Editorial: Canít absolve boards

Sep 05 2013, 05:59 IST
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SummaryNSEL revives question of board-level responsibility

On one occasion too many, boards of companies have managed to extricate themselves from a fraud by claiming the management had kept them in the dark. While independent directors and even non-executive chairmen have successfully used this tack in the past, the problem has got worse with company promoters either resigning from the board or, quite incredibly, claiming that executives in the company were empowered enough to take decisions like investing several hundred crore rupees on their own. While the blame-shifting phenomenon has not got the kind of concentrated attention it deserves from the authorities, the National Spot Exchange Ltd (NSEL) crisis has once again brought the spotlight to this phenomenon.

In this case, when investors alleged NSEL may not have the R6,000-odd crore of physical commodities it claimed to have as security, NSEL vice-chairman Jignesh Shah told the regulator that he suspected a huge shortfall in the commodity collateralóShah is the founder chairman of the Financial Technologies Group which, along with NAFED, is a co-promoter of NSEL through the group company FTIL. And while NSELís CEO helpfully made a statement saying he and his management team alone were responsible for the mess, NSELís board even filed a criminal complaint against the CEO who was, by then, sacked. It is true that managements can, if they wish, hide many matters from the board, but much of this applies to the hands-off independent directors who have little to do with the day-to-day running of a firm; besides, if this is true, what is the purpose of having company boards that take credit for how a company is run but none when things go wrong? After all, boards are used to, by and large, providing comfort to investors about how a company is being run and the direction it is taking. Given the increasing number of promoters who are taking this plea, the government needs to pay attention to the matter.

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