Lessons from Satyam

In the past week, a comfort zone is being created around a carefully constructed myth: it says that the Satyam fraud is an aberration requiring only case-specific responses to an exceptional situation; India Inc is otherwise unsullied, and has little need to worry. Industry leaders are self-certifying that Indian corporations display the highest standards of corporate governance.

While it will be rash to blame India Inc for Satyam’s indiscretions, it’ll be equally presumptuous to absolve all its denizens as virtuous. Government and industry leadership need to unravel the wider contours of what may be politely called a crisis of ‘ethical ambiguity’. The issue of business ethics should enter public discourse with far greater urgency.

Let’s not get lost in technicalities. While specific investigators will do their job, it’s important to furrow deep to eject the can of worms. It’s naïve to point fingers only at Raju as a bad apple in a spotless orchard.

The sheer presence of the corporate sector in the economy has increased manifold during the post-liberalisation years; it is now threaded to diverse sections of society. A lack of business ethics creates problems not just for the economy but the polity as well.

If the corporate sector commits itself to certain norms of business ethics, politicians will find it difficult to court illicit funds for granting favours in blatant violation of the country’s laws. It’s unlikely that only a motley crowd of small-time contractors and real estate players can keep provisioning the supply chain of electoral corruption.

If the big corporations adhere to some strict ethical standards —including refusal to deal with certain kinds of contractors, agents and fraudsters (the ones typically associated with politicians) — the political space will see some necessary cleansing.

We need a combination of coercive regulatory measures that demand accountability and consensual ways that catalyse ethical behaviour. Ultimately, higher standards of corporate governance must occur by consent. This is where industry leaders have a huge role to play — they have to induce, encourage and cajole businesspersons to commit themselves to ethical behaviour.

Even if we look back at major scams since the 1990s — precisely, the period during which liberalisation and globalisation were introduced — it’s obvious that economic growth hasn’t ensured a heightened state of business ethics. In such a free-for-all climate, we can hardly give up the responsibility of regulation and oversight by public bodies.

The State has to ultimately bear the responsibility of the public space and ensure its due governance for public good. Today, when the corporate sector is a dominant occupant here,  enjoying huge public funds — including large tranches from the bourses and more recently, state bailouts — it’s necessary that Indian corporations are subject to rigorous public oversight processes and systems. The government should immediately consider forming an Oversight Committee to inquire into the systemic lapses that may led to the Satyam fiasco.

In India, there is a labyrinth of external and internal auditors — with a Price Waterhouse Coopers endorsing an internal auditor in the Satyam case — with no guarantee that relationships of collusion won’t develop. It doesn’t seem that peer supervision of auditors with monitoring by professional bodies like the Institute of Chartered Accountants of India (ICAI) can ensure due prudence. What we need is a public accounting body akin to the CAG’s office with a mandate to oversee private audit firms and monitor organisations like ICAI.

India Inc must accept that there are greedy, parasitical operators who will devise every nefarious means to suck society’s resources for themselves. These sundry characters need to be held to account. In this context, one has to think without sentiment as to why it is so  important to save Satyam. Does Satyam carry such weightage that if it isn’t saved, a body-blow will be delivered to India’s economy?

If the US could live without Enron and Anderson, can’t we think of living without Satyam and Price Waterhouse Coopers? If you believe in the market, believe in market justice: face the flak now. Perhaps, the government can think of providing a protection net to small shareholders and help employees in whatver way possible. The rush to protect anyone else is debatable.

If the Satyam brand continues with all its warts, India Inc. may have more to lose than gain. If proven guilty, the company shouldn’t be allowed to continue, at least in its present state. Price Waterhouse Coopers, if culpable, must be held accountable. Let’s worry about saving satya rather than Satyam. This will be a far stronger and sustainable basis for building the brand value of India Inc.

The writer is full-time visiting faculty in theBusiness Ethics & Communication Group, IIM, Calcutta. The views expressed are personal and not that of the institution