by
Subramanian Swamy
" Freedom of Speech and Freedom of Assembly will be empty phrases if their exercise must yield to unreasonable fear "
1. ABOUT THE AUTHOR :
Subramanian Swamy is today nationally known and widely respected for his ideological conviction, for his commitment to furthering democracy and market economy in the country, for his scholarly credentials, and a blemish-free political career. He has been elected to Parliament for five terms and been a Cabinet Minister twice.
Since 2001, Dr. Swamy has been teaching every summer economics courses at Harvard University from which world-famous University he had received his Ph.D. in Economics after collaborating in research with two Nobel Laureates, Prof. Simon Kuznets and Prof. Paul A. Samuelson. Dr. Swamy was thereafter inducted into the Economics Faculty of Harvard where he taught for 10 years, before returning to India to become Professor of Economics, Indian Institute Technology, Delhi.
Dr. Swamy has been amongst the earliest to advocate economic liberalisation and competitive market economy for India. As Union Commerce Minister in 1990-91, he prepared the blueprints for economic reforms, adopted by the successor Narasimha Rao government, in which Dr. Swamy held a Minister-rank position.
2. The volume deals with corporate governance in India keeping in view the two recent cases of mega-corporate frauds and mega corruption scandals of 2009 involving Satyam and Spectrum in India
Arguing that corruption misallocates scarce resources from the meritorious to the unworthy and undermines people’s trust in the system, attempts to find appropriate governance rule to ensure sustainability and effectiveness of the institution of public and private corporate bodies.
.It closely scrutinises the current state of corporate governance especially how to devolve power for the effectiveness of corporate bodies and suggests possible remedies like strengthening the company’s corporate governance committee
3. Dr. Swamy refers to the law of Diminishing Interest of the public in opposing corruption when there is no accountability or if the corrupt are not brought to book. Worse, the author states, this consequent apathy towards mega corruption could vitiate the democratic system of India. Hence, the author argues, it is very important for alert citizens to understand the phenomenon of corruption and then bond together to combat it.
4. Of late,, corruption in India has become worse than the spread of the AIDS virus. It (corruption) has a multi-dimensional effect on the nation: it weakens the moral standards of citizens, it lowers the growth rate of the economy, it distorts investment priorities, it subverts democracy, and it enables the nation's enemies to play havoc with national security," said Subramanian Swamy recently
while speaking at an event marked to release his new book,
" Corruption and Corporate Governance in India: Satyam , Spectrum and Sundaram."
Two major scandals -- namely the Satyam Computer scam and the DoT spectrum allocation issue -- symbolise this virus, he alleged in the presence of Prime Minister Manmohan Singh's former and current media advisors, Sanjaya Baru and Harish Kare.
The first copy of Swamy's book was handed over by Sanjaya Baru to distinguished lawyer Fali S Nariman at a simple function at India International Centre recently.
5. To understand these 2 scams a little turning back to history is important.
a)TELECOM ( 2G Spectrum SCAM) ESTIMATED
BY C A G
AT Rs 1,76,645 CRORES
India is the world’s second-largest cellphone market, with nearly 700 million subscribers, and the profits of private operators depend on licenses for spectrum. In a hearing this month, India’s Supreme Court expressed astonishment over the irregular practices of India’s Department of Telecommunications in dividing up the spectrum in 2008.
6. The telecom industry in India was essentially born in the mud pit of corruption. Telephones were once a rarity in India — made rarer by the plodding intransigence of the government service provider, which might take one year, or three, to fulfill a customer’s order for a new line. Then in 1994, three years after India began embracing market reforms, telecom was opened to the private sector.
The move unleashed nothing short of a revolution, eventually providing hundreds of millions with their first telephone service. Simultaneously corruption also soon surfaced: in 1996, the minister overseeing the telecom field was charged with accepting bribes. Investigators searching his home discovered more than 24 million rupees, or roughly $550,000, stuffed inside trunks, pillowcases and toilet tanks.
Nearly 15 years later, the style of corruption is far different, as is the money.
This year, India’s cellphone customers are expected to pay nearly $20 billion in bills, according to the technology research company Gartner. Most of this revenue will go to--- a handful of big players — Reliance Communications, Airtel, Vodafone, Tata Teleservices and Idea Cellular — which together account for almost 80 percent of the market.
