The lacerations are deep

The fraud committed by the founding promoter and former chairman of Satyam Computer Services Limited, Byrraju Ramalinga Raju, and his cohorts, has revealed the underbelly of Indian capitalism in ways that few could have imagined. It would be tempting to perceive the unseemly episode as a manifestation of individual greed and malfeasance. But the corruption in Satyam goes far deeper than that: it is corporate cronyism at its crudest, including the negligence — at best — or complicity — at worst — of an internationally-renowned firm of auditors (PriceWaterhouse) and a clutch of so-called independent directors (among them an erstwhile cabinet secretary, the senior-most position that a bureaucrat can aspire for in the Government of India).

At one level, the Satyam scam is yet another instance of the infamous nexus between business and politics. It also highlights the lax mechanisms that are in place for official oversight and enforcement of prudential norms that, in turn, are supposed to ensure “good governance” in corporate entities.

The story does not end here. The Enronlike affair has also exposed the working of the mass media, not only for the manner in which rich-lists are regularly brought out and winners of dubious awards lionised but also for treating company captains and business tycoons with kid gloves — who are, after all, big advertisers — that is, until the scandal is so large that it just can’t be ignored. In these respects, the fraud in Satyam is comparable to the two scandals that rocked India’s stock-markets in 1992 and 2001, the first masterminded by the late share-broker Harshad Mehta and the other by Ketan Parekh.

Both had to spend time in jail. Raju too might follow in their footsteps.

The big question that everyone is asking: Why did Raju write the letter he did admitting that he defrauded his company’s shareholders and misled government authorities, customers, clients, not to mention some 53,000 employees? Was he advised by his lawyers to act in this manner before the muck was raked up by others? The amount involved in the fraud is not exactly small change — it runs into more than Rs 7,000 crore. Moreover, the fraud did not take place overnight. By Raju’s own admission, his flagship company’s books were being cooked for the “last several years”. He realised that the empire he had built up over a span of two decades was collapsing like a proverbial house of cards in barely two weeks.

Raju probably decided that it would be better to “come out clean” instead of waiting for someone else to spill the beans. In a sense, he was almost child-like in his demeanour: “Mama, I’ve spilt the milk, but don’t punish me too hard”, he seemed to be saying. But the 54-year-old symbol of India’s information technology prowess would be utterly na├»ve if he believes that all but a few would fall for his claim that he, his associates and their family members are “innocent” and had not financially gained from the fraud and the reduction in the stake of the promoter group in the company he so terribly misnamed — much to the glee of today’s headline-hungry hacks.

It is next-to-impossible to believe that partners of PriceWaterhouse who were responsible for overseeing the external audit of Satyam did not know what was going on.

If they did not, they were indeed incompetent and inefficient. It is also difficult to swallow the notion that the company’s eminent “independent” directors were completely in the dark and hence, were taken aback by what transpired, that is, until a huge controversy broke out over Satyam acquiring the two Maytas firms controlled by Raju’s sons (nepotism can’t descend to lower depths). If indeed they were ignorant of what was happening, it clearly indicates that “independent” directors need to henceforth not merely assert their independence but also keep their eyes and ears open and not treat company board meetings as a socially- pleasurable get-together for polite chit-chat and mutual back-slapping.

Satyam could not indeed have asked for a more eminent panel of independent directors — some of whom deserted the sinking ship like an unmentionable animal species.

Most of these individuals are at present surely regretting their association with Raju and his company, which was, until day before yesterday, India’s fourth largest information technology company specialising in development of computer software and business process outsourcing — a company that was doing business in 66 countries and would count as its clients no less than 185 companies in the Fortune 500 list.

Satyam’s directors included former cabinet secretary T R Prasad, the dean of the high-profile Indian School of Business M Rammohan Rao, academic Mangalam Srinivasan who advises the Kennedy School of Government of Harvard University and had served as scientific adviser to Indira Gandhi’s government, Vinod K Dham, often described as the “father of the Pentium microprocessor chip”, Krishna G Palepu, professor at the Harvard Business School and V S Raju, former dean of the Indian Institute of Technology, Delhi.

What is now being emphasised is the fact that Raju used to be former Andhra Pradesh chief minister N Chandrababu Naidu’s blueeyed boy before he promptly switched allegiance to Y S Rajsekhar Reddy after he came to power — like most opportunistic businessmen. It is also being recalled today how the chief of Delhi Metro Rail Corporation E Sreedharan had publicly blasted the manner in which Raju’s sons’ firm Maytas intended financing the contract that had been awarded to it for building the metro in Hyderabad in July as well as the modalities for its construction. At that time, Sreedharan had been threatened with a defamation suit — the legal action never materialised.

Large sections of the mass media in India did not emphasise these aspects of the working of the industrial house that Raju built.

Yes, the media is obsessed with the rich and the powerful. Our publications and television channels love lazy list-journalism that measures individual material wealth on the basis of market capitalisation that disappears like a whiff of smoke. It’s hardly a secret that advertisers fund media organisations. But just as independent directors need to learn lessons from this fiasco, so do fellow tribals from my profession. Raju’s “confession” has afforded all of us a good opportunity to introspect.

Will something good come out of all this venality? Perhaps. Maybe not. The new czars of India’s corporate sector may think twice before diverting investors’ funds to firms controlled by their children. Company chairpersons and their cronies may hesitate just a bit before manipulating balance sheets and filling books of account with fictitious entries, with or without the knowledge and consent of pliant auditors. It is said that mud is placed on the faces of women in order to make their skin glow and appear prettier.

After this mud is removed from the face of the Indian corporate sector, the country’s companies could get a chance to clean themselves up. Still, unless a few auditors and company bigwigs are placed behind bars — such people haven’t so far — more may be emboldened to ride “a tiger not knowing how to get off without being eaten”, to use Raju’s rather colourful expression

Paranjoy Guha Thakurta

The author is a journalist with over 30 years experience in various media

Jan 9, 2009

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