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: Marketmen have been baying for blood for weeks. To be sure, ever since investors thwarted Satyam Computer Services from buying the controversial Maytas twins last month, the Hyderabad-headquartered software firm has stumbled from one calamity to the next, leaving in its wake good governance, disgraced directors, cancelled contracts and vanishing valuations. But chairman B Ramalinga Raju’s faxed admission, sent at 10.53 am on Wednesday, of falsifying accounts has far more damaging ramifications for India Inc. “It was like riding a tiger, not knowing how to get off without being eaten,” Raju stated in his letter to the board. In the end, however, he did get off; marketmen got their blood. Here’s the post-mortem.
Audit the auditor
Satyam could be India’s Enron
The Satyam Scandal Part-1 exposed the frailty of the institutions of independent directors and company boards, and their ability to hold managements accountable. Satyam Part-2 is about much more than the board—it’s about an entire system consisting of auditors, credit rating agencies and regulators, all of who are supposed to act as checks and balances on managements and boards, but woefully failed in their duties. That’s why Part-2 is potentially so much more damaging to India Inc. There is not much that can be said about B Ramalinga Raju. He has implicated himself and must now face the consequences of breaking the law. But the buck cannot—and should not—stop at him. There must be a thorough investigation into the role of the independent directors. Even though Raju denies their involvement in his letter, did they have any inkling of the real reason for the Maytas buyout: to shore up Satyam’s hollow balance sheet? What was the board’s audit committee doing all these years? Did it not ask for corroborative evidence for the numbers being presented by the management?
The scanner should also fall on the role of auditors Price Waterhouse, associates of PricewaterhouseCoopers, one of the Big Four global accounting firms. Did it know about or abet the fraudulent book-keeping at Satyam? Is it incompetence or collusion? Something similar took place with Enron and its auditors, Arthur Andersen; the latter was put out of business after that scandal. So far, ICAI, accounting’s self-regulatory body, has said it will investigate thoroughly—it will need to do much more. There’s a good case for government regulation. Credit-rating agencies yet again have failed to independently verify a top company’s finances and rate it accordingly. And, finally,...
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