With the exception of Vodafone, a British corporation, these giant telecom companies are all subsidiaries of India’s biggest conglomerates, headed by some of the nation’s--- most powerful tycoons. Their companies reach into steel, autos, natural gas, power plants, mining, construction and media.etc etc
7. Today, India has 66 resident billionaires whose combined wealth of roughly $244 billion is equivalent to more than --a fifth of the country’s $1.1 trillion gross domestic product.
This trend of the richest getting even richer, in a country where 800 million people survive on $2 or less a day, is raising concerns, especially since so many fortunes are rooted in industries intertwined with government licenses and rife with corruption.
“There is a risk that India will evolve toward a condition of oligarchic capitalism, in which the market and political power of major corporations will become a drag on long-term growth and a source of distortion in policy,” a report sponsored by the Asian Development Bank had warned.
8. Now many analysts say that the scandal represents a major test for Indian governance and capitalism — and whether the system can mete out punishment for wrongdoing.
" Tycoons with friends in high places., Public tenders conducted by irregular rules.,
,Tens of billions of dollars in potential losses for the national treasury.,Allegations of government ministers on the take, and of a respected prime minister too aloof to notice." screams many newspapers.
9. Opponents have called on Prime Minister Manmohan Singh to create a parliamentary commission to investigate the telecommunications scandal.
Those are---- some of the ingredients of a telecommunications scandal that is growing into India’s equivalent of Teapot Dome.
It has produced almost daily revelations about bribery, abuse of power, and privatization of public wealth that paralyzed Parliament for more than three weeks before its winter session ended Monday and have plunged the governing Congress Party into its worst political crisis in years.
The issue is how a minister allied with the party sold cellphone operators the airwaves to provide their service in 2008. But the amounts involved, and subsequent revelations of how some of India’s richest men sought to exercise influence over political appointments and regulatory decisions, have surprised a nation seemingly inured to reports of corruption in politics.
An independent auditor estimated that the government may have left almost $40 billion on the table by selling the rights too cheaply.
10.The political fallout seems to grow each day. The telecom minister, Andimuthu Raja, has already resigned.
On Monday, the focus expanded to India’s minister of highways, Kamal Nath, after the retired head of India’s most powerful trade group suggested on secret tapes connected to the telecom scandal that Mr. Nath skims 15 percent from projects he oversees.
The scandal has energized a once-moribund opposition, led by the Bharatiya Janata Party, which has blocked normal business in Parliament. The opposition is demanding that Prime Minister Manmohan Singh create a parliamentary commission to investigate, a step Mr. Singh has resisted, promising that the government will clean house.
11. Beyond the political infighting, the scandal has broad implications for India, the world’s second-fastest-growing major economy. Growth depends increasingly on turning whole swaths of the state-directed economy over to the private sector, whose capital and expertise are critical as India embarks on plans to build roads, bridges, ports and power plants.
But many analysts say the telecom scandal is just one indicator of crony capitalism and inadequate oversight that fuel public skepticism about capitalism and slow down reforms. The scandal also has revealed an incestuous world of journalists, corporate lobbyists and politicians and has reinforced the perception of an Indian economy dominated by a small, tightly connected elite.
“Even as the government cedes control over large parts of the economy, its graft-ridden approach to privatization could leave long-lasting scars that hold India back from reaching its potential,” said Eswar S. Prasad, a professor of trade policy at Cornell University and an adviser to India’s Finance Ministry. “Open corruption and rising stark disparities in wealth are a volatile mix that could affect social stability if the benefits of growth don’t filter down.”
12,India's telecommunications ministry caused nearly US$40 billion in losses to the exchequer by selling the licenses at 2001 prices and by conducting the sale on a so-called first-come, first-served basis (as opposed to auctions) to benefit a few select bidders, according to an audit by India's Comptroller and Auditor General (CAG).
A. Raja, who headed the telecom ministry before being forced to resign on November 14, disregarded repeated warnings to use the auction mechanism and conduct the licensing with transparency and more equity, the report says. The whole exercise collected Rs. 12,386 crore (US$2.8 billion) from applicants. The CAG has revalued that spectrum according to several benchmarks, with its peak valuation at Rs. 176,645 crore (US$40 billion),
using rates secured in the auctions of 3G spectrum in June 2010.
