In an instant, the horrendous terrorist attacks on Mumbai in 2008 changed the world of Ms. Shagun Kapur Gogia. Daughter of the then-Chairman of Yes Bank, Mr. Ashok Kapur, she stood and waited for her father outside the Oberoi Trident Hotel for two days while brave National Security Guard commandos, police and other security personnel battled the terrorists. Once the battle was over, it was revealed by one of those who feigned death that the terrorists had executed the hostages in cold blood, lined up against a wall. All that would be shattering enough. But what has followed in Ms. Gogia's and her mother Ms. Madhu Kapur's efforts to implement the Articles of Agreement of Yes Bank, that were carefully co-crafted by the late Mr. Ashok Kapur, the response by Yes Bank management and some Board members has been stretching incredulity.
The Articles of Association of Yes Bank that I have reviewed state that "so long as the Indian partners (Kapur and Kapoor) hold at least 10% of the issued and paid-up shares of the company, (they) shall have the right to recommend the appointment of three directors (of the Board)." The Articles also state that "Ashok Kapur ... shall mean his successors, legal representatives and assigns." Very surprisingly, current Yes Bank management led by Mr. Rana Kapoor has been opposing that right of the Ashok Kapur family, and the matter is now in Court before a single-bench Judge of the Bombay High Court.
Thus, the issue boils down to a matter of corporate governance, the implementation of the Articles of Agreement and oversight mechanisms.
Comparator Banks' Board Members
Who are the women who serve on the boards of Indian banks? One distinguished example is that of Dr. Swati Piramal who was the first woman President of ASSOCHAM, the Associated Chambers of Commerce and Industry, one of three major "representative organs of Corporate India." Both Dr Swati Piramal and I earned post-graduate degrees in public health from Harvard University, myself on merit scholarship and 5 years before Dr Piramal. So I do know that Dr Piramal has spent most of her working life within her successful family enterprises. Therefore, here again, Ms. Gogia scores well having worked for Rabo India Finance, ICICI Ventures (where she closed 5 deals worth $100 million), and led Tuscan Ventures that has highly skilled professionals on its team. An examination of public sector banks in India that are of course much larger than Yes Bank reveals that on the Boards are dozens of people who do not have basic accounting, economics or finance qualifications, that are central in retail, commercial or investment banking. Naturally, however, nationalized banks' board members have expertise and experience in some sector. The Reserve Bank of India (RBI) has stated that board members of private banks are to have similar qualifications to those in public sector banks.
Yes Bank Board Meeting
Meanwhile, the Minutes of the Board meeting held on June 27, 2013 gives grounds for further astonishment. It is stated that Ms. Radha Singh, the sole woman board member of Yes Bank, chaired the nominations and governance committee of the Bank's Board. However, Ms. Radha Singh herself had never apparently worked in the private sector till she retired from lengthy bureaucratic, administrative and inter-government service. Indeed, both Ms. Radha Singh and I served in the World Bank Group in the same timeframe two decades ago - she as a sectoral officer, and I in the Executive Offices also handling Board relations - most certainly neither of us was doing less significant work or carried less rank than the other (see here). The role of Board members is to encourage and uplift, not tear down or otherwise belittle. It is therefore particularly surprising because the Minutes document that Ms. Radha Singh reportedly took potshots at Ms. Gogia and disparaged the tremendous and costly efforts Ms. Gogia has made from both a managerial as well as financial risk-taking sense in supporting and leading logistics and cold chain development in India. It is central to India's economic and social growth to have much better logistics chains and innovative transportation pathways, and quality assurance in the movement of goods and services. Needless to say, cold chain is vital for maintaining vaccines' efficacy (see here and here and here and here) and therefore integral to protecting the lives of infants and children. Indeed, another of the companies Ms. Gogia has supported is working closely with State governments to develop the use of coastal sea-routes that can help unclog the choked roadways of India (that can be death traps from a public health sense because of over-laden trucks often with perishable goods hurtling towards distant markets) by shifting cargo onto India's 7,517 kilometer coastline and even larger inland waterways. That is genuine leadership in a vital sector that is essential to enabling companies to create more jobs and grow in India while serving multiple other sectors - not as the Yes Bank Board document being circulated with commentary purportedly from Ms. Radha Singh makes it seem about Ms. Gogia. A rational comparison can easily discern that the commentary in the Yes Bank Board Minutes on Ms. Gogia is in fact veiled or even blatant attacks given Ms. Gogia's track record and qualifications compared to those of Board members of multiple public sector banks. But is there any independent entity that can do such analysis in India? Are they all beholden to the very entities on which they are to pass judgment? And why doesn't RBI give a suo moto opinion on Ms. Gogia's qualifications as compared with hundreds of board members in public sector and private banks?
