In a surprise move, Uday Kotak has voluntarily ended his term as managing director and chief executive officer of Kotak Mahindra Bank four months early (while staying on its board as a director). Dipak Gupta, joint managing director, takes over till end December, when he too retires. By then, the bank expects to have a successor approved by the regulator.
There’s other stuff that doesn’t quite add up.
The somewhat emotional, handwritten resignation letter to the bank chairman that Kotak himself shared on social media. The mention of his son’s wedding as a reason to advance the exit. A lifetime of achievement framed as one of isolation: “I stand in a lonely place of being a founder, promoter and significant shareholder of this great institution.
So why did Kotak exit early?
Let’s assume for a moment that there’s more to this than meets the eye, even if Kotak won’t say so and the regulator — which must endorse all bank leadership in India — maintains a studied silence.
One hypothesis is that the move could have been intended to nudge the regulator to approve an internal candidate as successor even while Kotak stays on the board as a non-executive, non-independent director.
That combination, some have argued, goes against the spirit of banking regulation that allows large shareholders a maximum 15-year term as CEO or full-time director, though it says nothing about them continuing in a non-executive role. The concern being that as a continuing board member Kotak would wield too much influence, especially if the new CEO is an existing bank employee. An outsider may show more independence, goes the argument.
It’s not known who the bank has proposed in its list of two candidates for the job. But by stepping down early, the argument continues, Kotak has sought to create a gap between his leadership and the next and thus assuage any concerns the RBI may have.
Four months change nothing from a regulatory perspective except to add to the uncertainty about when the RBI will endorse a successor and whether it will permit an insider as replacement with Kotak on the board. If it does not, who will have to go?
That question has been weighing on the bank’s share price these past few months.
Continuity or dependency or dominance?
At the heart of the drama at Kotak Mahindra Bank lies one important question – is Uday Kotak’s continued presence on the board of an enterprise he built into the country’s fourth-largest bank, an asset or a liability?
Warren Buffett, 93, remains chairman and CEO of Berkshire Hathaway but with an identified successor. At 57, Jeff Bezos handed over the CEO role to Andy Jassy while staying on as executive chairman.
Sam Walton’s son continues on the board of Walmart after stepping down as chairman in 2015. Mukesh Ambani has been chairman and managing director of Reliance Industries since 2002.
And most notably, Jamie Dimon has been chairman and CEO of the global banking giant JPMorgan Chase for more than 15 years.
To be clear, ownership diversification, board independence, professional management and succession planning are essential for all public enterprises, but most of all for banks that deal with public money and pose systemic risk. Many of these are already mandated in current rules.
But governance has become such a convoluted debate in recent times that skin in the game is often viewed as conflict of interest and continuity is seen as dependency or dominance.
At one time, 15% promoter shareholding in a bank was as much as the RBI would tolerate. After Kotak challenged that in court, it eventually became 26%.
Yet the reality is that banks and bankers have failed irrespective of having promoters or being professionally managed. They’ve failed regardless of the CEO having a long or a short tenure.
If for 20 years Uday Kotak, the single largest shareholder of the bank, was ‘fit and proper’ to do the right thing by his stakeholders, obviously with sufficient board, regulatory and shareholder oversight, then why not hereon?
It’s a debate worth having.
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Updated: 08 Sep 2023, 12:56 PM IST
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