"Even for a country that has a history of new scandals that pop up every time one thinks that things could not possibly get worse, they do," says Wharton management professor Jitendra Singh.
The 2G telecom controversy may well have ended like many others before it -- death by silence -- but for a confluence of events that included rising public anger over other corruption scandals. For more than a year since the spectrum allocations in early 2008, media reports had highlighted its flaws.
13. Little came of those reports, but the CAG's November audit report emboldened Opposition parties to step up their drumbeat against Raja. Even after Raja quit, India's Supreme Court asked the prime minister's office to explain why it took 11 months to respond to a petition filed in November 2008 by Subramanian Swamy, president of the Janata Party,( &author of the present book) seeking permission to prosecute Raja. (The government later said it was "premature" to sue Raja, and asked Swamy to wait for the outcome of an ongoing investigation.) Swamy now plans to file a criminal suit against Raja. "The sheer scale of [the flawed spectrum allocations] and the sheer audacity of Mr. Raja permeated down to the whole society and a feeling of hopelessness also came that it won't be possible for society to survive if this goes unpunished," he notes. "The judiciary also became more cognizant that this is eating into our system."
14. The controversy grew murkier after Outlook magazine in November published secret phone recordings, claiming they exposed the role of Niira Radia, a high-profile corporate lobbyist, in using top journalists to help secure Raja's job as telecom minister. Radia's firm Vaishnavi Corp., which represents the Tata Group and Mukesh Ambani's Reliance Industries among others, issued a statement saying the tapes were unverified and denied any wrongdoing. Tata Group chairman Ratan Tata told television channel NDTV that his group has never used Radia to influence public policy, seek favors or make payments. He has also sought a court restraint on the publication of the transcripts of conversations between him and Radia. India's Enforcement Directorate has recently interrogated Radia on unspecified charges.
Tweaking Procedures to Benefit a Few
The CAG's report details how the telecom ministry under Raja went about allotting the spectrum licenses on the cheap, defying market logic, government directives and rules, and calls for transparency. For starters, the ministry's actions frustrated a policy decision of the Telecom Regulatory Authority of India (TRAI) to replace fixed license fees with a pricing mechanism that would more accurately capture market prices -- a combination of a nominal license fee and a market-determined "spectrum fee" through competitive bidding.
The transition to the market-based regime was planned over two phases from 1999, but that was abandoned midway to retain the fixed-price mechanism.
The prices in 2001 reflected "a totally nascent market", the CAG says. Raja's ministry deliberately ignored all efforts to bring in transparency through auctions and updated spectrum valuations by the prime minister, the ministries of finance and law & justice, TRAI, the telecom commission and a ministerial group, among others.
Although the telecom ministry professed a first-come, first-served policy in allocating 2G spectrum, it actually---- favored a few bidders who seemed to have been privy to advance information. On September 24, 2007, the ministry's department of telecommunications (DoT) issued a press release saying it would stop accepting spectrum applications from October 1 (a week later) -- effectively an artificial cap on the number of licenses. But it later advanced the cut-off date to September 25,( or 24 hours after the press release ). The DoT has cited a huge rush of applications for the change in the cut-off date.
15 On the final day of the allocation, telecom officials issued an unexpected notice informing applicants of a rule change. Spectrum would effectively be awarded by schoolboy rules; the first companies to reach the counter with completed paperwork and a license fee of $355 million would qualify. Businessmen sprinted down the hallway, jostling down stairs, as they rushed toward the office where a clerk was processing applications. Investigators are now looking into whether certain companies were tipped in advance to the rules change
On January 10, 2008, the telecom ministry issued 121 licenses -- a far cry from earlier practices of taking several months to decide on applications. It had received 575 applications, 408 of which were filed after the September 24 press release --SURELY an indicator of the huge unsatisfied demand for scarce spectrum.
A notice through another press release gave applicants-- less than an hour to collect the licenses, for which they had to submit bank guarantees.
16. Some licensees "who could proactively anticipate such procedural changes were ready with the demand drafts and could avail of the benefit of first right to allocation of spectrum, having jumped the queue," the CAG report says.
