Last week saw two unceremonious exits in the banking sector when shareholders ousted Kerala-based Dhanlaxmi Bank's Chief Executive Officer Sunil Gurbaxani and Lakshmi Vilas Bank (LVB) CEO S Sundar.
In unprecedented moves, Dhanlaxmi shareholders passed all resolutions except that of the appointment of the CEO but LVB shareholders went several steps further in rejecting seven directors, including the CEO, and even the statutory auditor.
In both cases, the apparent reasons for shareholders’ ire, if one goes by the commentary of investors, were the alleged failure of the CEOs to uphold the highest standards of corporate governance and unsatisfactory performance.
The ousted CEOs have denied the charges and defended their performance. In an exclusive interview to Moneycontrol, Gurbaxani said he wasn’t aware of any reasons that could have led to his termination.
The fact is that there are no proven charges of corporate misgovernance or financial misconduct by these two CEOs. There is no evidence of personal misconduct, no case of financial regularities has been lodged and no complaints made by the board or the regulator. The stock exchanges were not informed about any such charges before or after the high drama of the two annual general meetings.
There is no denying that shareholders’ decision should be supreme in any listed company but at the same time, one cannot rule out the possibility of a small fraction of shareholders which wields greater power—in terms of shareholding and votes—acting together, leaving the majority of shareholders with little say in the whole affair.
When a few individuals call the shots in listed companies, especially banking institutions that are guardians of public money, larger implications can be worrying. These incidents set a precedent—the interests and the opinion of minority shareholders must be protected and heard.
If a section of shareholders can throw out an RBI-appointed CEO, why should the regulator appoint these executives without the consent of shareholders?
The RBI appointed Gurbaxani, who had a three-year-term, and Sundar, who was an interim CEO, after careful consideration.
The minority shareholders make investment decisions based on cues from the regulator on vital issues such as the appointment of CEOs. Shouldn’t the RBI intervene as shareholders have booted out these professionals without any proven charges?
So far, it has limited its response to appointing a committee of directors to run the operations until a fresh CEO comes on board. But the RBI is silent on the fact that its appointments have been nullified by shareholders.
The shareholders might have had valid reasons to vote out the CEOs but before taking such an extreme step, they should have at least informed the banking regulator as well as the Securities and Exchange Board of India about the reasons they based their decision on.
None of this happened and it is obvious that the RBI and its decisions have been undermined, which makes one wonder the sanctity of future appointments if these officers can be thrown out so easily. What will be the compensation policy for these executives in such events?
The ouster of the two CEOs is egg on the face of the Reserve Bank of India. The regulator’s silence is baffling. For the sake of depositors, the central bank shouldn’t remain a mute spectator and revisit the process for naming CEOs in private banks, clearly laying out the terms for appointment and removal.
(Banking Central is a weekly column that keeps a close watch and connects the dots about the sector's most important events for readers.)
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