L’affaire NSE: is corporate governance an illusion?

Convulsions of outrage after episodes such as the NSE affair are pointless; significant institutional reform is a must

Over the past 10 days, the revelations about the functioning of the National Stock Exchange (NSE) during the tenure of Chitra Ramkrishna as Managing Director and Chief Executive Officer (CEO) have had people shaking their heads in disbelief. The savvy head of the one of the world’s largest bourses taking guidance on organisational matters from a Himalayan yogi?

In his order, Securities and Exchange Board of India (SEBI) board member Ananta Barua makes short work of Ms. Ramkrishna’s contention that there was no danger of any damage being caused to NSE as the yogi in question is a ‘spiritual force’. He remarks with grim sarcasm, “I note that there is no exception in the Regulations or the SEBI Act or SCRA [Securities Contracts (Regulations) Act], that confidential information of the stock exchange may be shared with a spiritual force.” It may be that, in this instance, the NSE did not suffer any financial costs through the leakage of confidential information. But the reputational damage caused to the NSE and to India’s capital markets is huge.

Sharing confidential information was one serious lapse on the part of Ms. Ramkrishna. Mr. Barua’s order highlights others. Ms. Ramkrishna appointed an individual, Anand Subramanian, first as chief strategic adviser and, next, as group operating officer without following due process.

Mr. Subramanian lacked the credentials for the job, the position was not advertised and Mr. Subramanian was interviewed solely by Ms. Ramkrishna. He was recruited on a salary that was more than 10 times what he last drew and his salary was frequently revised without any evaluation being recorded.

Mr. Subramanian was hired as a consultant and progressively given operational powers until he became virtual second-in-command in the NSE hierarchy. Ms. Ramkrishna ensured he was not designated as a key management person as that would have meant bringing Mr. Subramanian within the ambit of regulation.

Clearly, there was managerial misconduct at NSE. That is no surprise; managerial misconduct is a global phenomenon. That is why we need checks on management such as an effective board of directors. The bigger problem is that the board of NSE has been found wanting.

Mr. Barua documents the board’s lapses. After the board was informed about the irregularities in Mr. Subramanian’s appointment, it discussed the matter but chose to keep the discussions out of the minutes on grounds of confidentiality and the sensitivity of the matter. Second, despite being aware of Ms. Ramkrishna’s transgressions, it allowed her to resign and on generous terms instead of taking action against her. Third, the Public Interest Directors (PIDs) failed to keep SEBI informed about the goings-on at the NSE.