"The entire process lacked transparency and objectivity and has eroded the credibility of the DoT." To boot, 85 licensees did not meet EVEN basic eligibility conditions; some had provided incomplete information and submitted fictitious documents, the report adds.
17. Kapil Sibal, the new telecom minister after Raja's exit, has said he will issue show-cause notices to the 85 licensees for violation of eligibility criteria, and also to 69 licensees that have failed to meet spectrum rollout obligations.
Raja defended his actions in the Supreme Court through his counsel, arguing that fixing 2001 prices for the spectrum sale in 2008 was consistent with the telecom regulatory body's recommendations. He also described the CAG's math as a "presumptive valuation of mind-boggling loss," and lamented that he stands "condemned, charge-sheeted, tried and convicted by the media." The court is hearing petition filed by the Center for Public Interest Litigation on the 2G scandal.
18. Finding the Best Spectrum Pathway
Valuations of telecom spectrum are of course prone to huge margins of error, and depend on a variety of factors including the general economic climate, the extent to which markets for telecom services develop and the ability of individual companies to maximize opportunities. The telecom spectrum auctions in the U.S. have also fallen far short of market valuations, according to Alok Gupta, professor of information and decision sciences at the University of Minnesota's Carlson School of Management and an expert on bidding strategies. The three U.S. spectrum auctions raised a combined US$55 billion, while "even the most conservative estimates put the valuation at US$500 billion, he says. At the same time, governments "have to leave something on the table for buyers and not extract all the value" in spectrum auctions, he adds. "Nobody actually broke the law [in the U.S. auctions, but] they may have done things that are not considered ethical." Gupta, however, considers it "egregious" that India avoided an auction for the 2G allocations.
In fact, the TRAI issued guidelines that it would auction 3G spectrum even before the 2G bidding round, notes Ravi Bapna, professor of information systems at the Carlson School and executive director of the Centre for Information Technology and the Networked Economy at the Hyderabad-based Indian School of Business. He recalls making presentations to TRAI members advocating auctions as the best method. "Everybody in the room bought it," he says.
19. The proof of the superiority of the auction method is that the government made more than Rs. 100,000 crore (US$22.5 billion) in the 3G auctions, or a third more than its initial target, he adds. The right lessons have to be learned from the 2G debacle, he cautions. "I am less worried about the telecom space now than about distribution of other scarce natural resources," he says, listing electricity, infrastructure, oil and gas and water and mineral rights as examples.
DR MANMOHAN SINGH (PRIME MINISTER)
A.RAJA ( EX Telecom Minister)alias SPECTRUM RAJA
(SCAM ESTIMATED BY CAG
at Rs1,76,545 CRORES.)
AT Rs7,000 CRORES
20 )SATYAM SAGA
Though the ministry of corporate affairs had made a note of Satyam’s proposal to acquire Maytas Infra and Maytas Properties on 16 December itself, what actually galvanised it into action was the widespread criticism in the media the next morning. That very day, Henry Richard, the Registrar of Companies (RoC), Hyderabad, was asked to collect all relevant material on the proposed deal and send it to New Delhi as soon as possible.
All three companies wrote to Richard seeking time until 12 January to respond to the queries—citing the resignation of some Satyam directors, the intervening holidays and the lack of prepared minutes of the 16 December Satyam board meeting as reasons for this delay. The minutes, it was said, would be finalised at the next meeting of the company’s board, scheduled for 10 January.
SCAM ESTIMATED AROUND Rs 7,000 CRORES
But, before that board meeting could take place,
Ramalinga Raju ____ >made his now infamous confession on 7 January
21. On 7 January at 10.53am, a fax from B. Ramalinga Raju, chairman of Satyam Computer Services Ltd, to the board of directors, the chairman of the Securities and Exchange Board of India and the stock exchanges
was like a multi-megaton bomb exploding in the face of corporate India .
Now, Minister of Corporate Affairs Prem Chand Gupta was really worried. The statement had caused the Satyam stock to crash over 80 per cent in one day, and led to serious concerns in India and abroad about the Indian corporate sector. There was a political angle too. Going into general elections, which were due in the summer, the last thing the ruling United Progressive Alliance would want was a scandal.
