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India's Enron

January 08, 2009 11:22 IST

Two things strike you when you meet Ramalinga Raju. One, it's difficult to find a more soft-spoken Indian CEO - so soft-spoken that it's often difficult to hear what he says. And two, he opens up only when you ask him about corporate governance issues. The moment you switch to any other topic related to Satyam, the answers are mostly in monosyllables.

I remember one such meeting when Raju bored me to death talking in details about how Satyam believes that better corporate governance enhances business results and helps the company deliver higher value to all its stakeholders. He also referred to the two Golden Peacock awards for excellence in corporate governance that Satyam won and how such awards provide greater encouragement to continue improving the company's corporate governance practices in future.

But as his startling statement on Thursday showed, Raju was more interested in improving his skills in cooking Satyam's books rather than corporate governance practices. The scale of the fraud and manipulation in the financial statements of the company is mind-boggling, and one cannot but be amazed by Raju's skills in lying through his teeth at the brief meeting I had with him.

Misleading a journalist is a much smaller misdemeanour compared to how Raju led his over-50,000 employees up the garden path just a week back. In an open letter following the investor outrage over the aborted attempt to buy two Maytas firms, Raju asked his employees to "stand by him as his company has always followed the highest standards of corporate governance and requested them not to believe in wild rumours". He also reminded them about the Golden Peacock awards and waxed eloquent about how he has followed all the processes required to come to a unanimous board decision that would have taken Satyam to greater heights.

It's difficult to find a similar example of a CEO betraying the faith of his employees to this extent.

Raju and his sons will obviously have to face the consequences of his actions - a fact he has himself acknowledged in his letter to the board.

"I hereby submit myself to the laws of the land and face consequences thereof," Raju said.

Curiously, Raju has sought to give an impression that his board members - both past and present - were not aware of the situation that the company was placed in. This is again a remarkable statement and only reinforces the common impression that nobody else but the owner matters in most of India's family-run businesses.

But Raju's statement will hardly be a character-certificate for some of Satyam's directors and senior executives. Take Ram Mynampati, who is now the interim CEO of the company and the man handpicked by Raju for the job, before he quit.

Mynampati was busy till the other day defending the numbers reeled out by his chairman during the quarterly results. To say that he was not aware of the "actual numbers" is either difficult to believe, or shows the utter ignorance of Satyam's top brass.

Take the role of Satyam's independent directors who are now trying desperately to distance themselves from the mess. What is even more depressing is that the independent directors included Harvard professor Krishna Palepu, Indian School of Business Dean M Rammohan Rao, entrepreneur Vinod Dham and former Cabinet Secretary T R Prasad. If a board so exalted and comprising so many eminent people cannot ensure adherence to corporate governance norms, there is something seriously wrong with the system.

In fact, Raju's statement only goes to reinforce the belief that most of his directors were just passive onlookers and were only too willing to believe what the chairman wanted them to believe. What makes this a complete mockery of corporate governance is that a promoter with a minuscule stake in a company can run it as his personal fiefdom.

It also exposes one of the major weaknesses in Indian corporate governance - that is allowing the appointment of purportedly independent directors who are old friends or associates of management or of controlling shareholders. Also, most independent directors are conditioned by the culture of not expressing dissent very forcefully and are therefore intimidated or unsure of how their criticism will be taken.

A recent study also revealed that 90 per cent of companies appointed independent directors using referrals from the CEO or chairman.

Independent surveys have found that only one out of five companies appraises the board's performance in India. The move towards board reviews has been relatively slow and there continues to be some resistance by older or more senior directors, in particular, to the idea of individual director appraisals.

All this requires the market regulator to revisit Clause 49 of the listing agreement that deals with the role of independent directors.
Unless that is done, the new interim CEO's statement that the senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders will continue to ring hollow.

And that's bad news not just for Satyam, but for the entire India Inc.
Shyamal Majumdar