Corporate Governance and ICICI

Corporate governance refers to the system by which corporations are directed and controlled. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, auditors, regulators, and other stakeholders) and specifies the rules and procedures for making decisions in corporate affairs. Governance provides the structure through which corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market environment. Governance is a mechanism for monitoring the actions, policies and decisions of corporations. Governance involves the alignment of interests among the stakeholders.

Corporate governance has also been defined as “a system of law and sound approaches by which corporations are directed and controlled focusing on the internal and external corporate structures with the intention of monitoring the actions of management and directors and thereby mitigating agency risks which may stem from the misdeeds of corporate officers.”

In contemporary business corporations, the main external stakeholder groups are shareholders, debt holders, trade crops., suppliers, customers and communities affected by the corporation’s activities. Internal stakeholders are the board of directors, executives, and other employees.

Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have an impact on the way a company is controlled. An important theme of governance is the nature and extent of corporate accountability.

ICICI Issue

An ICICI Bank shareholder, Arvind Gupta, wrote to the Prime Minister, Finance Minister and all investigating agencies accusing the Kochhars of wrongful gains from loans sanctioned to Videocon in 2012.

ICICI Bank was part of a Rs 40,000 crore loan extended to Videocon by a consortium of 20 banks.

Gupta’s letter alleged that Deepak benefitted from this as his firm NuPower Renewables was set up as a 50-50 joint venture between the Kochhars and Dhoots, who are family members of the Videocon Group.

Chanda Kochhar is accused of having favoured the sanctioning of the loan to the company to benefit her husband. After the letter by Arvind Gupta came to light, Indian Express too alleged a connection between Videocon and the Kochhars.

The Kochhar-Dhoot connection

Deepak Kochhar along with Venugopal Dhoot, Chairman of the Videocon Group, set up NuPower Renewables Pvt Ltd (NRPL) in December 2008. Deepak Kochhar, Chanda Kochhar’s brother’s wife, and Deepak’s father’s firm Pacific Capital owned 50% of the company. The remaining 50% was held by Venugopal Dhoot.

Soon after, in January 2009, Dhoot resigned as the director of this company and transferred his shares (24,999 shares) in NuPower to Deepak for Rs 2.5 lakh.

The letter by the whistleblower alleges that after Chanda Kochhar became the CEO and MD of ICICI Bank in May 2009, the identity and ownership of NuPower was masked by transferring the shareholding to a trust called Pinnacle Energy, where Deepak was the Managing Trustee.

NuPower then got a loan of Rs 64 crore in March 2010 from a company called Supreme Energy.

Supreme Energy is 99.9% owned by Dhoot. Around the same time, the Kochhar relatives transferred their shares to Supreme Energy. As a result, Supreme Energy owned 94.99% in NuPower by the end of March 2010 and the remaining 4.99% stake was held by Deepak.

The investigation into the alleged ICICI-Videocon quid pro quo started in earnest last weekend with the questioning of Mahesh Chandra Punglia. Punglia, a longtime consultant of the Videocon Group and confidante of Dhoot, allegedly played a crucial role in the transactions between the Videocon chairman and Deepak.

Punglia also was a director of NuPower Renewables, Deepak’s energy company. Another NuPower director, Uma Kant Venkat Naik, was also questioned and asked to help out with the CBI investigation over the weekend.

Principles of Corporate Governance

The OECD Principles of Corporate Governance (2004) describe the responsibilities of the board; some of these are summarized below:

• Board members should be informed and act ethically and in good faith, with due diligence and care, in the best interest of the company and the shareholders.
• Review and guide corporate strategy, objective setting, major plans of action, risk policy, capital plans, and annual budgets.
• Oversee major acquisitions and divestitures.
• Select, compensate, monitor and replace key executives and oversee succession planning.
• Align key executive and board remuneration (pay) with the longer-term interests of the company and its shareholders.
• Ensure a formal and transparent board member nomination and election process.
• Ensure the integrity of the corporations accounting and financial reporting systems, including their independent audit.
• Ensure appropriate systems of internal control are established.
• Oversee the process of disclosure and communications.
• Where committees of the board are established, their mandate, composition and working procedures should be well-defined and disclosed.

Way Ahead

It is yet to see, what the investigation reveals.

For Govt certification in corporate governance – https://www.vskills.in/certification/management/corporate-governance-certification