It was important that the government be seen to be taking prompt and decisive action.
An inquiry was ordered immediately. On that day itself, the ministry directed the Institute of Chartered Accountants of India (ICAI) to look into the financial reporting by the company and the role of the auditors, and also asked the Institute of Company Secretaries of India to investigate corporate governance lapses and the role of the company secretary.
The next day (8 January), Gupta upped the ante. He ordered an inspection of the records of the eight companies associated with Satyam under section 209A of the Companies Act.
These companies were: Maytas Properties, Maytas Infra, Satyam BPO, Nipuna Services, Knowledge Dynamics, Nitor Global Solutions, CA Satyam ASP and Satyam Venture Engineering Services. Some were private Raju companies (Maytas Properties, for example); others like Nipuna and Satyam BPO are subsidiaries of Satyam.
Later in the day, Gupta called a meeting which was attended by Finance Secretary Arun Ramanathan and Corporate Affairs Secretary Anurag Goel, among others.
It was decided that the Andhra Pradesh government should be brought into the loop. Accordingly, Goel called Andhra Pradesh Chief Secretary Ramakant Reddy and asked him to provide all assistance to the RoC and other central agencies. He was also asked to keep the police ready for action under the Indian Penal Code. Reddy readily agreed.
More importantly, all present at this meeting agreed that the existing Satyam board had failed to discharge its duties. So, it was decided a new board would be appointed with eminent people from the fields of information technology, finance and law. All were asked to come up with some names.
Gupta collected the list and asked his men to quickly complete all the legal formalities required to supersede the board.
At around 11 am (on 8 January), Jitesh Khosla, the knowledgeable and courteous Joint Secretary in the Ministry of Corporate Affairs, instructed Henry Richard to immediately move the local courts to carry out a search and seizure operation at Satyam.
It was feared that if the company’s books were not seized, they might be tampered with or even destroyed.
In his mid-50s, Richard has had a long stint with the Ministry of Corporate Affairs, and was in Chennai before coming to Hyderabad as the RoC. This experience notwithstanding, Satyam turned out to be a first for him—in terms of the magnitude and scale of operations.
Richard faced a problem in carrying out his instructions:
8 January was a court holiday. So, he rushed with the petition to the Raj Bhavan Road residence of the special judge for economic offences at 4:30 pm
. Judge Aneesh gave her assent and Richard and his team of 12 left for Satyam’s registered headquarters at Begumpet in the heart of the central business district. They arrived there at about 7 pm and served the search and seizure notice to Satyam Company Secretary G Jayaraman who was present there.
The search continued till 11.30 pm, by when all statutory records on the premises had been seized. The documents, along with the list of ‘members’ and share transfers kept in two pen drives, were sealed in a room.
Richard and his team, along with Jayaraman, then headed for Satyam’s Bahadurpally office, located 40 kilometres away on the outskirts of the city. This is where the main server for finance and accounts was also located. By 4 am the next morning, the search and seizure was over at Bahadurpally.
The Big Lie That Was Raju: His statements caused the IT major’s stocks to crash over 80 per cent in a single day (AP)22. Seven hours later, Richard and five others arrived at the Satyam office in Hyderabad’s HITEC City, the company’s treasury hub,
while another team headed to yet another company office at Raj Bhavan Road, where the IT records were kept.
Satyam Vice President (Finance) G Ramakrishna was asked to show all records and files at the HITEC City office. These were found arranged neatly in racks. Since going through the whole lot would have taken his team a long time, Richard asked employees working in Satyam’s finance department to catalogue the documents and hand over the list to his team.
All documents were then sealed, and the old data related to accounts in 2002 was copied onto a pen drive. By 6:30 pm on 9 January, Richard and his team were done at these premises, though the search and seizure operations continued, on and off, for several days.
While Richard and his men were busy seizing documents at Hyderabad,
the Ministry of Corporate Affairs moved the Company Law Board (CLB), on 9 January to remove the Satyam directors and auditors. The ministry had built its case on three grounds.
One, Ramalinga Raju’s actions amounted to duping the company’s 300,000 shareholders:
two, it had caused substantial damage to the country’s IT sector;
and three, the earlier proposal to acquire the two Maytas companies was in violation of company law.