"Regulatory Capture" -- a Worldwide Concern
What about the Reserve Bank of India (RBI) whose "fit and proper" broad, non-specific guidelines (see here and here and here) have been so bandied about and used as a baton to beat a prospective Board member with? Can RBI afford to be perceived, even inadvertently, as being used by India's business leaders to score personal points? This is particularly so because Mr. Rana Kapoor is the President of the Associated Chambers of Commerce and Industry of India (ASSOCHAM). The Reserve Bank of India (RBI) has been maintaining a sphinx-like or stoic silence. In the meantime, "creative listening" in alleged private conversations with RBI, especially when the conversationalist is from Yes Bank, might have an axe to grind, is otherwise biased, or indeed when he/she is in the pay of the Bank as a consultant or equivalent, does not evoke much public confidence. In Japan, the perception of regulatory capture has become a most sensitive issue. Naturally, no one expects RBI to be used as a baton to strike at others, rather than what it should be doing i.e. as a means of ensuring progress in Indian banking, including for talented women. One issue in this respect is that some private banks are decades older than the RBI that itself was established only in 1935 by then-British India (see here and here) and various categories of banks in the public and private sectors function with what seem to be very disparate modalities. Some private banks even function as entities belonging to particular communities or regions where they are headquartered, and then expand widely in India, and sometimes abroad. Further, important and fast-growing private banks have multiple prominent business families represented on their Board (see here and here). Separate sets of rules and separate ways of functioning gives the impression of the "Wild West of Banking" and "regulatory capture" where anything goes and it goes only according to whoever is in the saddle at the time. Is this a reasonable way for RBI to govern banks whether belonging to the private or public sectors? Also, does India with 770 million young people under the age of 35 only need board members on its institutions, particularly banks, who have to have old age-related ossified arteries in the brain? Is there no room for younger, accomplished individuals closest in age to that 770 million, while also meeting the minimum RBI age criteria of 35 years for board members? What sort of message does the Yes Bank crisis and RBI's inaction send to the young, aspiring entrepreneurs who form the life-blood of India's vibrant present and potential future? Meanwhile, Yes Bank's stock price has declined steeply.
The Kotak-Mahindra Comparison
The Board Minutes highlight comparison with promoter-led Kotak Bank, a leading private bank, formerly known as Kotak Mahindra. But in fact, a proper historical reading of the record reveals the opposite of what the Yes Bank Board Minutes attempts to convey. Formed by promoters belonging to the Kotak and Mahindra families and others the currently named Kotak Bank no longer has on its Board the Mahindra family that sold most of its shares of Kotak Mahindra in 2009 (other promoters sold and left even earlier). Today, 45% of the shareholding is with Mr. Uday Kotak, the CEO. It is however, very noteworthy that the company, was formed in the 1980s when Mr. Uday Kotak and Mr. Anand Mahindra were young men. Both freshly minted MBAs with little experience, neither had the extensive and near-fantasy qualifications and criteria elaborated on by the Yes Bank Board. They grew in stature till today they are seen as captains in the Indian finance and business sectors (see here and here). Ms. Gogia certainly has many more qualifications and years of study and experience in most related fields to banking than either Mr. Anand Mahindra (whose undergraduate major was music, before he did his MBA) or Mr. Uday Kotak had when they formed Kotak Mahindra. Also, Mr. Anand Mahindra became Chairman of Kotak Mahindra upon his father Harish Mahindra's death in 1999, even though the Mahindra family held less than 4% of the shares (see here and here and here and here).
