Talking to ET Now, M Damodaran, Ex-Chairman, Sebi, says the job of the board is not to support the management, it is to challenge the management.
Edited excerpts:
What do you make of the affairs at ICICI Bank? What should the board do when the MD & CEO is under the scanner for allegations which have not been proved yet?
Move away from the specifics of the ICICI Bank. All that is required not yesterday, not today but on a continuing basis is that a board understands its role clearly. The board is the highest level in an organisation. If it is a listed entity, there are other shareholders who are not represented in the board. There are stakeholders whose voice is not heard in the board rooms. Who speaks on their behalf? It is the board. Therefore, the board must lead from the front.
The board must be seen as a leading from the front. You cannot have a board that either remains silent or says that our job is to support the management. Your job is not to support the management. Your job is to challenge the management. If you do not challenge the management, everyone outside the system will suffer. That is what the board needs to do.
A lot of trust was placed on the Insolvency & Bankruptcy Code (IBC). IBC has a certain framework. Should the goal be maximisation of value for the lenders even if it means to step out of IBC or should the sanctity of the IBC in letter and spirit be maintained?
Let me connect this to my last answer. What you are seeing in the process of resolution is that you are seeing an active RBI, you are seeing a reasonable active NCLT, creditors are reasonably active. Who is the missing actor in all of this? It is the board of directors. Where did the stressed assets come from? They are on the books of the banks. Who leads the bank? The board of directors. Have you heard anyone saying this is the way we propose to address the bad assets on our books? You have not heard them. It got to a stage when the RBI had to be empowered by amendment of the banking regulation act to refer cases.
It is not the RBIs job. But somebody had to do it since the persons who should have done it were not doing it, the RBI decides… What you are saying is what should be the objective of this entire process? There are two objectives. One, to ensure that company having being run to the ground once, it is not run to the ground again.
Therefore, it must go to people who will not make the same or different mistakes which are equally bad. The second is to look at not just one category of creditors but to look at everyone to whom money is owed and that principles of fair play, justice and equity are followed.
When the stressed assets cake is not large enough, everyone gets what the share ought to be. Of course, secured creditors will come in front, unsecured creditors will come at the last, equity shareholders will come even later.
But there are statutory dues that required to be paid. There are trade creditors. You cannot get all creditors into one room in the meeting of the committee of creditors who represents the small creditors then. You have a body that is empowered to act on their behalf.
IBC is a work in progress. It has made some good moves. I saw from todays papers that one case is finally happening but it is a work in progress. You will get to see a lot of things which have to be addressed as you go along. Nothing is ever perfect on day one. There will be learning for everyone. Learning for NCLT. Learning for the banks. Learning for even the borrowers, hopefully.
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