After six years of a high-profile trial, B Ramalinga Raju received the legal verdict: seven years in jail for the swindling of a gargantuan Rs 7000 plus crores from his own company, Satyam Computers. Ironically enough, the now-resuscitated firm (under Mahindra Group suzerainty) had won the prestigious Golden Peacock award for corporate governance. Incidentally, disgraced electricity major Enron had a massive employee handbook on guess what? Ethics. White-collar and Armani-suited crime usually escapes harsh public condemnation because it is committed by high society's sophisticated gentry under the reassuring veneer of corporate respectability against a Davos backdrop. But Satyam and now Sahara have attracted public ridicule. Corporate malfeasance is out of the cupboard.
The problem with the modern CEO is the pressure of quarterly performance tracking done with merciless surgical precision by Dalal Street, which is understandably looking for a quick buck. Long-term investments, such as capital expenditure, which would increase costs without commensurate revenue in the short to medium term are frowned upon. Maximising equity valuations takes precedence over anodyne financial ratios for the man in Burberry mufflers. The prime driver is shareholder value captured in the stock price. While the blue-collar worker gets sweaty on rising food prices, the wily boardroom baron coolly wire-transfers millions into secret accounts. That's what happened in Satyam's case.
Financial crime in India, if properly investigated, could touch a staggering percentage of Indian companies' market cap. Many are guilty of willful indiscretion. We 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, there have been no serious convictions until Raju. Of course, many are being investigated for alleged shenanigans in the 2G and coal mines allocations, and their role in espionage and skullduggery in ministerial offices.
"The problem with the modern CEO is the pressure of quarterly performance tracking done with merciless surgical precision by Dalal Street, which is understandably looking for a quick buck."
Collective responsibility of the board of directors (including independent directors) will substantially diminish the propensity to rubber-stamp audit committee reports. Satyam's bizarre cooked books were approved by PricewaterhouseCoopers, no less. Corporate governance is Indian business's most abused shibboleth. SEBI must be given the power to impose serious damage, like a life ban on fundraising that prevents bankrolling of rehabilitation. Hiring of lobbying firms and political contributions need to be disclosed. Companies using public assets (such as land, spectrum, water, mines etc) could be brought under the Right to Information Act, for that part of their enterprise. If the country's natural resources and land assets are involved, then the entire affected community has a fundamental right to information. Crony capitalism and rent-seeking is linked to the pricing and distribution of natural resources.
For the frequently sermonising corporate India, Satyam has arrived with blaring horns as a deadly neutraliser. Suddenly that pious façade and casual bravado stands shattered. Satyam was not just an epic corporate fraud by itself, it also had a strong principal cast which included multinational auditors, ritzy merchant bankers, Harvard gurus on shareholder protection and independent directors who made money from sitting fees as they snoozed. The supporting crew was endless and each had their own private agenda. As the Satyam saga unfolded, several leading CEOs were fully aware of that "discretionary element" which is usually co-handled with remarkable dexterity by the prized auditors and the senior management in close cohorts. Insider trading allegations rage in India because they are true. Rajat Gupta of McKinsey got caught -- in India, no one does. I suspect no one will in the future either. We have chosen to turn a blind eye to pecuniary moonlighting.
"Insider trading allegations rage in India because they are true. Rajat Gupta of McKinsey got caught -- in India, no one does...We have chosen to turn a blind eye to pecuniary moonlighting."
What are their (company's) various items under contingent liabilities, and the cross funds flow between group entities? How have they benefited by certain vested policy changes which have impacted company health? What ethical standards are followed in business lobbying? Besides published accounts, how do they indirectly fund political parties? These are fundamental questions that remain lazily unanswered over several years. Indian companies also have an abysmal track record when it comes to initiatives on corporate social responsibility. Even those infrequent charitable initiatives are usually business-driven "back-end supply integration chains" that eventually translate into hard bottom line numbers in their annual reports.
In a gold-rush market, many well-intentioned entrepreneurs end up becoming like dubious arrivistes. Greed may have helped Gordon Gekko, but only transiently. Short cuts become the norm, and when the going is good, sadly several partners acquiesce with silly compromises. The result is the brutal annihilation of a Satyam, whose braggadocio got the better of them. The Golden Peacock award, tragically for Raju and his accomplices, ended up being their swan song.