The
truly extraordinary story of the Satyam Computers scam
has many interesting side features to it. It is of course
an amazing tale in itself: a humongous corporate financial
swindle involving account books that were not just cooked
but made into the financial equivalent of gourmet fantasies,
over a prolonged period of several years, all to inflate
reported profits and returns so that stock market valuations
would keep on rising.
The magnitude of the false numbers involved, the sheer
brazenness of the lies and the fact that they could
have continued undetected for so many years, are stupefying.
But the issues that this particular case raises are
not individual but systemic.
So far industry insiders and analysts have all gone
on record to declare that this is an isolated case,
of a single bad egg in an otherwise honourable and well-behaved
corporate sector. But unfortunately this argument simply
will not wash, because too many other players have directly
or indirectly been involved in creating and building
up this remarkable but ultimately fake story of successful
entrepreneurship.
Much is already being made not only of individual greed
that is supposed to have prompted this tale of financial
mendacity on a grand scale, but of the agencies that
enabled and possibly even encouraged it. Attention has
been drawn to the obvious failings of the Board of the
company, including its so-called ''independent'' Directors.
The dereliction of the auditors, Price Waterhouse Coopers,
is obviously coming under scrutiny.
But there are some other important players who celebrated
Satyam Computers and its Chairman of the Board Mr. B.
Ramalinga Raju all through this period, even up to just
a few months ago – the national and international dispensers
of entrepreneurship and corporate governance awards.
Satyam Computer’s much vaunted success was not only
defined in terms of its rising share values and apparently
remarkable returns: it was also because of the explicit
recognition that came from national and international
awards to the company and its managers.
Thus, Mr. Ramalinga Raju was named the ''Entrepreneur
of the Year'' in 2007 by the consulting company Ernst
& Young. Business media, including TV channels and
journals, vied with one another to proclaim him ''Man
of the Year'', ''Business Icon'', ''Role Model for Young
India'', etc. Investor Relations Global Rankings (IRGR)
rated Satyam as the company with Best Corporate Governance
Practices for 2006 and 2007.
By the company’s own reckoning, the most impressive
achievement was bagging the ''Golden Peacock Awards''
for corporate governance, distributed by the UK-based
World Council for Corporate Governance. These awards
were received twice by Satyam - in 2002 and most recently
again in September 2008. While receiving the award,
G. Jayaraman, Satyam’s Global Head of Corporate Governance
and the Company Secretary, emphasised that ''this honour
demonstrates the value Satyam places on corporate governance,
and on the importance of serving the interests of our
investors, clients, associates and of society.'' The
then Chief Financial Officer of the company, Srinivas
Vadlamani, noted that this recognition was ''a testament
to our efforts to continually innovate and advance corporate
governance best practices in our industry and around
the world."
And what was this particular corporate governance award
for? It was under the category of special achievement
in ''risk management and compliance issues''!! It was
further noted that the ''importance of ensuring best
practices in corporate governance is magnified in difficult
economic environments''…
This is worth going into, because the Golden Peacock
Awards are trumpeted as ''the holy grail of corporate
excellence'', based on a rigorous and detailed two-tiered
assessment process and presided over by a panel of forty
extremely eminent independent judges. The Chairman of
this particular jury in 2008 was the former Prime Minister
of Sweden, Dr. Olla Ullsten. The panel included other
international heavyweights like Baroness Sheela Flather
of the British House of Lords; Dr Olivier Giscard d’Estaing,
Founder and Managing Director of the famous European
business school INSEAD; and the NRI businessman Lord
Swraj Paul.
The Indian side of the panel was headed by Former Chief
Justice of India P. N. Bhagwati and included other retired
justices; current and retired senior bureaucrats like
T.K.A. Nair, Secretary to the Prime Minister and N.
Vittal, the Former Central Vigilance Commissioner; managers
from Bollywood and corporate honchos like Rakesh Bharti
Mittal.
Obviously,
those who gave the award now have quite a lot of egg
on their face, and the World Council for Corporate Governance
has rushed in almost unseemly haste to withdraw this
award from Satyam four months after granting it. But
unfortunately, it cannot be expunged from public memory
so quickly. The World Council may argue (like the Satyam
Board members who are now protesting their innocence)
that they had only looked at the audited accounts, and
took everything on trust. And the eminent people who
have lent their names to the jury may protest that they
personally do not go over each entry with a toothcomb.
But then the question can legitimately be asked, why
exactly are they there? What are they doing if not examining
the legitimacy of the awardees? And why was Satyam Computers
given this award anyway? Since it was not based on a
detailed examination of the books it must have been
based simply on the high returns that Satyam has been
showing, returns that have now been exposed as fictitious.
But surely profitability alone cannot be an indicator
of ''good governance'', even in ''difficult economic circumstances''.
So what does this tell us about those who disburse this
award? Essentially, they are obviously not objective
assessors, but are hugely influenced by hype. In addition,
they are dramatically behind the curve of events and
do no more than reinforce whatever the market and media
are together determining. When Satyam was riding high
on the basis of bogus claims and falsified accounts,
these high priests of corporate governance joined the
crowds shouting hosanna, clearly without any proper
investigations of their own. And only after Mr. Raju
revealed at least some of the scam and announced his
own downfall in his farewell letter, did the organisation
rush to take back its award, once again without any
real investigation of its own.
This is one more indicator of how the previous boom
was so heavily reliant upon a mutually reinforcing set
of players who could talk up the market through constant
self-congratulation, often without much real economic
contribution. The media played a big role in this too,
lionising those who delivered profits and refraining
from asking any really difficult questions.
But now that the scandal has broken, there must be many
unanswered questions in every mind. If Satyam could
get away with this for so long, and receive so many
awards for doing so, what about other companies? How
do we know that everything is in order in other corporate
accounts, especially in other IT companies? After all,
the same pressures for showing high profits to push
up share prices, and the same lack of disincentives
because of the still persisting tax holiday on the IT
sector, presumably operate for them as well. And the
complete ignorance of not only the auditors but regulatory
authorities like SEBI with respect to the Satyam fraud
suggests that other companies could also have got away
with such malpractices if they had wanted to.
This case has been compared to the Enron scam in the
US, and indeed there are many similarities. These dodgy
financial practices can work during a boom, but start
to unravel in a slump. As the Indian economy also slows
down, as export orders come down, and particularly as
auditors and external investors start looking more closely
at the books, there may be more unsavoury revelations
emerging from the corporate world. If recent experience
is any guide, maybe we should start by being especially
suspicious of all award-winning companies.
|
