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Satyam:India’s Enron

09/01/2009

Regular readers know Adam’s interest in Corporate Governance. Today he references an article on the massive fraud at Satyam a major Indian IT Services company.

In The Economist article the reporter wrote:-

The task of rehabilitating corporate India is equally daunting. It has long basked in the reflected glory of its information-technology firms. Run by cerebral, clean-living professionals, they employ India’s brightest youngsters and serve the bluest of blue-chip companies. These digital ambassadors have lent corporate India a certain “mystique”, says Sharmila Gopinath of the Asian Corporate Governance Association (ACGA), based in Hong Kong. But that reputation rests largely on the efforts of one or two companies, such as Infosys, which are impeccably run. Investors delude themselves if they think standards in most Indian technology firms, let alone the rest of its 9,000 listed companies, are close to those set by Infosys.

The problem is assessing standards is very hard. Satyam is India’s Enron. The illusion referred to persists:-

because it is not easy to gauge corporate governance objectively. ACGA’s own 2007 ranking of corporate governance placed India third out of 11 Asian countries, behind Hong Kong and Singapore, but far ahead of China, in ninth place. India’s financial-reporting standards are high, its principal regulator, the Securities and Exchange Board of India, is independent of the government, and its business press is enthusiastic. But enforcement is weak, loopholes large, and shareholder activism is lacklustre. “There is virtually no voting by poll at AGMs”, ACGA notes, “and meetings are often held in remote locations.”

The worthwhile article concludes:-

New laws may matter less than the spirit that animates them. Satyam’s independent directors, for example, met the standards set by the NYSE. But they did not ask hard questions. Directors in India may sit on as many as 15 boards, which leaves them little time to do their job properly.

But even an assertive board and reputed auditors will struggle to stop managers who are determined to hide their dirty laundry from view. About half of the 30 companies in the Sensex, India’s benchmark stockmarket index, are run by business families, most of who trace their roots back to the closed economy of India’s past. “They don’t always understand the new rules,” says Ms Gopinath. “Until investors stand up and say these practices are unacceptable, what reason do companies have to change?”

However, we in NZ should not be too sanguine see for example Adam’s posts on Is The Securities Commission ‘Missing in Action’ #1 et seq

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2 Comments
  1. adamsmith1922 permalink*
    09/01/2009 21:13

    Nandini

    I think you have totally misunderstood the post.

    I quoted from the Economist article.

    There was nothing in my post or the article about Satyam employees.

    I am sure that Satyam employees are shocked and hurt by what has happened.

    The article pointed out that governance was weak in a number of instances in India.

    See the FT for further information for example http://www.ft.com/cms/s/0/4f251c72-ddb8-11dd-87dc-000077b07658.html

    The phrase India’s Enron is not mine, but that of The Economist and the Financial Times amongst others.

    If you had read an understood the article you would know that it was the article that made the statement about Infosys, not Infosys itself.

    I am happy to take critcism, but only when it is based on reading and understanding what I posted, not when it is based on either not reading what is written and/or not understanding what is written

    Like

  2. Nandini permalink
    09/01/2009 20:09

    I think your views are completely misleading, adam, When you say ‘But that reputation rests largely on the efforts of one or two companies, such as Infosys, which are impeccably run’.

    I doubt it when the promoter says he will not touch satyam employees – he is showing that he lacks CSR, does he mean that the employee of satyam are responsible for what has happened.

    I strongly believe in every satyamite, they are honest hardworking individuals who were caught unawares.

    Ideal companies like infosys should not go about tarnishing the future of these employees by such irresponsible statements, that only go to show that they fear they would be next under the scanner.

    Like

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