Case of keeping bad company | india | Hindustan Times
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Case of keeping bad company

It takes an incident like Satyam collapsing under the weight of a Rs 10,000 crore fraud to bring out the horrendous regulatory failure in corporate governance, not just in India but in the US as well.

india Updated: Jan 07, 2009 23:35 IST

It takes an incident like Satyam collapsing under the weight of a Rs 10,000 crore fraud to bring out the horrendous regulatory failure in corporate governance, not just in India but in the US as well. Caught sleeping on their jobs are the agencies that oversee auditors, directors, company boards and stock exchanges in both countries. It may be easy to dismiss the governance standards in India: Satyam Computer Services last year won an award on this count. But how does a company listed on the New York Stock Exchange for nearly a decade, and audited by the American arm of Price Waterhouse, get away with fibbing about its numbers in a country that equipped itself with the world’s most severe set of oversight laws after the spectacular demise of Enron?

Much more than the fate of one company and its investors is at stake here, the scandal could taint the entire edifice of outsourcing. The confessions of B. Ramalinga Raju are eye-popping in an industry that has seen business growing at upwards of 35 per cent a year. Satyam was up there with TCS, Infosys and Wipro that were changing the rules of modern economics. For the first time in history people were not migrating, rather jobs were moving to where the people are. The 53,000 people working at Satyam are part of the 2 million Indians employed in information technology-enabled services that last year posted $40 billion in exports. Halfway across the world, the business processes they are outsourcing help US Inc notch up productivity gains of 20-50 per cent.

Once the carnage on the bourses is over — Satyam is valued at a fourth of what it was on the Indian stock exchanges a day before, and this before New York starts trading — the picture will be clearer for potential buyers of the company. The business logic of infotech-enabled services even during widespread recession should stop Satyam from folding up altogether. That is the easy part. The tougher job is for our regulators — the Institute of Chartered Accountants of India, the Institute of Company Secretaries of India, Ministry of Corporate Affairs and the Securities and Exchange Board of India — to ensure that capitalism in India functions within a system that does not permit a repeat of such long-running abuse. Over and above this, the need for stronger corporate governance laws cannot be overemphasised. Regrettably, a tougher Companies Bill took four years in the making and was tabled in Parliament only last October.