No DNA Link
Another issue raised in the Minutes is whether two members of the same "family" can be on the Board. Not only is that the case in some other private banks where multiple members of the same family are indeed on the Bank's Board, but being classified as a relative should include a DNA link, but in this case there is no DNA link whatsoever between Mr. Rana Kapoor and the late Mr. Ashok Kapur, Ms. Madhu Kapur, Ms. Shagun Kapur Gogia and Mr. Gaurav Kapur. Therefore, it is even odd for Mr. Rana Kapoor to stridently claim to represent the Kapur family. We are not in the medieval era where the practice of sati would leave children helpless and having to be looked after by sundry alleged "relatives" once their father dies.
No Search Process for CEO
Mr. Rana Kapoor became CEO and Managing Director of Yes Bank because he was a Promoter. It is stated as such in the Yes Bank Articles of Association. It is not as if there was an EgonZehnder-style elaborate search process before he was appointed.
Founding Role of the Kapur Family
Major business publications have pointed out that it was Mr. Ashok Kapur who brought the key financier, Rabobank which made Yes Bank possible. Both the late Mr. Ashok Kapur and Mr. Rana Kapoor had spent years attempting to put together a bank, and Mr. Rana Kapoor's efforts had not resulted in any substantial investment. That so central a promoter grouping to Yes Bank's creation and early successes, which has had 12% of the shares, is now being denied its just role when every other company such as Kotak Mahindra, as I have shown above, has enabled even its 4% promoters to have had a central role, is just staggering. Needless to say, Rabobank management changed over time and perhaps their memories too. Now there are allegations about Rabobank having waived off a loan to Mr. Rana Kapoor as part of some unstated quid pro quo. The Board meeting, in view of all the above, appears to have been conducted with incomplete or distorted information. Therefore, the Minutes that state a "unanimous" decision does a disservice to the Board itself (see here and here).
Mr. Rana Kapoor as ASSOCHAM President
In the meantime, Mr. Rana Kapoor has become President of the Associated Chambers of Commerce and Industry (ASSOCHAM). Thus, Mr. Rana Kapoor will have to make himself available to journalists at each event he appears in for ASSOCHAM. Being a business association office-bearer, especially the President, has that responsibility that comes with the office. So, he will have to answer each such question on the controversy at Yes Bank over the next year. It will not be possible to duck behind "sub-judice" because most aspects of this case have not yet been litigated.
Government and Corporate Oversight?
Multiple entities, including the Reserve Bank of India, the Indian Finance Ministry, industry bodies such as the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry, ASSOCHAM, and other regulatory bodies such as the Securities and Exchange Board, the Ministry of Corporate Affairs, all could use their good offices and more to resolve what seems to be an obvious violation of rights, rather than the alternative of prolonged litigation. This is particularly the case of Finance Minister Mr. P. Chidambaram, a former Minister for Internal Security, who was given the job of dealing with the aftermath of the 2008 terrorist attacks. It appears that everyone is apparently sitting on the sidelines endlessly waiting and watching. After much breach of faith, there is little prospect of the concerned individuals settling without outside intervention or mediation. The imbroglio adds to concerns about the Indian economy and institutions that are fast-becoming an integral part of the daily-invested and traded global economy. Surely, all of the above entities and individuals can do better to ensure corporate justice in this case.
See more of Sunil Chacko's articles at the Huffington Post, the largest-read online newspaper in the world.
