At a time when the world is battling a global financial meltdown, India's attention has been drawn inwards over its own 'Enron moment'. As if the financial crisis was not enough to deal a blow to the economics of this fast-growing behemoth of a country, India Inc is suddenly grappling with a USD 1.5 billion scam, the magnitude of which is greater than that of Enron. Satyam Computer Services, a mammoth success story and a prominent face of India Inc till just a few months ago, has now become the biggest corporate scam in India's history. But over and above what was perpetrated within the company's halls, the president of the Federation of Indian Chambers of Commerce (FICCI), Rajeev Chandrasekhar, has termed the whole episode as "a systemic breakdown in audit and board oversight". Thus, one is forced to take in a broad range of possibilities in looking for the culprit – and where to direct reforms.
Ironically, the World Council for Corporate Governance, a not-for-profit aimed at improving the quality of corporate governance worldwide, has ranked Satyam as among the best-run companies in the world, last year awarding it the Golden Peacock Award for Excellence in Corporate Governance. And indeed, with operations in 66 countries, boasting 185 'Fortune 500' companies as customers and 53,000 workers, Satyam was considered a notable corporate success story. That is, of course, until 7 January 2009, when all collapsed as Chairman Ramalinga Raju tendered his surprise resignation, in the process offloading the "tremendous burden" that he admitted to having been carrying on his "conscience". Since 30 September 2008, he confessed, Satyam's balance sheet had carried a cash and bank balance overstated by some USD 1.03 billion; the restated balances actually stood at USD 50 million, as against the official figure of USD 1.08 billion. Raju also noted that this gap was due purely to profit reporting that had been massively inflated over the last several years. What had begun as a marginal gap quickly grew into an unmanageable one. In order to keep the wheel moving, money was raised from all possible sources – even promoter shares were pledged, meaning that the management had put entire investments, both personal and institutional, at stake. "It was like riding a tiger," according to Raju's resignation letter, "not knowing how to get off without being eaten."
The Satyam scandal has made Indian society realise that there are serious loopholes in the country's regulation, audit and governance systems, which obviously have been taken advantage of by less-than-scrupulous businesses. There will always be people out there to outsmart the regulators – as can be seen in the current global meltdown, which began in the US when smart people began to create increasingly complex financial products to run circles around the regulators. It all ended with the wipe-out of financial institutions and the evaporation of significant amounts of public money. In the Satyam aftermath, India's socialists, who had been increasingly gagged by the loud voices of market-economy propagators, have suddenly found a voice, and the hope that someone will now listen when they harp on the perils of capitalism.
Price of independence
One does not have to share a bed with the 'socialists' to concede that corporate governance in India has severe weaknesses. The lapses have their origins in the fact that Indian companies tend to be very hierarchical, with the boss's word being final. Strategic thinking and decision-making are merely parallel activities to action in almost all corporations, with almost no checks and controls. Meanwhile, market regulation remains quite loose, with regulatory bodies unable to play any effective role in punishing non-compliance. Unlike in the United States, financial fraud is yet to be socially regarded as a crime. And the day seems far off when being convicted for corporate fraud can lead to life imprisonment, along with the losing of all of one's assets.