Click to play videoIt has been a massive loss of face for corporate India, bringing a severe loss of credibility to India's world famous IT industry. Satyam Computers Chairman, B Ramalinga Raju on Wednesday admitted to fraud. He said that the company had manipulated the books to the tune of over Rs 5,040 crore.
Experts agree to have not seen any corporate scam of this magnitude in a large cap index stock. Many call it India's Enron for having eroded India's image and dented that of the IT industry which sells on the credibility.
Acceptance of having fudged records to inflate the books of the company for years, the Chairman now says he is ready to face the law. But how will India Inc repair the damage to its image?
B Ramalinga Raju has taken down corporate India. The question being debated on Face The Nation was Satyam chief in biggest corporate fraud: Is this Corporate India's worst moment?
At the start of the show, 79 per cent viewers felt yes, it was a severe beating to India Inc. A meagre 21 per cent differed on the issue.
CNN-IBN debated the issue on Face The Nation with Corporate Lawyer from Amarchand and Mangaldas, Shardul Shroff; Managing Partner, Counselage, Suhel Seth; Economic Analyst Paranjoy Guha Thakurta and Managing Director of Bajaj Capital, Rajiv Bajaj. The discussion was moderated by CNN-IBN's Senior Editor Sagarika Ghose.
You can't fool all the people all the time
How did the fraud go undetected for so long? Shardul Shroff was the first one off the block.
"I think clever accounting and trying to conceal, probably manipulating the accounts," reasoned Shroff as to how Satyam could pull it off for so long. "But I still think that it is a miracle that it has lasted this long. It should have been busted long ago," Shroff added.
What were the independent Directors and even the famed auditors of the calibre of PricewaterhouseCoopers doing while this went on?
Shroff sees it as a multilayered failure of duty towards performance of fairness and transparency to the employees, to the share holding communities and to the customers. "It flows from the duties of the independent directors and the auditors and how the internal auditors look at it," it added.
"I cannot understand how no one verified the closing cash and the closing bank balance, because there were the bank statements," said Shroff. He admitted shock that PricewaterhouseCoopers could have committed a folly and refused to pin it on the auditors merely being in awe of the chief governor of the company. "What could have gone wrong? It is very serious," said Shroff.
Suhel Seth said that it is a slur on brand India and needs demonstrative action. "With what face does one talk of cutting edge corporate governance in India?" questioned Seth, blaming the race for making it to the rich lists in the country. He felt that the need to stay in the rich lists is a big cause of such misadventures.
"I think demonstrative action needs to be taken against the PricewaterhouseCoopers of the world," said Seth expressing worry about the damage to the share market as well as the collateral damage to brand India's governance principles.
Values versus Valuation
Seth wondered if we are making Gods in corporate India out of people who have feet of clay. Is the stock market a value barometer or are ethics going to the value architecture, he wondered aloud.
"Sadly, values have been replaced by valuation today," said Seth.
Rajiv Bajaj said, "We need to keep our fingers crossed and watch for what all is there underneath the carpet," fearing that this may just be the tip of an iceberg and a revelation of the dark underbelly of profit seeking corporate world.
Paranjoy Guha Thakurta had a philosophical take on the issue. He felt that since companies like Satyam are major revenue avenues for the media and television channels, they tend to go soft on the follies of such corporates. Thakurta expressed amazement and amusement at the way Raju had drafted the letter of admission.
He likened the letter to that of a child's confession of a minor mistake in a household, confessing to seek minimal punishment in place of a severe drubbing. "Be a little soft when you punish me please; you know that is the kind of tone that one gets from the letter," pointed out Thakurta.
He underlined the unholy nexus between the corporate world and politicians by lines at the end of the letter where Raju mentions that T R Prasad, a former cabinet secretary can come to the rescue of the company.
"It is truly amazing the kind of things he has written and the kind of stuff he has gotten away with," said Thakurta and added that maybe Raju in his mind saw his world collapse like a pack of cards and therefore confessed his lies before someone else called his bluff.
Raju, the mis'guide'
Shroff saw this as Raju's realisation that his own share in the company was down to almost one or two per cent. "His personal share in the company was going lower and lower. The question would have risen that those who had invested in the organisation like the FIIs and the private equity players who would have wanted to sell at some point and this would have come out then," said Shroff on Raju's timing to come out in the open.
Were independent directors knocked senseless or were they partying through out as the fraud happened?
Seth wanted sterner action against all those responsible. "You know SEBI now wants to get into a demonstrative mode with the auditors. I am saying, lock these guys up. Tell the people in India that you cannot fool around with public money and public trust," said Seth, lamenting the fact that in India the paradigm of values is changing to worship of wealth. He also expressed worry that with the help of finest lawyers, the rich corporate defaulters will ultimately flex the law of the land and get away.
Earlier the Co-Chairman of Infosys, Nandan Nilekani had called the Satyam debacle as an one off and isolated incident, begging that the entire IT industry should not be tarred with the same brush. But the fact is that the future of over 53,000 employees of Satyam is at stake. What will be the remedial action?
Shroff admitted Sagarika had raised the most important question of the day. With an admission of mismanagement tendered and a company that needed to be saved, what were the remedies available?
SOS, save the sinking ship, first
Shroff felt that there could be destruction of evidence by the vested interests. The company needs to be saved from a wrong doer. The many acts in the companies acts, SEBI regulations and the law of the land must swing into action.
"Section 401 of the Companies act can allow the Government to take suo moto action," said Shroff.
"Power in section 408 of the Companies act can actually help sack the entire board of directors and auditors, get independent people of very high repute," suggested Shroff to help India save the fourth largest software exporting company in the country. There is public interest involved and trial and punishment of those guilty can go on alongside.
And what does India do with the Indian version of Bernard Madoff who allegedly fooled, cheated and ruined the fortunes of investors? Is this an example of the animal spirits of capitalism?
"Talking of animal spirits, I would like to quote Ramalinga Raju as he wrote in the letter," said Thakurta.
"It was like riding a tiger, not knowing how to get off without being eaten," the disgraced Chairman of Satyam Computer Services had written in his confession letter.
The balances and checks are missing and Raju has cleaned the company out. Thakurta felt that it was almost like saying, guys go easy on me as I have really not made any money, myself too.
Doctor's prescription
So what has this done to the India's image in the eyes of the world?
Bajaj expressed concern about the five crore investors in the market. "Corporate results, quarter after quarter have become such a big event, will people ever believe these results anymore? What do the FIIs and global investors think of Indian corporates? There is now such a lot of confidence building work that has to be done," said Bajaj.
Seth laid it out in commandments to get the house in order.
"Values, not valuation! Ethics, not results! Analysis and not analysts! And for God's sake get the avarice out!" pleaded Seth, reminding that we have got a nation to build. That's the only way forward, and demonstratable punishment," he reminded. "Lock them up behind bars."
Rounding off the debate, Sagarika pointed out that India is a nation, not just a market. Ethics and governance lie at the heart of profitmaking. Let's get real.
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