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Boardroom Brats And Corporate Crooks

07/11/2016 6:30 PM IST | Updated 08/11/2016 8:52 AM IST
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Shailesh Andrade / Reuters

I called my father excitedly, as pleased as a puppy with two wagging tails. "Dad, I have landed a real fantastic offer from Grindlays Bank!" This was circa 1986, and the campus interviews at the venerable XLRI, Jamshedpur were at their concluding stages. I could almost contemplate my father's poker-faced countenance as he responded with undisguised nonchalance: "But what happened to that Tata Administrative Services (TAS) thing?" I was stunned beyond comprehension. Grindlays Bank was at that time a pedigree British bank with all the hubris associated with the post-colonial hangover; long lunches, private club culture, golf course over the weekend and some corporate schmoozing in the interim that was ostensibly serious work. It also promised a London trip, a Savile suit-boot environment and an enviable compensation packet.

The Tatas might be the current poster-kids of corporate politics gone rogue, but they are in the illustrious company of several sugar-daddies with scary skeletons in their cupboards.

I failed at the last interview stage, I told my father, which was the truth, but given my wretched CQPI scores I was fortunate to have even been short-listed. Father was clearly crestfallen. As a middle-class professor of modest means, the only private sector company that he felt deserved even a cursory adventurous experiment was Tata's. The rest were considered dodgy foreign companies who treated you like abject slaves. For him, my inability to get into TAS was a grievous wound; after all, I had contumaciously refused even sitting for the IAS examinations earlier.

Thus, when the abrupt and astronomical Tata meltdown began a few weeks ago with what can be called the "the Mistry Affair", I could not but remember my father's palpable disappointment of years ago. Corporate reputation in tatters, market capitalization plummeting and sordid mud-slinging and vendetta boardroom politics making front-page in the pink papers... the Tata Group is seeing unprecedented troubled times. And this could be just the tip of a giant iceberg.

The allegations levelled by Cyrus Mistry, the rudely terminated former chairman of Tata Sons, are damning: fraud, inflating assets, window-dressing of purported losses, fictitious sales, huge potential write-offs, fanciful joy-ride on risky ventures for satisfying personal whims, and pursuing projects that have hit a financial cul-de-sac. But the Tatas are not the sole inheritors of India's Gilded Age; they are in the august company of several other mighty behemoths, from the Ambani brothers, Adani, Essar, etc, who have acquired large chunks of India's natural assets for their commodity businesses. And several of their business enterprises have in questionable deals received government largesse, inviting invited scathing criticism from the public auditor, the CAG.

Conventionally, white-collar crime is understood to mean perpetrating internal fraud for private profit. India Inc (which often sermonizes to the political system with religious regularity on governance and corruption) stood exposed in the unsavoury 2G scam. The loss of ₹1.76 lakh crore which was propounded by CAG was preposterous, a mathematical fantasy; instead of focusing on the willful malpractice of circumventing procedure by Big Business in collusion with apparatchiks-politicians, there was an attempt to manufacture zeroes in thin air. It had a political complexion. India woke up to the news of spectacular corruption, and all hell broke loose. But we missed the wood for the trees.

Boards of directors are frequently guilty of substantially diminishing audit findings by rubber-stamping them. Collective responsibility becomes a pretext for casual indifference.

Practically, all the big league players were subsequently investigated and some indicted for manipulating processes and giving kickbacks. Maximizing equity valuations through price-rigging, acquiring licenses by deploying slush funds, or willful procedural violations are all part of the new Fendi fraud in Burberry mufflers. While the blue-collar worker sweats over rising food prices, the boardroom baron coolly wire transfers millions into secret accounts. The politician is, of course, the only one who faces prime-time wrath and public humiliation. Big Business, which has ownership of much of mainstream media, is cocooned from its own shenanigans. The voter rightfully rejects the crooked politician, but Big Business expands, exponentially, untouched, unaffected. There is no Law of Equivalency here.

The most fundamental requirements are speedy trials, swift justice and heavy penalties on those who are found guilty. But first, we need qualified human resources; financial accounting is not everyone's cup of coffee. Take the esoteric concept of credit default swaps that had Lehman Brothers, Goldman Sachs, Citibank, AIG, etc, suddenly evaporate into Manhattan's twilight. Even the CEOs of these financial institutions did not know head or midriff of these complex derivatives. The Great Recession was collateral damage of the avariciousness of investment bankers seeking an extended holiday on the beaches of the Bahamas. Imagine a poor CBI/CVC officer detecting that intricate economic offence needing a serious forensic examination. India does not have the robust mechanism to detect financial frauds.

Fact is, India is witnessing a mad gold rush syndrome. Financial crime in India, if properly investigated, could touch a staggering percentage of Indian companies in varying stages of skillful indiscretion. Thus, India will need special legal provisions dedicated to financial embezzlement. Enron's Kenneth Lay and Jeffrey Skilling were promptly convicted. Martha Stewart, Bernard Madoff and Allen Stanford were quickly sentenced. But in India, barring the two Big Bulls Harshad Mehta and Ketan Parekh and the controversial Kapal Mehra of Orkay Silk Mills and Satyam's Ramalinga Raju , there have been no serious convictions. Why? Even Pakistan has docked PM Nawaz Sharif on the Panama Papers, but we are conveniently snoozing.

Integrity is like oxygen. The higher you go, the less there is of it.

Boards of directors are frequently guilty of substantially diminishing audit findings by rubber-stamping them. Collective responsibility becomes a pretext for casual indifference. Satyam's bizarre cooked books were approved by PricewaterhouseCoopers. Corporate governance is Indian business's most abused shibboleth. Remember, megalomaniac owners influence Cabinet posts and judicial decisions (reference Radia/Essar tapes). Hiring of lobbying firms and political contributions for campaign funding need to be disclosed. Opaqueness predominates, while transparency gets lip-service in India. We are as a nation constantly high on hyperbole; it's our favorite drug.

Guilty-firms that have short-charged regulators should face a life ban on fundraising that prevents bankrolling of rehabilitation. Currently, there are hardly any strictures. The RBI is not even willing to disclose names of willful defaulters with an aggregate of nearly ₹90,000 crores of bad debts. If the country's shared resources such as land/water/spectrum/mining/forest assets are involved, then the entire affected community has a fundamental right to information. Companies in such public-private partnerships or with sole ownership of government assets must come under the RTI Act and the Lok Pal.

Integrity is like oxygen. The higher you go, the less there is of it. Some serious lessons in ethical leadership might also help. The Tatas might be the current poster-kids of corporate politics gone rogue, but, rest assured, they are in the illustrious company of several sugar-daddies with scary skeletons in their cupboards. Politicians, for all their faults, have brought two landmark legislations for translucent self-regulation; the RTI and Lok Pal. It is time India's private sector acknowledged their flaws. That could be the first step to correcting the fault-lines.

As for me, perhaps I was lucky I never got those stunning CQPI grades.

Old Bangalore

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