Corporate Governance at its best or Gender Bias at its worst?

23rd of August saw the resignation of Smt.Ireena Vittal, an independent director, from the Board of Axis Bank Ltd. The bank says that she resigned voluntarily because of perceived conflict of interest arising from Kotak Mahindra Bank partnering with Bharti Airtel in pursuance of permission given by RBI to Bharti Airtel to start a Payments Bank. Her husband, Sri Gopal Vittal is now CEO of Bharti Airtel. Gopal Vittal had earlier earned his spurs at Hindustan Unilever Ltd.

Is there a conflict of interest in this situation? If we apply Chidambaram or Sushma Swaraj standard, there is absolutely no conflict of interest either in this or for that matter any other situation. But persons like Ireena Vittal or companies like Axis Bank are of a different breed and they are of the view that actual or potential conflicts of interest do matter.

However, there is an interesting riddle here. If there is conflict of interest, the resignation is legally and ethically mandated and therefore not voluntary. If there is no such conflict, the resignation is unwarranted.

Deepak Parekh and M.Damodaran have gone on record that notions of any conflict of interest in this case are far-fetched. Of course, they are not the ultimate arbiters, especially the former who has spoilt his reputation through his inaction and silence in the TERI episode involving R.K.Pachauri. (It is extremely regrettable that according to TERI's website, RKP continues to be its Director General.)

Smt.Rama Bijapurkar who was earlier an independent director in Axis Bank has raised an issue which is of serious concern. She claims that Vittal resigned after some directors in Axis Bank raised the conflict of interest question. If the claim is true, it smacks of indefensible gender bias if similar standards are not applied for male directors.

If a person resigns a job foreseeing conflict of interest, the act should normally be applauded. Axis Bank and Smt. Ireena Vittal should together clarify what really happened. 

Myth of independent directorship

Kiran Mazumdar Shaw of Biocon happens to be an 'independent director' in Infosys Ltd. It is obvious that she is not lured by money in accepting this position. In other words, prospects of hefty director fees cannot influence her. Does this ipso facto mean that she is really independent as a director?

She is an admirer of Narayanamurthy's talents and acumen. That is why she accepted the directorship. Her admiration for NRN vicariously translates into admiration for NRN'S son and protege, Rohan Murty. It was not surprising therefore that she could not resist the temptation to praise the latter at the least opportunity.

This is what led her to tweet an enthusiastic approval for Rohan Murty's "brilliant tech-loaded presentation" in a board meeting of Infosys.

Contrary to what the media claims, this perhaps is not a serious breach of corporate governance principles. After all, Shaw did not tweet the contents of presentation. But this interesting episode raises another important issue: How independent are independent directors? Is it really possible for someone chosen by a company's promoters to think unlike the promoters which quality is a prerequisite for true independence?

Updated on 28th April: Sundaram Finance Limited, a stickler for compliance with regulations, made the following announcement on 25th April.

"Sundaram Finance Ltd has informed BSE that Based on the declaration under Section 149 (7) of the Companies Act, 2013 submitted by Sri S Ravindran, Independent Director, informing that some of the criteria of independence as provided in Section 149 (6) of the Companies Act, 2013 are not being met in his case, the Board of Directors at their meeting held on April 25, 2014, decided to treat him as Non-Independent Director with immediate effect."

Companies feel that a director is a director, independent or otherwise. They do not seem to derive any additional benefit from an independent director. Nor do shareholders. Why should we persist with the myth?