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Board of Directors – Comatose - Views on News from Equitymaster
 
 
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  • Jul 30, 2001

    Board of Directors – Comatose

    What do UTI, Tata Finance, IDBI, IFCI and BSE have in common. A failure of the Board of Directors of these organisations and institutions to protect the interests of the company and its shareholders.

    All of them had independent directors. Some had representatives from SEBI, the Finance Ministry, independent eminent chartered accountants and leading industrialists who have built and run successful businesses. They have all failed in the discharge of their duties as Directors and are just as guilty as other Board members who also held executive positions but are now in the dock.

    In criminal law, if you silently but knowingly watch a person committing a crime or even plotting to commit a crime you become an accessory to the fact and the crime. Hence you are liable to criminal prosecution. Directors of companies who knowingly permit shareholder and investor funds to be deployed in unviable projects, who allow funds to be diverted or invested in the stock market, who allow dubious decisions to be taken as silent bystanders are just as guilty as the management executives who took those decisions.

    Historically, Directors have been selected on the basis of their compliance with the management’s views and amenability to defacto accede to the Board Chairman’s final decision. Irrespective of whether it is in the interests of the investors. How many times have we read or heard of a Director resigning because he disagreed with the decisions being taken by the management because his uncompromising principles would not be bent?

    The Boards of these organisations are filled with eminent names. Persons with decades of experience in management and governance. Perhaps its time to take a hard look and seek explanations from these elected representatives as to what they were doing while these organisations were bled dry, mismanaged and continued an investment policy leading to mounting NPAs.

    The UTI crisis is the tip of the breakdown of the financial system. IFCI is already there. IDBI has huge NPAs (maybe not officially), and nationalised banks NPAs are more than enough to wipe out the net worth of a lot of them.

    At the end of the day it’s the nations wealth that has been frittered away. The nations wealth is the life savings and earnings of each individual in this country. They have invested their life savings in UTI, IDBI and IFCI. Shareholders have invested in Tata Finance when it went public and thereafter in rights issues. Investors have invested their money in the stock market through the BSE and its stockbroker member’s. Banks have lent funds to companies for working capital and project finance. They have even nominated their nominees to the Board of all these companies. What is the single largest source of funds for banks? You are right – it’s our savings lying in their safe custody.

    To top it all, we first pay our taxes, meet our monthly expenditure in an economy where the real cost of living is only increasing and then put away money towards savings! Can a few honest principled men stand up at the Board?

     

     

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