In fact, the violation of company law had been highlighted by Richard as early as 30 December 2008 when he had sent a detailed report to Corporate Affairs Secretary Goel saying that the acquisition proposal was bad in law and could therefore be challenged in the courts, though it was aborted midway.
23. According to section 372A of the Companies Act, prior shareholder authorisation is required if a company acquires shares in any other ‘body corporate’ for an amount exceeding 60 per cent of the acquiring company’s share capital and free reserves or 100 per cent of its free reserves, whichever is higher, after loans, guarantees and investments. According to Richard, Satyam’s share capital and free reserves stood at Rs 2,136.37 crore as on 31 March 2008, while its free reserves were Rs 2,002.27 crore. He had relied on the company’s last audited results filed with his office which were for the year 2007–08. The Rs 7,680-crore proposed acquisition was far in excess of this amount—in fact, the company could make investments of only Rs 788 crore without shareholder approval. ‘The decision by the board also raised serious concerns as to related party and valuation issues involved in the proposal and evoked a very adverse reaction from the shareholders of the company who had reportedly not been consulted,’ the ministry said in its application.
24. Raju admitted to multiple misdeeds which were so huge in their scale, so long in the making, so shocking in having escaped scrutiny and so disgraceful in their intent that they prompted the strongest possible comments from corporate czars.
The cooking of the books was staggering.
Let us start with the worst swindle involving Satyam’s cash and bank balance (C&BB) which, as on 30 September, was inflated by a colossal Rs5,040 crores.
Let’s understand this.
Illustration: Nuts and bolts of Satyam saga
According to the official balance sheet, Satyam’s C&BB was Rs5,361 crore.
After subtracting the Rs5,040 crore fudge, the real (who knows what is real?)
C&BB was just Rs321 crore.
So, the $1.6 billion that Satyam proposed to pay Maytas Properties and Maytas Infrastructure out of its cash was a figment of imagination.
The company just didn’t have the dough! Which is why, in Raju’s words, “
The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones” (emphasis mine).
25. What a scandal! Satyam had no real cash. It wanted to acquire Maytas which has real assets.
Since it had no cash, it would have been harsh to Maytas’ shareholders.
In the meanwhile, Satyam would have real assets (“fill the fictitious assets with the real ones”). Through this acquisition, thankfully thumbed down by all institutional investors,
Raju was hoping to close Satyam’s gap between real and fictitious money which had “attained unmanageable proportions”.
Raju felt that “Once Satyam’s problem was solved,
it was hoped Maytas’ payments can be delayed. But that was not to be.”
Thus, a desperately cash-strapped company was fudging its books to show non-existent cash
to make an acquisition that it was in no position to pay for,
for it to command valuable real estate
which it could then show as fungible assets on its balance sheet.
That wasn’t all.
26. Satyam put in the books==== non-existent accrued interest of Rs376 crore
and increased current assets by overstating debtors dues by Rs490 crore.
For the quarterly results 30 September alone, it overstated revenue,
gross margins and cash and bank balances by Rs588 crore
27. How could a scandal of this magnitude happen?
Whatever Raju says, there is no way that he could have done it alone.
. Modern corporations need to create documentation to generate numbers.
Fudges of this size need the connivance of the chief financial officer (CFO) and his minions and, at the very least, a blind eye of the chief executive officer (CEO) and the chief operating officer (COO).
28. Consider this: How could Satyam falsify Rs588 crore of revenue in one quarter without the CEO, COO and CFO not being in the loop? In my book, they are either culpable or blind and dumb, or both—
all good reasons for being investigated and sacked.
This disgrace also raises serious questions about PricewaterhouseCoopers (PwC),
the statutory audit firm. The least that any auditor will do—even an article clerk apprenticing with an audit firm—is to actually verify a company’s C&BB.
It’s a basic practice. How could the balance be inflated by Rs5,040 crore without PwC having a clue?
And DSP Merrill Lynch realizing it in less than two weeks?
There are two possibilities: either the CFO’s office created false statements on the letterheads of sundry banks,
and PwC accepted these without question; or that the audit team didn’t bother checking. Both constitute serious neglect of fiduciary responsibilities by PwC which is supposed to certify to the shareholders that the accounts are “true and fair”. Equally, how did an inflated revenue of Rs588 crore for the September quarter escape PwC?
