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Home > India > Business > Columnists > Guest Column > Sunita Narain

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Will Satyam lead to a change?

January 16, 2009

Let me dare to predict how regulatory and corporate India will resolve IT major Satyam's [Get Quote] scandal/saga.

The government will stand tall, its arms and branches spread out in a never-ending enquiry, to provide tactical cover.

Some fall-guys might be found: Now-disgraced chairman B Ramalinga Raju could be sentenced, as could the auditing company official who signed the accounts; but it takes time to prove guilt, so they will probably live a retired life in the comfort of their homes, out on bail.

Meanwhile, the media will bray for blood. Corporate India honchos, particularly Satyam's competitors, will jump out of TV screens, express disgust and shock. But each will shrug off the incident as a one-off rogue affair and quickly put a lid on the issue.

Soon, it will be business as usual; that is, creative accountancy and cover-up by using corporate image-fixers. The media, too, will fix itself. And Satyam will not lead to change.

But why should I, an environmentalist, worry about corporate (mis)governance? The reason is simple: it is clear corporate India, working its way to development, is doing so at the cost of the environment and the livelihood of the poor.

It is also clear such damage can be minimised if industry works within a strict, vigilant and credible regulatory system. In other words, industrial growth need not necessarily be destructive of the environment. But this challenge of the balance can be managed only if policy is public, regulatory institutions are made and kept strong, and democracy deepened.

So what do we find behind this scam to see the 'nature' of the cover-up? Satyam did everything by the best of global books and principles. It polished its image, in a world of make-believers, to perfection.

This is the problem in today's dominant system. It is about form, not substance. It can work its shine because the agencies responsible for credible action have been degraded, debilitated. It has madly backed the expensive business of public relations, making the media, democracy's watchdog, toothless.

We need to crack this problem. Let us be clear, companies today hire the biggest auditing firms and hi-fi consultants not because they want to get the work done diligently but because the latter have the public image and the public-relations wherewithal. They pay for protection, not for auditing services.

A few years ago, investigating the sale of carbon credits under the Clean Development Mechanism (CDM), we found the auditing agencies hired to certify the project were indulging in nothing less than fraud.

They were simply cut-pasting parts of different reports, dealing with different projects, to get their clients certified. The auditor, in this case, happened to be the same Satyam-soiled agency, PricewaterhouseCoopers; equally-acclaimed Ernst & Young were also involved.

When we published our findings, we indicted the CDM process more than the auditors.

The international community, in this case, has designed a process in which the project proponent hires a consultant to do the project design and the same company hires a validator agency to certify the project report its own consultant prepares.

The Bonn-based CDM board authorises a select number of validators it believes are world class. The board has made convoluted rules to determine which project can qualify its criterion for 'additionality' - projects that are more than business-as-usual in its books.

The obfuscation in the procedure makes it important to hire a big fish certifier who knows the ropes. Result: A flourishing business for creative carbon accountants.

This adds to the transaction cost of getting CDM projects cleared - the price is so high that it excludes large numbers of smaller companies and communities, who should actually be doing projects to mitigate greenhouse gas emissions. The system is made for complicity, profit and big business. But the form is perfect; who cares about the substance.

The national system for Environmental Impact Assessment (EIA), to provide another example, is no different. There have been cases, reported again and again, of consultant companies preparing fraudulent documents. But not a single agency has been publicly blacklisted.

Not one project proponent has been sent to prison for fudging books to get clearance. We also find that companies who go through the expensive and time-consuming ISO 14001 certification - for environmental management - invariably have the worst performance on the ground. It seems as if these processes are perfect covers for the perfect cover-up. And the bigger the auditing company, the bigger the protection.

What encourages this system, fundamentally, is the lack of scrutiny. What emboldens it, forever, is the lack of penalty for misdemeanour. But this is not an accident. This is the result of deliberately changing the nature of India's democracy, by weakening institutions responsible for oversight and regulation.

Satyam is a crack in this system. But are we willing to prise it open? When will we be?

The Satyam fiasco: Complete coverage

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