The surprising silence on corporate corruption

When will corporate India begin to talk about corruption within? When will it begin to address the fraud that business leaders commit against investors, consumers and employees?

Corruption within the government and political system is tackled by a framework of checks and balances. Faulty and undermined it may be, but the framework does expose scams and scandals at regular intervals.

Less regular is news about corporate corruption. Business leaders in India remain surprisingly silent about the corrupt among them. Corporate corruption is of two kinds.

One where business leaders collaborate with rogue government and political leaders to scam the exchequer or get ahead of rivals. This often gets exposed.

The second is where business leaders actively indulge in fraud against their stakeholders. These include the consumers, investors and even employees.

While many would argue that this does not affect society at large, the truth is far scarier. Most companies in India have borrowed from banks and financial institutions. These funds belong to depositors and taxpayers.

So when a company commits a financial fraud it is really stealing the money from investors, depositors or taxpayers. Sometimes from all. Scores of companies have been accused of provident fund frauds. They take money from employees’ salaries but do not deposit it in mandated provident fund. Most get away with it or hush up the matter.

Often the fraud is against consumers. This is the most dispersed category with little or no organized strength.

Corporate India wants to believe that there is corruption everywhere except within itself. It is a rare business leader who discusses corporate corruption openly. Most are part of the millionaire society that has personal and filial links with each other.

As a result, none speaks against the other.

Industry bodies that are shrill about governance, tax and interest rate matters, remain quiet. I can’t recall a conference organized by any domestic Indian industry body that attacked corporate corruption.

There was a strange silence from corporate India when the Satyam scam was exposed. Leading auditors, consultants and management consultants were implicated along with the promoters of Satyam. Few business leaders spoke up against Ramalinga Raju, the CEO and promoter who was indicted.

A similar silence was noted when the recent Ranbaxy case was exposed. Dinesh Thakur, a US based senior executive of Ranbaxy Laboratories, complained against his own company for falsifying drug data and risky manufacturing practices. He won the case against his company and won $48 million under US law that protects whistleblowers.

Notice also the lack of reaction by corporate leaders against the Sahara Group that has been accused by market regulator Securities and Exchange Board of India of stealing money from depositors. Business leaders tend to look away in cases like and refuse to even acknowledge it publicly.

The Indian system has two problems. One is that law does not protect whistleblowers although a new bill is awaiting approval from parliament. Second is that business leaders refuse to look the problem in the eye.

While legislative changes will take their course, it is time that business leaders begin to look within. Captains of industry have to name and shame peers publicly much in the same way they lament corruption in the government.

The author tracks India’s political economy and its engagement with the world.