Wednesday, April 08, 2009

In India, the idea of corporate governance is well received; however, its implementation is left stranded.

IIPM set to beat economic slowdown

Regulators certainly need to develop draconian teeth just like the US had put in after the Enron case, feels Manish K. Pandey…

It was just three months ago, when it had won the coveted Golden Peacock Global Award for Excellence in Corporate Governance for 2008. Come 2009 and B. Ramalinga Raju, the former and now disgraced chairman of India’s fourth largest IT firm, Satyam “relieves the burden on his conscience” by bringing to light, one of the biggest-ever frauds in Indian corporate history. Shocking, mind-numbing, atrocious, disgraceful, cheats, and so on… adjectives pour in from all directions as the mystery starts unfolding.

Events still continue to unfurl but as they now pave a way deep inside Satyam’s financials it’s clear that Raju couldn’t have done it alone. As per critics the pliant partners at Price Waterhouse, the so-called ignorant directors, nearly quiescent government body (Ministry of Corporate Affairs) and, above all a horde of politicians who supported Raju (presumably for favours) were his shrewd partners in the crime.

In whatever direction the investigation may point out, but the Satyam fiasco has certainly revealed the dark underbelly of Indian capitalism. It has not only questioned the integrity of promoters but also the levels of corporate governance in India. The objective of the corporate governance is to build an environment of trust and confidence among shareholders by augmenting company’s performance and accountability. So how can a management with only 10% stake decide on a Rs.80 billion investment and 90% of the shareholders have no say at all in the deal? Isn’t it just a mockery of corporate governance rules?

Certainly this is not for the first time that such a thing has happened. Instances ranging from the South Sea Company in 1720 (popularly known as South Sea Bubble where the company got exclusive rights to trade in the South Seas through unethical means) to Daily Mirror’s Robert Maxwell in 1980’s (manipulation of the pension schemes run by Maxwell’s businesses), to Enron in 2001 (that created a web of SPVs to hide debt on its books and inflated revenues), to Lehman Brothers in 2008, and many others alike prove the point at the international front.

Even in India it’s not for the first time. However, the only difference is that the scandals are not of this magnitude. Like Satyam, Sterlite too was alleged to adopt fraudulent practices to bag a tender floated by GAIL last year. Even Bearings (promoter of BFL), abstained from voting when their business was getting acquired by MphasiS. How can we forget Global Trust Bank, where the auditors were again Price Waterhouse?... India Inc. too is full of such examples.

No doubt change has come to corporate India - from family-owned businesses that were involved in issues such as nepotism, mismanagement, lack of transparency, et al to a scenario where companies are professionally managed – but the pace of it has been really slow. Even today still more than half of the companies on the benchmark indices Sensex and Nifty are family-controlled which hampers the evolution of corporate governance in India. In an exclusive interaction, Naresh Gupta, MD, Adobe India tells 4Ps B&M, “Indian corporate culture is still in a nascent stage as opposed to their American and European counterparts. Moreover, a deep integration with global environment has quickly come to them. But, Satyam fiasco will make sure that corporate governance matures in India.”

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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