The SEBI order on NSE, its employees, and its board members is a scathing indictment. While it reflects several failures across the system, the larger accountability is at the board, which remained sanguine for the longest time and oblivious to what was festering within NSE.
The first alarm should have been raised when the CEO appointed someone with no relevant experience as her advisor. Sure, there is an argument to say that skills need not be industry specific – but for a technical business like the stock exchange, experience in financial markets is a must. Over time, if such an individual, a consultant at that, is given unfettered powers over employees, meritocracy takes a back seat, and favouritism and nepotism tend to emerge as growth enablers. Such corporate cultures tend to percolate through the ranks creating a vicious cycle that keeps fiefdoms alive.
When the CEO perpetuates this culture, employees tend to believe that the board either approves, or doesn’t care enough. Employees may not wrong – do boards discuss corporate culture?
Most boards meet towards the announcement of quarterly results: this was true for NSE as well, until SEBI began asking questions in 2016.
Employees could raise complaints or access the whistle-blower mechanism. But employee complaints on work culture tend to be nebulous. It is easy to dismiss these as whines rather than cries for help. For most boards, employee complaints are operational and left to management, even if it is the CEO that is fostering a feudalistic corporate culture.
NSE’s board delegated powers comparable to those of a CEO to a consultant. This is unconscionable, but I suspect it is likely to have been done with the expectation that the decisions will be finally taken by the CEO and not by the consultant. If so, the board ignored the realities of what such a decision would entail, putting the exchange at legal risk and subjugating employees further by legitimising a power centre.
The other aspect that the board seems to have overlooked is the mental health of the CEO herself. Heavy is the head that wears the crown; being responsible for India’s largest stock exchange is not an easy job. Chitra Ramkrishna in her testimony to SEBI has said that her interactions with an external being were equivalent to other CEOs using executive coaches and other mental health professionals. But it is for the board to proactively assess and address the issue of mental health, especially for the one key individual leading the business.
Understanding what and who influences the CEO is critical to business sustainability.
The pervasive nature of fiefdoms has measurable consequences. The CEO was a key risk herself and sent confidential information outside the exchange – she was allowed to bypass IT security filters easily, without sufficient questions raised. The exchange’s own risk management systems failed.
Was NSE’s board blinded by Chitra Ramkrishna’s star power? A founding member of NSE and a natural successor to the CEO role after Ravi Narain, she was a force unto herself. Rightly considered one of the most powerful women in Indian business, she was at the helm of India’s largest stock exchange and the world’s largest derivative exchange.
If the board was indeed blinded, this would not be a first – Yes Bank and IL&FS would be similar in this context.
Or was the board sanguine given the exchange’s financial performance? NSE continued to prosper under Chitra Ramkrishna’s leadership. Best not to shake the apple cart then.
Boards in India often make the mistake of setting only financial targets to measure the CEO’s performance. This is a narrow perspective of shareholder capitalism – the single-minded pursuit of profit. For businesses to be sustainable, boards need to ensure that CEOs are measured on a more holistic approach, creating ESG targets as part of their performance drivers. This will create better balance and decrease the impetuousness in decision-making. If you want to go far, take everyone along.
While the SEBI order on NSE has several lessons for corporate India, for NSE, it is an era gone by. The exchange has a new leadership, and several of the issues raised in the order have long been addressed. A similar scenario is unlikely to play out again. It is best to learn the lessons from the past and do better going forward.
Views are personal and do not represent the stand of this publication.
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