Good governance, credibility key to growth

While business is about taking risks, transparency is the tool for soft landing during a crisis, said a prominent risk analyst of India Ravi Raman.

He was addressing CIMA CFO forum on “History repeats - the Satyam debacle and the lessons for the CFOs held in Colombo last Friday.

Explaining the Satyam debacle he said that today many people say that I told him this and he did not listen and so on. This is happening after every debacle and this should be avoided.”

On January 07, Ramlingam Raju, the Chairman of Satyam revealed the crisis in the company and later he confessed that the company accounts are wrong and over $1.6 billion figure was inflated.

Later a lot of frauds came to light and there were 13,000 non existing employees who had been paid. However, Raju claimed that he nor the managing director benefitted from the inflated revenue. On the other hand, none of the board directors had any knowledge of the financial situation of the company.

Ironically, Satyam was the 2008 winner of the golden peacock award for corporate governance, risk management and compliance issues.

What actually happened was money had gone out of the company into unrelated diversification. Diversification is good for a company but here the problem was inadequate disclosure. Investment had gone out side the IT industry, which is the core business of Satyam to the real estate sector which was booming. No one would question if this diversification was done transparently. Shareholders of the company expected that Satyam makes money from IT but Raju did it in real estate. Finally he made it his way of life increasing the scale of investment and unable to disclose.

Raman said that it was a surprise to listen to the auditors remarks after the debacle. Pricewater and Coopers said that it was relying on potentially false information, still hoping that the information was correct.

It also said that the information was provided by the management of Satyam, passing the blame to others. It is a failure of the job and auditors and the CFO had also not done their job properly.

CFO is an employee of the company and not the promoters. The easy words.

“I don’t know” is not an adequate defence for the CFO. Unrelated diversification should be disclosed and over disclosure is better.

Promoters are independent from the company and give that level of independence. Share holders activism is important and after all they have a stake in the company. AGMs are not only coffee and snacks.

(GW)