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Promoter deception

As the players in a field mature, they begin to care just as much about the means as they do about the ends.

As the players in a field mature, they begin to care just as much about the means as they do about the ends. In slightly more nuanced terms, they don’t necessarily wait for results; they act on the way there, questioning decisions and the modus operandi. Then there are cases where both ends and means are perceived to be perverse. Satyam Computer Services learnt the danger in taking shareholders for a ride the hard way. The company has now been barred from all World Bank-related business for eight years, September onwards. This blow follows the abortive attempt by the company to buy out the Maytas real estate and infrastructure companies, owned by the sons of B. Ramalinga Raju, Satyam’s founder-chairman and promoter. Indian and foreign investors had raised a stink over the deal that might have done long-term damage to investment in India.

Satyam’s management had acted in bad faith, with the aim to deceive. The episode should now engender accountable and mature corporate governance in India, in a departure from the personal and opaque practice in most of our best companies. Promoters, even where they hold more than 9 per cent equity unlike B.R. Raju, should heed this sign of the arrival of the faceless Indian shareholder, who may no longer be satisfied with leaving decisions to the management and acting only post-facto, after the results.

Corporate governance is problematic and flawed even in the most developed and mature economies. Otherwise, there would have been no Bernie Madoff; public confidence in corporate America wouldn’t have been so brutally shaken in recent memory without Enron. The big difference with corporate governance in India is that, in mature economies, one expects the law to catch up with the artful dodgers sooner or later. It’s time Indian promoters discarded their assumption of quasi-immunity from not only shareholders’ scrutiny but also the law. Satyam has raised a lot of questions and saw some action. But a lot more needs to be asked, and answered.

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