Chanda Kochhar steps down: Láffaire Kochhar shows up governing boards as incompetent

Chanda Kochhar’s resignation as head of ICICI Bank has, for the moment, brought an end to the controversy over her alleged conflicts of interest. The bank’s governing board which accepted her resignation has said that some of Kochhar’s benefits will be contingent on the findings of an internal inquiry. Separately, there are other investigations being carried out by regulatory agencies. The controversy at ICICI Bank is not an isolated one. It’s been a tough year for some of India’s largest private sector banks – RBI has capped the terms of the heads of Axis Bank and Yes Bank.

Chanda Kochhar on Thursday resigned as head of ICICI Bank. (TOI photo)

The common thread running through problems at these banks is that their governing boards failed to do their jobs well. For example, a few months ago, the board of ICICI Bank “reposed full faith and confidence” in Kochhar. The learning from these developments is that the quality of corporate governance affects the performance of the firm. The job of the governing board is to act as an oversight mechanism and not a cheerleader of the CEO. Professional CEOs whose pay structure is linked to profits do have an incentive to suppress bad news, particularly in the financial sector. It’s the board’s duty to act as check on professional managers. This quality seems scarce in some professionally managed private firms.