PwC will get hauled over the coals.
29.US shareholders are preparing class action suits against PwC and the directors. The Securities and Exchange Commission will also pitch in. As will the US public company accounting oversight board, a body set up under the Sarbanes-Oxley Act after the Enron and WorldCom scams. If it is very lucky, it will be severely fined, lose many of its clients, have its Satyam audit partners punished, and become a shadow of its former self.
Otherwise, it may be ruined by class action suits, and go the Andersen way.
Now to the role of independent directors. Here, I have three points to make
30 . First, they erred grievously in agreeing to a $1.6 billion related party transaction with Maytas, even if with caveats.
Second, contrary to what most journalists are writing, I wouldn’t blame them for Satyam’s fudging of accounts.
They are not the management. At best, they directly interface with a company for 15 days in a year.
They rely on both internal and statutory auditors, external news, whistle-blowing and scuttlebutt to get a picture of the company. When the statutory auditor presents a “true and fair”
view of the company in audit committee and board meetings,
there is not much that independent directors can do,
especially if they have no prior suspicion about the shenanigans of the company.
Third, there is no doubt that independent directors should spend more time with greater diligence on the affairs of their companies.
They have to be more questioning, more critical, more forthright and less beholden to the management.
31. These virtues have been in relatively short supply—not just in India but everywhere.
Finally, let’s admit that ____ we were all wrong.
Until the proposed Maytas acquisition, nobody ever wrote ill of Satyam;
or that Raju was quietly fiddling the accounts.
We accepted the numbers; analysed them to death;
and praised Raju to the skies.
Raju broke the 11th commandment: “Thou shall not get caught.”
We broke the 12th: “Thou shall have the brains to see what actually is.”
SAYS Omkar Goswami WHO is chairman CERG Advisory Pvt. Ltd. Comment at theirview@livemint.
32. Wharton's Singh feels foreign investors may view corruption in India "as the cost of doing business.
" But the country would attract more foreign investments and business interest if it had a stronger reputation for being non-corrupt, he says. Investors are attracted to India because "there are not too many other options that are particularly attractive ... but this can change rather quickly," he cautions, calling for prompt action against the guilty to rebuild confidence in India as a destination for foreign capital
33. But Ascentius' Shende believes that India's governance systems have not kept pace with the "demands and complexity" as the country transitioned to a market economy over the past two decades. The telecom spectrum scandal "is likely to trigger a regime and mechanisms that will be based on discovery of market prices based on market forces," he says. But he urges caution on that path. "While there is no doubt that this is a great opportunity to clean the closet, the risk that such endeavors might translate into a case-by-case approach remains high," he notes, calling for transparent policies and quick punishment of the guilty.
34. A trained economist, Swamy has a theory on why scandals like that of the 2G spectrum allocations actually occur. He refers to a theory of probability in this book,:
( he also teaches at Harvard Summer School each year)
.that "Suppose the chances of getting caught is number P, the bribe is number X and if you get caught, the damage done is number D," he says. The expected value in a corruption-laden deal is a tradeoff between the quantum of punishment and the probability of being caught, he adds. "If the quantum of punishment is very large, even if the probability of getting caught is small, the expected value for everybody would be negative, and you would not be corrupt anyway."
35. , Dr Subramnian Swamy ,( in his new book Satyam SPECTRUM SUNDARAM)
points to this " law of diminishing interest of the public in opposing corruption" , which looks at the twin issues of corruption and accountability raised by the two largest scams to hit India in recent times.
CORRUPTION AMONG political leaders -- even on the scale of the telecom scam -- is less of a surprise to the public at large than corruption among business leaders .
Raju's confessional letter to the Satyam board, in which he made the astonishing admission that 95 per cent of the revenues of India's fourth largest IT company___ didn't exist, that the billion dollars in reserves in the company's books was fictitious and that he ( Raju) had been systematically cooking the books for years -- sent a tsunami through the government and the markets, and led to the first state takeover of a Sensex- 30 business house in post- reforms India.
In contrast, the response to the scandal over the allocation of the radio spectrum -- a scarce, finite and exceedingly valuable national natural resource -- to mobile telephony operators has been far more muted, although the economic scale was much bigger.
