Column : Ten truths from Satyam

Against Enron's backdrop, one need not really be embarrassed about something like Satyam happening in India. Globalisation means that everything is possible everywhere, and the fact that Satyam was listed overseas supports this point.

That no one knew about this scam until the protagonist himself revealed all speaks volumes about institutional failure. In fact, if he had not been honest about his dishonesty, this story would not have come out. If we look deeper, there are at least ten institutional shibboleths that have been shattered.

The first is that all individual CEOs who become celebrities need to be looked at with suspicion, especially those who are aggressively hyped. Second, organisations that are flashy and dynamic are more prone to mischief than the staid ones, and this holds more for new generation companies. Third, when mischief is done, the entire management needs to be investigated. After all, the mischief in professionally run organisations is a joint effort as all work towards the same goal of self-enrichment.

Fourth, auditors are no longer a credible lot, or rather are credible only until such time that the truth on untruth is out. The entire fraternity gets a bad name, as it will now be generalised that they have also colluded with the company to get their fees. Either they did not ask the hard questions or they did not attend to the distasteful things around them, before submitting the certifications on which they stake their reputation. Fifth, investment banks and so-called advisors to public issues are not above board as they too work for a fee and their own profits; and on grounds of confidentiality may tread the road of apparent ignorance. This cannot be escaped in a capitalist society.

The sixth institution that has taken a beating is the concept of a Board of Directors, which it now appears can be kept in the dark most of the time. In this case, they spent not more than 15 hours in a year with the company and could not have had a hold on what was happening. What then should be their stance and as a corollary, what is its relevance? The seventh hit has been taken by the credit rating agencies that give ratings based on audited information, which is subject to manipulation. In fact, in Satyam's case, the accounts were there to be seen even at the SEC. Therefore, there was no reason to suspect the numbers. But, does this really help the investor?

The eighth blow is to the usual punching bag, the regulator, who is always found napping when such things happen. We can all ask what the regulator was doing. The regulator in such instances always appears to be swift to spot the small miscreant, but cannot see big mischief. But, to be fair to the regulators all across the world, they take a lot of flak for scams, when it is impossible to really stop crime from taking place. Stringent regulation only reduces the incidence. Besides, this is nothing compared to the so called collapse of Citi Bank, where no one saw the accounts disappear for a whole year despite all the talk of Basel II and stern regulation.

Ninth, corporate governance has been exposed as a sham. From now on, no one will pay much attention to what the annual report says, as eloquent words and lofty thoughts are rarely followed in actual practice. Lastly, there is going to be even more cynicism concerning the entire business of corporate awards. Satyam had, after all, bagged many such awards.

Amidst all this ado, how do we stand as individuals? Employees will continue to feel jittery but then the law of markets dictates that risk goes along with their pay packets. Shareholders should not really be our concern because when the prices of these stocks increased to dizzy heights, no one asked why they were rewarded. This is part of the game. And for the common man, this is just another subject for discussion after the financial crisis and terrorist attacks. Umbrage and incessant banter, which is typical of the middle class, will continue till the next big episode comes on air.

—The author is chief economist of NCDEX Ltd. These are his personal views
Madan Sabnavis