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Why the Satyam fiasco is good for India

Last updated on: January 15, 2009 14:01 IST

Just when one thought that all the 'corrections' that were to happen had actually happened in 2008 and that India and Indian business can get down to serious rebuilding work from the beginning of this new year, the Satyam landmine has come as a rude reminder that some more corrections have to happen in India before we can start the process of building businesses of the future on which the next round of the growth story for the country can be founded.

Fortunately, if at all one can use the term without inviting wrath from many, perhaps India did need a blow-out on a scale like Satyam to bring home the painful reality of the generally rotten state of corporate governance and the vicious promoter-politician nexus endemic across different sectors of the economy.

Like it took the recent tragedy at the Taj Mahal and the Oberoi Hotels at Mumbai to finally affect the conscience of the entire nation and force the otherwise somnolent and an indifferent political class to accept that we have a real problem at hand and therefore we have to take some firm steps to address the long festering problem of terrorism and internal security, it is perhaps a blessing in disguise that India's sacred-cow sector (IT), one of the biggest firms (Satyam) and one of the most prominent poster boys (Ramalinga Raju) are at the centre stage of this exposure of another weakness in the underbelly of the country.

Only the naive would actually believe in the comments by select industry leaders and select politicians that the Satyam case is one-off and that the entire Indian IT sector (or for that matter, the entire Indian business fraternity) cannot be tarred by the same paintbrush. Just about anyone who has worked at any senior level in the Indian family managed firms or has been a banker, plant and machinery or raw material vendor, or a marketing channel partner would have many first-hand experience-based stories to tell.

Yes, of course, there are many exceptions and many very honourable ones within this group of those who have refrained from routine pilferage of public money and public trust. Still, Satyam most certainly is not a one-off high profile situation that India has been forced to face. It is not the first one in the last 25 years, and will certainly not be the last of the high profile ones in the next 1-2 years itself.

Just as, unfortunately, the recent Mumbai carnage was not the first one to scar India and, sadly, may not be the last one till we make some very fundamental, systemic, bold and decisive changes in the very system itself that provides the opportunity for this abuse of public security and public trust.

To start with, we must accept that Satyam is our problem. Like the Mumbai and the previous acts of terrorism are our problem and we were always expected to find the solution ourselves. It is so convenient for us to blame Pakistan for our own shortcomings and try to divert attention from the root causes (that we need to secure our own borders and our homeland ourselves) by sabre rattling at our neighbour.

Likewise, it may be easy to finally lay most or all the blame at the doorstep of Price Waterhouse (being a foreign owned entity) that they did not perform their duties as auditors correctly. We must accept that the nationality of the auditors in this instance is purely coincidental. There would be many very large audit firms of Indian provenance too who may also be routinely turning a blind eye to the shenanigans of various promoters.

With the government now monitoring the situation so diligently, perhaps finally the regulatory systems and bodies responsible for ensuring compliance will start to function as they should have done before the Satyam blowout. Like the internal security, the challenge for India is not the absence of systems and mechanisms but lies more in their effective implementation.

In this context, the role of independent directors has come under close scrutiny. This has happened not a day too early. In recent years, one of the less reported nexus was that between the Indian promoters, senior bureaucrats especially those from IAS, and senior bankers especially those from large PSUs.

Post-retirement sinecures were freely offered to such retired civil servants essentially to use them as glorified liaison officers for the promoters and different branches of the government and the public sector banking system. The completion of the charade of having independent directors was done by getting academics of Indian origin from leading US (or UK) business schools to sit on the board.

Hopefully, the boards of at least the very large public companies will in future be composed more on the basis of business-specific relevant competence rather than the retirement-eve titles of the incumbents or the public perception of the individuals' academic affiliations.

Finally, while the government and other bodies try to fix Satyam, it would be very useful for many other Indian promoters to start cleaning up their own act urgently before it becomes too late for them too to get off the tiger.

Also see
Complete coverage: The Satyam fiasco

Arvind Singhal
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