India’s regulatory authorities have made a great start on the Satyam accounting fraud scandal. The two bodies that would have regulatory oversight over such a situation – the Ministry of Company Affairs and SEBI – are both playing this on the front foot. The Raju brothers the CFO have been arrested and remanded to judicial custody. The Satyam board has been sacked and very quickly a new board is being assembled. So far so good.
More on Satyam
We are where we are. The biggest corporate fraud in India’s history was disclosed by its perpetrator yesterday. Where we go from here, as I wrote yesterday, this is a test of our regulators. How they handle this crisis will determine how investors see the Indian market in the future. Frauds happen everywhere. But if in India, fraudsters go scot free or with just a slap on their wrists, we will damage the trust that investors – both within India and outside – must have to get back into Indian markets when things start looking up.
I find it hard to believe that this fraud was committed to inflate earnings. If that were the case, the Rajus would have sold at least some of their stock. Did they believe that this was going to continue forever? As others have pointed out, a 3% operating margin is very hard to believe. The downward pressures on rates in IT Services simply isn’t enough to cause that, assuming that salaries were on par with other IT Services companies. So the question is, where did all that money go?
I think Raju is doing a Madoff – taking the fall for the rest of the family. It is impossible to cook the books of a large company for this long without half a dozen people being complicit. That includes their auditors by the way – PriceWaterhouseCoopers – who must be held to account.
The way this investigation is carried out and its outcomes will be closely watched. The net must thrown wide to catch everyone involved. Follow the money and you will find them. The court cases should not drag out. Justice must be expedited with its proceedings as open to the public as is permitted. And along with the due punishment under law, we must seek disgorgement of ill-gotten gains. It would be a downright shame if at the end of this, just one person gets a light sentence and $1 Billion, or whatever part of it is truly missing, is never recovered.
I understand Merrill Lynch resigned the Satyam account. That doesn’t change the fact that they were advising Raju on the Maytas acquisition, which stank to high heaven.
I wonder what’s going on in the heads of Satyam’s clients? Well for one, every CIO of Satyam’s client companies will be wondering if the people from his company who were involved in the selection of Satyam did so entirely on the merits of their proposal. Next, he’ll be worried about business continuity. A major service provider that’s been delisted on the stock exchange doesn’t exactly give you the confidence that your systems are in safe hands.
On the other hand, this could be a great opportunity for a dirt cheap acquisition. If only we knew what their true accounts looked like.
What an amazing destruction of a company, its shareholders practically wiped out, dispirited employees who would be heading for the door if there were jobs out there and customers who are ruing the day they hired Satyam. And for what! Truly, greed has no limits.
Questions re Satyam
While I was out of circulation and not blogging (business trip and vacation) the Satyam saga was unfolding. I remained abreast of what was happening but didn’t post anything on it. It’s been well covered by other bloggers and the media in general both in India and abroad. So I won’t bother adding my opinion except to say that if India Inc. is to redeem itself, what happens from here on out is what matters. The Rajus, on the other hand, cannot redeem themselves. Nor can the independent directors, unless they publicly say that critical information was withheld from them.
But I have several questions about the whole affair. Some of them are rhetorical, others are real questions. So if you know the answers or where I can read up on material, please let me know.
Singapore and Indian Cities
I was in Singapore for a few days during my winter vacation. Sandwiched between two weeks in India and a week in Thailand, the contrast between Singapore and these two third world Asian countries could not have been starker. As we all know, a few decades back all three countries were equally under-developed. Today Singapore is an advanced economy and continues to grow (though not in 2009) led by an enlightened government.
Have a Great 2009!
Been away on some R&R to South-East Asia. Thus the slow blogging (slower than usual, I should say).
The vacation was wonderful. Spent a few days in Singapore, Bangkok and then New Year’s at Koh Samui. Everywhere with friends.
To my readers – all the very best for 2009. May you thrive, or at least, weather the storm well.
May you continue to take chances. Seek out new experiences. Invest time in family and friendships. Giving even when you’re not getting.
Happy New Year!
Wanted: An Indian “Yes We Can”
A couple of weeks after the Mumbai attacks, India and Indians are still fuming. There is this great stirring to action, particularly among the young and the educated, who want to see some change. All this is good, but the big question is how do you take all this energy, this dissatisfaction with the status quo, and convert into constructive action?
The recent US elections had some similar contextual elements to it. A general dissatisfaction with the way the country was being run and a section of the electorate – again, the young and college educated – who were highly motivated to do something about it. But that’s where the similarities with India end. In the US they had in Barack Obama, a leader that they could rally around, who represented that hope for change. In India there is no such leader. Most of the ideas for action that one hears today from the intelligentsia are policy related, rather than politics related. And that is a problem. Real change can’t take place unless governance changes.
ISI Chief Visit – PR Mistake or Oneupmanship
Indian PM, Manmohan Singh talks to Asif Ali Zardari, the Pakistani President. He is angry. Zardari is trying to placate him. Manmohan Singh asks him to send his ISI Chief over to participate in the investigation. Zardari agrees.
So far so good. Then the Indian side, presumably, announces/leaks it to the press. Headlines in newspapers say “PM summons ISI Chief to India”. Bad mistake. They should have let Pakistan announce it to the world. The headline could have been very different. “Zardari says ‘We will work with India to fight terrorism’. ISI Chief leaving for India.”
Now India looks stupid and Pakistan looks petulant. Not a good way to start working together on what is the biggest challenge facing both countries.
Better Security Takes Money and Willpower
In the aftermath of the Mumbai attacks, if there is one thing we take up with seriousness, I hope that is upgrading our internal security – police, NSG, intelligence – and other organizations that contribute to it.
After Mumbai, my friends have been burning the wires online and on the phones. There is anguish, some anger but the overwhelming reaction is that we need to do something. A couple of my friends are IPS officers. Much of this post will be quoting them or channeling them.
This new style of terrorism – sophisticated yet brazen – requires higher levels of sophistication in battling it. The terrorists who are used to finding chinks in the armor of the American security apparatus, are the same terrorists who attacked Mumbai and made it look so easy. Don’t be fooled by the name they gave the media. Laskhar, Taliban, al Qaeda – they are all names given to different parts of a terrorist cooperative that shares weaponry, training, technology and indoctrination.
Mumbai Terror
Got news of the terror attacks while on vacation. Some random thoughts while its still not over.
Never watch an India related news event through the eyes of CNN or any other US TV channel. Thank goodness for NDTV Live which worked surprisingly well from the hotel over broadband. Until, that is other people found out about it and it crashed.
But for print news I found myself going to BBC and New York Times. Why?
Fewer Finance Jobs Isn’t All Bad
While people in the capital markets or selling to it lament the “It’ll never be the same” nature of recent events, there is an emerging meme that says that this is perhaps a good thing.
Fareed Zakaria in a recent column in the Newsweek titled There is a Silver Lining:
Wall Street will also need to change. Paul Volcker has long argued that the recent spate of financial innovation was nothing of the kind: it simply shuffled around existing resources while contributing few real benefits to the economy. Such activity will now be reduced significantly.
6 am pacific 