Column : Truth after Satyam

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: Most independent directors are not really independent. They are friends. And a place on the Board is more of a gesture of friendship than an invitation to howl. Others are retired civil servants, bankers, etc. Independent directorship is a good way of these gents remaining engaged after a worthy stint in the professional world. But, by the time they retire most of them are well past their ability to spot a fraud or to pick a fight against a wrong. The reputation risk at the end of a career is perceived to be much lower than in the midst of a growing career. Then there are the academics who are keen to learn how the real world works and see if it works as their theories and models predict. So, it is a good learning curve for them as they sit on the audit committees. I do not intend to be a sceptic, but, it is intriguing that one does not hear of any major activism on the Board save for control between warring (family) shareholders.

Independent directors simply do not add value in so far as corporate governance is concerned. They are benign at best or fools, at worst. But, what does one make of the auditors? Unlike independent directors, auditors make a living out of auditing the books of accounts of companies. A failure on their part to spot frauds is not pardonable. In the case of Satyam, the auditors, Price Waterhouse, have given a clean chit to the company for its accounts for the year ended March 2008. They have certified that the financial statements do give a true and fair picture of the financial performance and status of the company. They have been the company’s statutory auditors for the past nine years. They should know. But, now the question is: did they know the truth and were they co-conspirators, or were they incompetent. Either way, it is one more part of the edifice that holds the modern system of doing business that is crumbling against the power of management frauds.