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THEIR FAILINGS, OUR LEARNINGS

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LETTING GO DOESN’T COME EASY

Context:

This private sector bank experienced the truth that concentration of power goes against the grain of Corporate Governance. Is “defy, deny, decry” a fit response, when there is a crying need for change?

  • Prior to the retirement of its CMD, the Board of a large private sector banks initiated the process of succession planning for finding his successor.
  • It hired one of the largest global HR firms to help with this exercise.
  • Further, consistent with RBI’s advice, the Board wanted to alter the Articles of Association (AoA) of the Company to split the post of CMD to the posts of a non-executive Chairperson and a separate MD & CEO.
  • In 2004, when the proposal to split the two positions was first brought to the Board, the CMD, who was against the idea, threatened to resign. To retain him, the Board gave him a 5-year term.
  • In May, 2007, RBI insisted that the post of CMD be split. The Board was also told that there must be succession planning and that the CMD must groom his successors. The split in the post of CMD was a step in that direction.
  • Post that, the Board insisted that the CMD should groom a successor, but he argued stating that he did not believe in grooming one. As per him, the day he quits, another person will take over, as was the case in public sector banks.
  • After sometime, the Board gave the CMD an option to stay on as a Non-Executive Chairperson, and to appoint a CEO. This was not accepted by the CMD. Both the RBI and the Board were not happy with the concentration of power in his hands. A number of insiders too were complaining in private that he had not done enough to build the second line of leadership, and had made himself indispensable by not grooming a successor.
  • In 2007, he wanted to step down, after reaching the age of 60 years, but the Board prevented that from happening, by recommending him to continue for another 2 years.
  • RBI accepted this, with the understanding that the post of CMD will be split in 2009, with the CMD retiring.
  • In 2009, after a thorough search, a successor was identified to be appointed as the MD & CEO of the Bank. The successor was the MD & CEO of an insurance Company.
  • The retiring CMD opposed this decision since he wanted an insider to succeed him. He further mentioned that the proposed successor lacked relevant banking experience.
  • The Board did not agree with the stand of the retiring CMD, since the internal persons recommended by him, while being experts in their fields, lacked overall experience of running a Company.
  • The Board voted on this issue, and the result showed that all the Board members, including Nominee Directors, except the retiring CMD, were happy with the proposed successor.
  • The retiring CMD walked out of the meeting and quit his post, a little over 3 months ahead of the end of his tenure.
  • In the AGM that year, shareholders approved the appointment of the new MD & CEO. They also approved the change to the AoA for the split in the post of CMD.