective roles of the chair and the CEO, 4) it ensures that Board's tasks are not neglected by lack of time for a single individual, 5)it increases the probability of both persons possessing required skills for their respective positions, 6) it creates a Board environment that is more conducive to debates and is more egalitarian.

If these advantages are absolute, Chanda Kochhar could not have cocked a snook at the Board of ICICI Bank. She has captured the Board despite the presence of a knowledgeable Chairperson. One clear lesson from the ICICI Bank drama that continues to play out is that it could be very risky to have a prima donna as a CEO. Corporate Governance depends on personal ethics of Directors and not necessarily on structural arrangement. Some times, presence of a structural arrangement like separation of two roles only introduces a moral hazard that all stakeholders will be led to assume that governance is intact even when it is already in tatters. If anything, Chanda Kochhar has proved that structural safeguards are at best deceptive and misleading. Having proved that, it is now incumbent on her to move away.