Ramalinga Raju?s disclosures on Wednesday regarding forging accounts of Satyam have come as a deep shock and disappointment for corporate India, which feels the development will have a major impact on investors, clients and employees, going ahead. Industry players also aver that there is a need to immediately examine the loopholes in regulation, accounting, audit and governance that allowed such lapses to occur and address them with urgency as this has shaken the confidence of investors?both domestic and global?the repercussions of which could be felt over the medium-term.
Anand Mahindra, vice-chairman and MD, Mahindra Group said, ?This development has resulted in incalculable and unjustifiable damage to Brand India and Brand IT in particular. What is especially ironic is that Satyam was started by entrepreneurs who have served as role models for an entire generation of young Indians.? He said the feeling at the moment was one of cynicism, of being let down by one of the behemoths of the IT industry. However, the whole of Indian industry should not be tarred with the same brush. ?A major segment of corporate India continues to uphold the highest standards of corporate governance and this will help us mitigate the damage done to India?s image,? he added.
The industry has demanded that all possible efforts be initiated so that those who have committed corporate frauds in the company are exposed and the lesson drawn for others so that such fraudulent practices in the corporate world are never repeated and investors keep investing in corporate sector.
KV Kamath, president, Confederation of Indian Industry (CII), said ?CII believes there is a need to immediately examine the loopholes in regulation, accounting, audit and governance that allowed such lapses to occur and address them with urgency. While the occurrence of such events in a major company is a matter of deep regret, CII believes it would be inappropriate for this to be the basis of questioning of general governance standards in other companies.? Corporate India must however reflect on ways to demonstrate its quality of governance and enhance the confidence of stakeholders, he added.
?(The) Satyam fraud is an aberration… I don?t think it would shake clients? faith in other Indian IT companies. But the level of due diligence is sure to go up (and) in fact that would overtake other considerations… A lot of convincing has to be made by the companies now to clients,? Infosys director (HR) T V Mohandas Pai said.
?The government should hasten process of investigating the matter so that the confidence of investors in Indian corporate world is retained and not shaken at any cost,? said Sajjan Jindal, president of Assocham and vice -chairman and MD of JSW Steel Ltd.
The issue is likely to burn for quite some time, feel many. Says DD Rathi, whole time director and CFO of Grasim Industries Ltd, ?This clearly is a case of negligence. I think the issue will not die down easily. The auditor community should take a very serious note of this. ?
The mute role played by independent directors has come once again to the forefront, weeks after the Maytas episode. Ajay Singh, director, SpiceJet said, ?Overall, it has put the credibility of promoters of the company at grave risk. Satyam is a company admired not only nationally but globally. The episode brings to the fore, the loss of reputation for the accounting profession and also the mute role played by directors of this IT giant.?
CUTS International, a leading economic policy research and advocacy group, has asked the government to immediately amend the company law in order to curb the ability of independent directors to receive commissions on profits etc. Such a move will ensure that independent directors are not compromised and do their duty towards all shareholders.
Post Maytas episode, the analyst and investment community was considering the cash on company?s balance sheet as a comforting factor, providing a support to the already hurt sentiments. However, with the realisation that the cash is rather non-existent and the revenues and profits too are over-stated to a large extent takes away any fundamental argument in favour of Satyam.
According to HM Bangur, CMD of Shree Cement Ltd, ?This is very unfortunate and I am surprised as to how auditors have allowed this to happen. Moreover, confessing doesn?t give Raju a holier image. As an investor, I feel this is a very serious issue . We as an industry hope that this be the last case of this kind.?
The issue is all the more grave since this has happened to an Indian MNC, which has received, ironically, accolades for good corporate governance.
?The news certainly came as a surprise,? said Ranjit Shahani, vice-chairman and MD of Novartis India Limited. ?While we have all the right mechanisms in place to prevent such happenings, the regulatory authorities need to step in to check why these mechanisms failed. Going forward, one can expect to see increased focus on good corporate governance and the role independent directors should play.? There will be heightened scrutiny as this is the first large Indian multinational company to walk this path, he added. Harsh Mariwala, chairman of Marico Ltd, said, ?It?s quite shocking. I think Indian coporates should take this as a learning opportunity to upscale their corporate governance.They need to go overboard for better corporate governance.They should have an open and transparent system for investors.?
According to Ramesh Sanka, CFO, DLF, ?No auditor will close the audit without a bank statement. It is beyond my understanding as to how Satyam managed to acquire an inflated statement from the bank when there is not enough money in the account. Once this mystery is solved, it will be clear how this fraud took place.? Agrees Rakesh Jain, executive director, Ansal API, ?I believe there is more than what meets the eye. There is a deeper story after what is revealed to us, the magnitude of the fraud is much bigger than what we have come to know uptill now.?
Meanwhile, the Associated Chambers of Commerce and Industry of India has suggested setting up of a special committee to investigate the entire issue so that culprits are identified and brought to book. According to the chamber, the government should hasten process of investigating the matter so that the confidence of investors in Indian corporate world is retained and not shaken at any cost.
Rajeev Chandrasekhar, president, Federation of Indian Chambers of Commerce and Industry said, ?Satyam was always seen as one of the top Indian IT companies and often represented as shining example of Indian liberalisation and entrepreneurship. This fraud on the investors and employees of the company shows a systemic breakdown in audit and board oversight of the company. Questions need to be asked and quickly establish how this happened and who caused it to happen??
The Ficci chief further stressed the need for regulators to move quickly to demonstrate that this is an exceptional case amongst corporates.
