With the final order on the co-location scam at the National Stock Exchange (NSE) coming in from the Securities and Exchange Board (SEBI) last week, it is time to take a step back and relook both corporate structures and measures to prevent corporate governance failures. While the key executives, including MD &CEO Chitra Ramakrishna, have been indicted for violating the rules and also penalised, the board of the country’s biggest stock exchange seems to have got away lightly. Nothing seems to have been heard from the board since the whistle was blown in 2015. Yet, SEBI’s order says the board was aware that confidential information was being shared with an unknown person, but decided not to alert the regulator and stay quiet. The regulator has passed some strictures pulling up the board for not reporting the matter. But this is a serious offence and calls for comprehensive investigation. It is simply unpardonable that the board members were cognisant of the breach of rules and still didn’t take any action to inform the regulator.
Even before the violation of the regulations, the board should have raised relevant questions about such a senior appointment like that of Anand Subramanian to make sure the candidate has the relevant qualifications. For instance, the SEBI order mentions that the Chief Operating Officer, and the person whom the co-location scam is attributed, had no prior appointment in finance but was nonetheless given a compensation of over Rs 4 crore per annum.
The serious governance lapses at the NSE are an indication of how there can be malfeasance even at so-called professionally run organisations, that are not promoter-driven. NSE had positioned itself as a national public institution that was virtually beyond reproach. So, it is surely time to look at appointing only executive chairmen for such organisations so as to rebalance the responsibilities between the chairman and the CEO. A corporate structure where power is distributed, rather than concentrated, would act as a check on kind of appointments made at the NSE where such a key person ended up with unbridled power. Indeed, it is unfortunate the regulator has diluted its order to separate the roles of the chairman and managing director.
The SEBI order suggests Ramakrishna enjoyed the confidence of the board and was able to run the organisation exactly as she pleased. SEBI’s 190-page order, helped by the findings of EY, has detailed the irregularities that took place—in essence, favours granted to select brokers who were given access to co-location servers and were able therefore able to access data ahead of others. It is shocking that Ramakrishna allegedly shared confidential information on the business, including the financials, HR policies, correspondence with regulators, with “an unknown person” via an unofficial e-mail account. Clearly, we need more oversight. In tightening the rules, the objective is not to hamper the running of the organisation but to ensure that key decisions—on the business and the appointment—are not left to just one person.
Also, given the magnitude of the malfeasance and the total breakdown of corporate governance, commissioning another forensic report would be well worth it. A new probe might spot something the earlier ones have missed and help plug any loopholes. It might also be worthwhile to rope in some of the investigative agencies because they might unearth facts, and the roles that various people played in this episode, that have not been brought to light. We need to take this lapse very seriously so that no CEO should be able to get away with this ever again.