The financial fraud at Satyam Computer Services running into more than Rs 7,000 crore has surprised and shocked many. The sheer audacity of the manner in which B. Ramalinga Raju, his cohorts and his collaborators were able to manipulate the books of account of a widely-held public limited company indicates
that official oversight mechanisms and systems for ensuring good corporate governance exist largely in name. One is not suggesting that most entrepreneurs in the country or even large numbers of them are as blatant in their venality as Raju was.
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| Paranjoy Guha Thakurta |
At the same time, the Satyam scam should act as an eye-opener to those who swallow the claims put out by public relations practitioners acting on behalf of their large corporate clients – and their faithful supplicants in sections of the financial media -- about how efficient some of India’s businesspersons are supposed to be and how socially responsible their actions are. After all, Raju was no ordinary boss; the flagship of his corporate was the fourth largest information technology company in the country. Satyam used to count among its clients and customers no less than 185 companies that were ranked in the Fortune list of the 500 of the world’s biggest corporate bodies.
Before the fraud became known, Satyam was supposed to be employing as many as 53,000 employees. It subsequently transpired that some 13,000 employees existed only on the rolls of the company. What Raju and his co-criminal conspirators used to be would be to use the names of ‘ghost’ employees to siphon off large sums of money (estimated at around Rs 20 crore a month) into their own pockets.
Three weeks before he confessed, Raju proposed an investment of $1.6 billion that was supposed to belong to Satyam Computer Services – funds that we now know never existed – in two real estate companies (Maytas Infra and Maytas Properties) controlled by his sons. This was cronyism at its worst. Investors protested, Raju backtracked but by then, the damage had been done. He later claimed that the aborted deal with Maytas was an attempt to replace Satyam’s fictitious assets with real ones.
Behind the greed for maximizing profits any which way they can, many corporate captains do not think twice before using money belonging to small investors for their personal benefit. They are able to achieve their nefarious goals because of pliant auditors and government officials who turn a blind eye. The process of acquiring assets, especially land, is greased by generous donations to those in positions of power and authority. It is common knowledge that large tracts of land cannot be acquired in this country without the active support (one should say, connivance) of politicians in power and their favoured bureaucrats.
Raju and his gang had become the single biggest group of landowners in his state. The big break for Raju’s family came after a consortium of firms led by Maytas Infra was awarded a prestigious contract to construct the Rs 12,500-crore Hyderabad Metro Rail (HMR) project – now the implementation of this project is under a cloud. The managing director of the Delhi Metro Rail Corporation (DMRC) E. Sreedharan was roped in as an adviser or consultant of sorts but he parted ways. In a letter he wrote to the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia in September, Sreedharan raised a series of uncomfortable questions about the way the contract had been awarded to the consortium led by Maytas.
Sreedharan remarked that the process through which Maytas had been given concessions on the use of land in Hyderabad could result in a “big political scandal some time later”. He was right. The Andhra Pradesh demanded a public apology from him. He refused to. Then the state government threatened to sue him for defamation. It still has not.
Businesspersons, like politicians, are often excessively opportunistic. Witness, for example, the speed with which Raju switched his loyalties from N. Chandrababu Naidu after he lost the elections in 2004 and jumped on to the bandwagon of Y.S. Rajasekhar Reddy, the current Chief Minister of Andhra Pradesh. Witness also in this instance the alacrity with which both Naidu and YSR have sought to denounce their links with the disgraced Raju.
Why did Raju confess and admit to his crimes? He realized that his time was up, that sooner rather than later, he would be exposed as a scamster. He decided that if indeed he had to spent time behind bars it might be better to do so in an Indian jail instead of an American prison. Satyam’s shares were, after all, quoted on the New York Stock Exchange. An important consequence of the Satyam scam is the arrest of partners of the internationally-renowned firm of auditors PriceWaterhouse Coopers. This is the first time that auditors have been arrested. Hopefully in the future, other auditors will think twice before colluding with company promoters to manipulate books of account.
The scam has also highlighted how so-called independent directors on the board of a company can be kept completely in the dark. Satyam boasted of eminent directors such as T.R. Prasad, former Cabinet Secretary, the former dean of the high-profile Indian School of Business M. Rammohan Rao, Mangalam Srinivasan who advises the Kennedy School of Government of Harvard University and had served as scientific adviser to Indira Gandhi’s government, Vinod K. Dham, the “father of the Pentium microprocessor chip” and Krishna G. Palepu, professor at the Harvard Business School and a supposed expert on corporate governance.
There are many lessons to be learnt from the Satyam scam. Will the Indian corporate sector reform itself? Or will we have to wait for another scandal?
The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media—print, radio, television, Internet and documentary cinema.
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