YES Bank board battle: Why Deepak Parekh is wrong about Shagun Gogia

The tussle between YES Bank founder families over the appointment of late Ashok Kapur’s daughter Shagun Kapur Gogia as a director on the board of a professionally run company is sure to take an ugly turn asGogia’s mother Madhu Kapur has alleged that she and her children have been denied their ‘rightful place’ in the bank’s management despite owning a 12 percent stake in the bank.

Madhu Kapur, widow of Yes Bank’s founder-promoter Ashok Kapur has filed a suit in the Bombay High Court alleging that Rana Kapoor, the chief executive officer and managing director and Ashok’s brother-in-law, is attempting to deprive her and her children their rightful place in the bank’s management as the Kapur family was not consultedbefore appointment of three new directors on the bank’s board.

[caption id=“attachment_857501” align=“alignleft” width=“380”] Rana Kapoor. CEO, YES Bank. AFP[/caption]

“Ashok Kapur, like Rana Kapoor, is termed as an Indian partner in the bank documents.. The articles of association gives Ashok Kapur family equal right on appointment of directors.’’ an associate of the Kapurs was quoted as saying by the Economic Times.

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Advocate Birendra Saraf, appearing for Madhu Kapur has held that as per the definition of the ‘Indian Partners’ both Rana Kapoor and Ashok Kapur’s successors had the right to nominate three persons as directors so long a s they held at least 10 percent of the issued and paid-up share capital of the company.

On October 27 2012, YES Bank had informed BSE that Ravish Chopra, Diwan Arun Nanda and M R Srinivasan had been appointed as additional directors on the board but that the three will be considered for re-nomination at the AGM. While the Bombay High Court did allow YES Bank to go ahead with its AGM, the appointment of the three directors will be subject to the court’s directions in the case. The case comes up for hearing today and so do the results of the ballot on the appointments.

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However, the larger issue here is whether Gogia should be given a board seat just because she is the daughter of one of YES Bank’s co founder?

Ashok Kapur passed away in the 26/11 attacks. A year later the Kapurs wanted to induct Gogia as a board member, but the bank refused as it believed she would not pass the Reserve Bank’s fit and proper’ criterion even though she had an MBA degree from Indian School of Business and had worked as vice-president at ICICI Venture. She was also the founder of a private equity arm Tuscan Ventures and is currently a director in a logistic firm, Coldstar.

The question remains why minority shareholders, even if family founders, should have an automatic board seat in a non-family run firm. By RBI guidelines, families are not allowed to run banks.

Given this context it is surprising that Deepak Parekh, chairman, Housing Development Finance Corporation seems to have endorsed Gogia for a seat on YES Bank board.

“I know Ashok Kapur was a significant shareholder in the bank and after his passing away if his wife does not have the expertise to represent the business she could nominate somebody else…In family-run businesses, I have seen young members of the owner family join the boards at a very young age. She (Shagun Gogia) as a family member of a large shareholder could be on the board”, he was quoted as saying in the Economic Times today.

But, dear Mr Parekh, the fact remains that banks are not family-run businesses but rather run by professionals.