Satyam and Corporate Governance in India

First some facts on Corporate Governance:

2007 ranking on Corporate Governance by Asian Corporate Governance Association (ACGA) placed India 3rd out of 11 Asian countries, behind Hong Kong and Singapore, but far ahead of China, in 9th place.

Govt. of India has introduced a New Companies Bill which would allow shareholders to pursue class-action lawsuits against the company.

Directors can sit on as many as 15 boards. Independent directors should make up atleast half of the board strength in a publicly held company.

Now some views by Management professors from Wharton (courtesy: Knowledge @ Wharton)

Mauro Guillen,

Indian business has an advantage in arguing that the problem is limited to Satyam and is not systemic. India is not perceived like Russia – it is neither everyone’s darling nor the plague. This works to the country’s advantage because it deflects the blame of such occurrences to the way governance works in emerging economies rather than to India.

Michael Useem

Draws a parallel between what occurred at Satyam with the scandals at WorldCom and Tyco rather than at Enron,” At WorldCom, the CFO and the CEO were knowingly mistating the accounting and financials of the firm; at Tyco, the CEO and CFO were knowingly taking money from the company for personal purposes. Satyam’s disaster has a parallel to these acts of malfeasance. If it survives, Satyam maybe able to redeem itself with new management and governance codes. He recalls working as a consultant a couple of years ago with Tyco where the company’s new CEO Ed Breen systematically went about cleaning up after the departure of disgraced CEO Dennis Kozlowski, instituting strong corporate governance practices. Tyco is one of the best examples of corporate governance turnaround.

Jitendra Singh on governance practice at Infosys,

He drew a “level of confidence” from the accounting rigor and governance mechanisms at Infosys, where he was an independent director from 2000 to 2003. He recalls how T.V. Mohandas Pai, the company’s then CFO, “would take so much time going into accounting details. ”

How effective independent directors can be is mainly a factor of the “dynamics inside the board room once the doors are closed”. There is an attitude in some Indian companies that the board members actually work for people who have brought them onto the board. This is a completely misguided attitude. It looks like this may have been the problem at Satyam. The real strength of a healthy board is when a consensus gets overturned by a dissenting view.

Saikat Chaudhari on Enron v/s Satyam

At Enron, the CEO stonewalled, while whistle-blowers came out with the truth. At Satyam, there were no whistle-blowers. The CEO blew the whistle on himself.

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