The importance of a concerted effot by world leaders for corporate governance

The Satyam Scandal brought to light in January 09 by the disclosure of its Chairman Ramalinga Raju that he and his brothers had been cooking the books and siphoning off money from thousand of fake Satyam Salary accounts shook the Indian Corporates with fraud amounting to the tunes of 7000 crores of Indian Rupees.Mr Ramalinga Raju said in a letter of resignation that he had been overstating profits for the past several years, the amount of debt owed to the company and understating its liabilities.Satyam -- the name means "truth" in Sanskrit -- was audited by PricewaterhouseCoopers and has had high-profile independent directors, including a Harvard Business School professor and Mr Rao the dean of one of Indias leading B Schools ISB.

Satyam was India's fourth largest IT company and one of the flag bearers of India's IT story which accounted for more than 60 percent of the Services contribution to India's GDP by means of software exports.It had taken almost two decades for companies like Infosys and Wipro both led by erstwhile leaders like Narayan Murthy and Aziz Premji who led by example and pioneered their companies as one of the most ethical in the world.This scandal started numerous comparisons to the accounting scandal at Enron a few years ago.It was a major blip on the face of the Indian IT Story that had created employement for thousands of software professionals over the last decade and putting India on the global roadmap.

It was the least unexpected from Satyam and Mr Ramalinga Raju something that is showed by the fact that Satyam had won the Golden Peacock award for corporate Governance in December 08 and Mr Raju was a former president of NASSCOM which showcases India's IT Industry to the world.The financial manipulation has been going for seven long years but neither the so-called “independent directors” nor the professional auditors discovered it. The independent directors were acknowledged management experts the likes of the father of the Pentium chip, Vinod Dham, and Krishna Palepu of Harvard Business School. They collected huge fees without discharging their duty to safeguard the investors’ interest because they were puppets in the hands of the promoter, Raju. As the accounting firm, Arthur Anderson, did in the Enron case, Pricewaterhouse Cooper Capital, the celebrated audit firm, did in the Satyam case, both failing to uncover the fraud.Ironically, the World Council for Corporate Governance ranked Satyam as among the best-run companies in the world.

The primary reason why Mr Ramalinga Raju did so was to take protect Stakeholders equity and making sure its profits were in lieu with those of its competitors.But the questions that come to mind is that the only purpose of a company.With close to 45,000 employees and their families dependent on Satyam and being a important stakeholder of the Indian IT Industry with several Global clients like Sony,General Electric,Caterpillar,Nissan Motor it has created a huge dent.Satyam had various tie-ups with universities across India for harnessing talent.What good are the youth to make of such scandals.

What is disturbing is that for over seven years Mr Raju was supported by politicians in power in the Andhra Pradesh Government—former Chief Minister Chandrababu Naidu and later his successor Y.R.S. Reddy. Mr Raju was the face of Andhra Pradesh while meeting President Bill Clinton for investment in AP.His association with the top leaders meant that Raju got huge chunks of prime land at throw-away prices for technology park and other purposes and many other facilities which enabled Satyam to expand and grow rapidly. Banks and financial institutions allowed Raju to open thousands of accounts without questioning. They provided statements about the company’s finance as Raju requested.

Since September 2008 there has been a collapse of one major financial institution after another like the Lehman Brothers, Fannie Mae and Freddie Mac, AIG, Merrill Lynch, Goldman Sachs, Stanley Morgan Investment and Washington Mutual Bank. These are not stray events. There is a clear link between the policy of neo-liberalism(which means that best government is the best which governs the least), unbridled capitalism and financial scandals. However if you see the Indian Banking system which is so regulated and orthodox has done much better than its global compatriots with SBI now having more market capital than CitiBank worldwide.

Climate change, its impact and eco-conservation is an underlying impact that is going to be of paramount importance in the next decade.More and more strong action by all the world leaders who work with one another is required.Triple bottom line (societal,environmental and business profit )should also be inculcated in the ethos of corporate governance.
All this calls for a concerted effort from all the stakeholders of the world which explains why corporate governance is important in India and across the world