James Moore: Essar Energy's power cut shows why we need to keep tabs on those at the top

'Tis the season to lose your chairman. So it seems anyway. Essar Energy's Ravi Ruia became the second to fall on his sword, albeit temporarily, in two days following the announcement of plans by Prudential chairman Harvey McGrath to step down.

But if the man at the head of the Pru's board had a monkey on his back having failed to secure the backing of a quarter of his shareholders at the last AGM, Mr Ruia has the biggest silverback in the jungle on his.

The Essar Energy chairman and founder stepped back from the company in the wake of India's Central Bureau of Investigation (CBI) filing a series of lurid-looking charges related to the wider Essar Group, a sprawling conglomerate with interests in everything from shipping to property to energy, and its holding in telecoms firm Loop.

The CBI alleges that Essar used Loop as a "front" to acquire a second mobile phone licence it had no right to because at the time they were sold by the Indian Government it had a 33 per cent stake in the larger Vodafone Essar.

The scandal surrounding the auction of mobile licences is estimated to have cost the Indian Government billions of dollars but Mr Ruia, and his brother, furiously deny the charges.

They've been here before and have so far swatted away any and all allegations of impropriety. Expect a long and bitter fight, which has the potential to be rather entertaining unless, that is, you happen to be one of Essar Energy's shareholders. Then it is no laughing matter.

Essar created a huge buzz when the company joined the London Stock Exchange earlier this year, in what was one of the biggest flotations for a long time.

Excitable commentators gushed about the potential of India's energy sector. With 45 per cent of the population, some 450 million people, having no access to power in a country growing at breakneck pace despite producing less than a quarter of China's power output, it looked like a penalty kick. Concerns about governance were pooh-poohed.

The English, though, really ought to know a thing or two about penalty kicks by now, given their football team's misadventures. Essar Energy has proved to be anything but. India's growth has slowed and so has Essar Energy's. The performance of the shares has resembled the sort of downhill slope the bankers who handled the float (they're from JPMorgan and Deutsche Bank) will doubtless be enjoying on their winter breaks right now.

At such a time you really need your chairman and your chief executive to be focused on steadying the ship and turning it around.

Which is exactly what is not going to be happening at Essar Energy. Which is exactly why the Financial Reporting Council calls for companies to appoint an chairman who satisfies its criteria for independence when he or she joins the board. And exactly why Pirc, for example, recommended that shareholders oppose the election of Mr Ruia.

There are people who accuse Britain's corporate governance lobby of being box tickers. They would argue that if a company does well, then it shouldn't matter how it is run. The Essar affair has the potential to show just how wrong headed that view is.

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