Sucheta Dalal :Penalising directors
Sucheta Dalal

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Penalising directors  

Jan 10, 2005

The Securities and Exchange Board of India (Sebi) probably set a trend last September when it barred four ‘independent directors’ of DSQ Software from the capital market for five years. But last week’s development in the WorldCom case is probably giving sleepless nights to ‘independent directors’ around the world. As part of a ‘settlement’ in a class action suit, 10 ex-directors of the failed telecom giant WorldCom agreed to part with $18 million of their personal money in a $54-million deal.

That the directors must pay from their personal funds was stipulated by the settlement terms. In some cases, these former directors are parting with as much as 20 per cent of their personal net worth. Public outrage over American corporate scandals of 2000 runs so high that a jury trial, which was the alternative, may have inflicted bigger damages on the directors. Interestingly, the directors neither admitted nor denied any wrongdoing.

This raises an interesting question. Would Indian independent directors opt for a settlement or risk being indicted and barred from the capital market, under similar circumstances? Chances are that they would risk an indictment. In India, that has a good chance of being overturned in appeal.

Card harassment

The Reserve Bank of India’s (RBI) initiative in persuading the Indian Banks Association (IBA) to evolve a code of conduct for credit card issuing banks is a welcome move. Although RBI has noted the harassment caused by Direct Selling Agents (DSAs) appointed by card issuing banks, the effort will be further enhanced if IBA calls for public comment before evolving conduct rules.

RBI Executive Director Usha Thorat tells us that credit card issuers have agreed to follow the code of conduct while claiming that they already ‘‘follow stringent rules for sharing databases as well as appointment and continuance of DSAs’ services.’’ Thorat says permission to share databases is often hidden in the fine print of account opening forms and individuals must be careful while signing on. This, she says, is an important factor in preserving individual privacy in case of unsolicited cards (where wrong activation has led to harassment of people who have never applied for a card).

But banks are clearly fudging the issue. Membership lists of exclusive clubs are hardly going to be ‘sold’ without the permission of the members. They are usually obtained from corrupt employees.

Moreover, even international pizza chains such as Dominos’ show a callous disregard for customer confidentiality when they share their database with banks. There is clearly no scope for getting a written release in such cases.

No-call directories?

At the same meeting, credit card issuing banks told RBI that ‘‘databases of telephone numbers are even otherwise freely available in the market.’’ Thorat agreed that it may be necessary to work further on ‘‘do not call’’ numbers and privacy laws to ensure that citizens are not unduly harassed.

Meanwhile RBI can persuade banks to play a proactive rule in reducing harassment of individuals. For instance, all banks using DSAs are well aware that calls to mobile phones usually amounts to harassment.

A survey would reveal that an overwhelming majority of users are seriously angry at marketing calls to mobile phones, especially since they often end up paying long distance rates for the mistake of accepting such calls. Contrary to what banks claim, there are no legal directories of mobile numbers floating around.

A private bank executive told me that DSAs ask their staff to dial numbers in a sequence and build databases by trapping users to reveal their names. Banks rarely instruct their DSAs not to call mobile phones, without realising the damage to their goodwill. Further, experience shows that each bank reacts differently to customer complaints.

For instance, one complaint to the top brass at ICICI Bank was enough to end harassing calls to my mobile number from its DSAs. However, half-a-dozen complaints to Hongkong Bank over the last year made little difference. The bank offers an apology, the calls stop for a few weeks and then start again.

Blatant rigging

Himachal Futuristic Communications (HFCL) continues to be ramped up, backed by some motivated promotion among gullible investors who flock Internet message boards.

The word on the bourses is that the scrip will be pushed above Rs 33 because its banker is seeking an exit. But this may be just a cover for the ramping operations. In September 2001, ICICI Bank had converted Rs 200 crore (out of Rs 800 crore) of HFCL’s debt into equity at par, but continues to hold on to the shares.

When asked, it strongly denied anything to do with the price rise. The continued rise suggests that Sebi has either not noticed the action in this controversial scrip, or its operators are not worried about regulatory action.

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-- Sucheta Dalal