No, Satyam resulted from India’s weak governance

There are a few axioms that we work with: we believe there is a certain level of integrity in those with whom we do business; and that fraud is the exception, not the rule. Without a fundamental level of trust, it becomes difficult to transact business. The Satyam incident corrodes the individual’s faith in the system.

The casual observer is left wondering what other skeletons are going to tumble out of which other companies’ closets.

The fact of the matter is that the Indian system is so thoroughly corrupted—especially by rent-seeking politicians—that it is literally impossible for a businessman to survive without bending the rules a little, greasing the right palms here and there. This is the cost of doing business in India: a hidden “surcharge” if you will. Given this reality, it is important that there be limits to the extent of malfeasance. This is where honest corporate governance comes into the picture.

Because the system itself is crooked, we need checks and balances, both internal and external: governance and truly independent auditing take care of the internal part. The external answer would be more intrusive government regulation and oversight. However, despite the noises being made in America blaming all finance-sector problems on a lax regulatory environment, it is not clear that more paperwork is the answer. Consider Sarbanes-Oxley, which did nothing to prevent Satyam— because of the listing of its ADRs in the U.S., subject to SoX provisions—from doing what it did.

More regulation, especially in bureaucrat-heaven India, will probably just choke businesses to death, as in the dreaded days of red tape and the erstwhile, suffocating, License Raj—which, incidentally, did enrich those with the right contacts.

So who should take the ultimate blame for the Satyam affair, other than the Raju brothers? The Securities and Exchange Board and the Ministry of Company Affairs, for lax oversight? The auditors, who didn’t notice dubious things in the books? Doesn’t the final responsibility lie with then-Finance Minister, P. Chidambaram (like Ramalinga Raju, a Harvard B-School alumnus)? How about Oxford-trained Manmohan Singh? It was on their watch that this large crime was committed. If people take their responsibilities seriously, the Prime Minister and the former Finance Minister should resign. But of course, they will not.

That, perhaps, is part of the problem. Politicians and businessmen apparently share a vested interest in not insisting on strong regulatory oversight or on good governance. Nobody in power wants good governance. So long as this is so, we can expect many more Satyam-like scandals. In an era of Bernie Madoffs and Enrons and Parmalats, it is a wonder more massive frauds haven’t been unearthed in India. So far.

Rajeev Srinivasan wrote this opinion from Ahmedabad, India.



Yes, scapegoating governance is pure sophistry

There is an interesting story of an island whose inhabitants cast votes to elect leaders as a result of their traditional belief in democracy. After completing the voting process, they would proceed to throw all ballot boxes into the sea: the actual leader would emerge through a free for all punching match between interested parties.

Apocryphal as the story seems, there is a parallel with the Satyam fiasco. It is practice and adherence that makes governance a living, breathing, life-endowing process. While the government has the responsibility to ensure corporate adherence to established governance practices, companies need to realize the merits of good governance and its relationship to shareholder confidence and growth.

Does India have adequate governance corporate practices?

The success of Satyam (and many of its competitors) represent the fruits of the Indian economic boom, a relatively new and evolving phenomenon no more than 15 years of age. Consequently, the Government of India has had the onerous task of updating its former corporate governance principles and laws (unchanged since independence) to 21st century standards within 15 years. Given the complexity of the task and the time period, the Government of India has successfully overhauled the governance framework; the proof lies in the stellar reputation of firms like Infosys which have taken the trouble of implementing it. The fact that hundreds of western firms investing in India have complained about infrastructure and bribery, but not about governance, clearly illustrates that Indian governance practice is on par with internationally accepted practice.

Satyam landed itself in the soup by successfully circumventing every governance principle; it thrived on internal non-compliance. The proof of this confronts us in the form of doctored financial results being shown to the Board of Directors on more than one occasion with the latter suspecting nothing! Satyam’s Board of Directors passed a motion to acquire Maytas in December without a serious discussion about obvious conflicts of interest. This suggests that rubber-stamping of management proposals was the norm. The CFO signing financial results produced by his assistant and company auditors without objections (or even cognizance) from the audit committee proves that governance in Satyam had degenerated into the blind leading the blind. The sad fact is that Satyam’s management ruled the board, as opposed to the standard practice of the latter governing the former.

We all know that “one man can take a horse to water, but a hundred can’t make it drink.” There is the need to tighten up governance, but there is the bigger need for companies to embrace good governance. Blaming governance without discussing the company’s adherence is a perfect example of sophistry.

S. Gopikrishna writes on issues of importance to India and Indians.

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