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)
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