36. Raju may have siphoned off Rs 7,000 crores from Satyam compared to , the opportunity cost to the government, by way of the real market price it could have realised for allocating radio spectrum, instead of what it actually got thanks to the alleged manipulation of the auction process by the then telecom minister A. Raja *, has been estimated at over Rs 50,000 crore, a figure yet to be convincingly refuted by the government.
38.This itself is an indication of the degree of trust people have in the country's large corporate entities, and in the levels of corporate governance (Corporate Governance)
The relationship between all the stakeholders ( which includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. prevailing in them.
36 Swamy says the rising apathy of the public to corruption and scandals is matched by the increasing brazenness of the corrupt when caught. Awareness of corruption and a clear understanding of the methods used are essential, he writes, for the silent majority, which still prizes sacrifice, service and probity PROBITY. Justice, honesty.( A man of probity is one who loves justice and honesty, and who dislikes the contrary). Wolff, Dr. de la Nat. Sec. 772. , to assert itself. This is the ' Sundaram' ( beauty) we need to strive for in our development trajectory.
37. The core of the book actually lies in the lengthy introduction, where Swamy walks us through the concept of corruption, its prevalence in India and elsewhere, how it leads to the generation of illegal wealth, and the connections between such wealth and the economy and the public.
He also looks at the core questions of corporate governance -- the nature of a company and on whose behalf is it governed.
The bulk of this chapter looks at the infamous ' participatory note' ( PN) controversy, as well as the tax treaty with Mauritius, which, he says, has been used to channel vast amounts of black money into the stock markets.
39. Swamy would like politicians and other high-profile people in corruption scandals in India to go to jail. "Once that happens, the expected-value calculation will make everybody honest on their own; you don't need too many powers or [enforcement] agencies."
Moreover,, politicians violating rules should forfeit their parliamentary or legislative status and be debarred from public office, he adds.
40.He further emphasises that :
" Fearless Journalism is a noble and ennobling profession. which ought not to be a petty, creeping and crawling, shameless, and unabashed prostitution in search of Government advertisement revenues and financial bottom lines from the corrupt men in the psedo-secular mafia of mass media-both print and electronic.
It is the inalienable, indivisible, inexorable and immutable right of every responsible citizen in India to challenge the Himalayan corruption and gargantuan public misdeeds of these petty men and women of straw, not merely by silent impotent thought.
Thought like other human instincts will atrophy unless formally and regularly exercised.
IF GAGGING BY THE PRESS PREVENTS INDEPENDENT, COURAGEOUS AND PUBLIC SPIRITED MEN FROM SPEAKING OR WRITING FREELY ON VITAL NATIONAL AND PUBLIC ISSUES, THEN THEY WILL ALSO CEASE TO THINK FREELY. THE TEST OF REAL FREEDOM OF SPEECH IS READINESS TO ALLOW IT EVEN TO MEN WHOSE OPINIONS SEEM TO YOU TO BE WRONG AND EVEN DANGEROUS.
Freedom of Speech and Freedom of Assembly will be empty phrases if their exercise must yield to unreasonable fear
konthai
REFERENCES:
1.Article in NEWYORK TIMES
Asia Pacific
World
Telecom Scandal Plunges India Into Political Crisis
2. ARTICLE IN
ORGANISER
Home > 2010 Issues > December 19, 2010
Reader’s forum
3.ARTICLE in
The Free Library > Communications >
News, opinion and commentary > Mail Today (New Delhi, India) >
August 23, 2009
4.ARTICLE in LIVEMINT by
Omkar Goswami WHO is chairman CERG Advisory Pvt. Ltd.
Comment at theirview@livemint.
5. STATEMENT OF DR.SUBRAMANIAN SWAMY,
PRESIDENT OF JANATA PARTY MADE IN CHENNAI
ON JANUARY 6, 2009(Press Release)
6.ARTICLE IN BUSINESS WORLD
The Satyam Saga;
Authors: Bhupesh Bhandari, Prashanth Reddy Chintala, Vandana Gombar, Latha Jishnu, Shyamal Majumdar and Aanand Pandey; Business Standard Books;
Pages: 186; Price: Rs 395
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