Auditors are not doing anybody a favour by resigning: S. Subramanium, InGovern

Auditors should rather sign off on statements stating that this is the information that they did not receive and these are the issues they see in the financial statements. That would help investors and shareholders, Shriram Subramanium, Founder & MD, InGovern tells ET Now.

The same board that gave a clean chit to Chanda Kochhar has finally decided to set up a committee which is being led by a former Supreme Court judge and even before that investigation completes, we now understand that a successor is being considered. What do you make of this development?

The board has not covered itself in glory by handling this situation in a very haphazard manner. They could have done a better job of it on day one itself. Two, it is even telling the markets that CEO has gone on leave and an investigation is being conducted. That would at least have had some interpretation. Otherwise, whether they are sending her out on leave or as the company put out, she has just gone on an annual prescheduled leave was not clear. It is not clear now whether she is going to come back.

Investors are left second guessing and have to rely on media reports rather than a straight and dry answer by the board. From that perspective, the board and the company definitely have not informed investors as to what is the exact status of the way things are panning out. For example, even when she went on leave a couple of weeks ago, they could have told that she is going on a permanent leave and that would have possibly at least some sort of narrative. Even appointing Justice Srikrishna could have been done at that time. They could have announced that after they found Srikrishna as investigators. Net-net, the only positive is that Justice Srikrishna seems to be an independent person.

While ICICI Bank is now in damage control mode, it is getting a thumbs up from the Street. Today the ICICI had a good trading session on the back of this story that a successor is in the offing for Chanda Kochhar. It is perhaps going to be the ICICI Pru chief. The larger story is how the RBI and the government have been passing the buck to each other. Do you think this is a classic example which has thrown open the window to the need for further regulation? 

Definitely. One, what is the need for a government to have a nominee in a private bank? Two, the board has to do its duty beyond what the regulator has put in place and when something blows up, the regulator has to quickly step in, it cannot pass the buck in this case from RBI to the government.

In that case, what is need for a regulator at all? The buck actually stops with the board and if the board is not performing its duty, then it goes to the regulator.

Also, I want to understand if this is the best case solution possible. Till the time investigation is going on, appoint an interim CEO who is an insider, who is from the ICICI Group for a long time. The investigation may take six months, 12 months and till the time you have the entire investigation report. 

No, this investigation can be conducted in a time-bound manner. Why would it take six or nine or 10 months, especially if it is done by somebody like Justice Srikrishna rather than an investigating agency like CBI? I do not see the need for such a prolonged probe.

Two is I am just hopeful that even when they have an interim CEO or a permanent CEO to replace Chanda Kochhar, they should not bury the report subsequently. The report should be made public and the details of the report should be stark and put out in the public domain. Otherwise, it would be like she is going on permanent leave. Whatever the findings — if it is exonerating her so be it, if it is indicting her so be it. All the positive or negative details should be in public domain.

The other issue which is going on with corporate India, is happening on the auditors’ front. Do you think auditors for a lot more midcap and smallcap companies could resign?

Definitely. The auditors are actually looking at financials that the companies are presenting to them and I hope the auditors put the pressure on managements to be more transparent and disclose the true picture of the financial statements.

I am not for the auditors just resigning. Auditors should rather sign off on statements stating that this is the information that they did not receive and these are the issues they see in the financial statements. That would be a great help to investors and shareholders because auditors are not answerable to managements, they are answerable to shareholders. That message should go to the auditors and audit profession should think that they are answerable to shareholders, not to the management. Though the management selects them. Beyond that, their appointment is by shareholders. To that extent, just resigning is not doing anybody a favour.

Link: Economic Times- June 18, 2018