In case of Satyam, issue is not just about money, but biz ethics

Source: http://www.business-standard.com/article/economy-policy/in-case-of-satyam-

issue-is-not-just-about-money-but-biz-ethics-109051100040_1.html

December 2009, India faced its biggest shakeup in the realm of corporate governance

and ethics in the Satyam debacle. In the very same month, the curtains closed on

Siemens AG’s bribery scandal with the corporation pleading guilty to the charges
brought against it under forty counts of the US Foreign Corrupt Practices Act (FCPA) by

settling at a record amount of $800 million towards fines, disgorgement of profits etc.,

Other than violation of books, records and internal control provisions, the charges of
anti-bribery offences ranged across multiple continents, involving subsidiaries in

Venezuela, Bangladesh and Iraq.

In cooperating with investigations in Germany and USA, overhauling its top leadership,
centralising its compliance operations and revamping its anti-corruption controls and

regime, Siemens compliance procedures are today a case study and role model . A

review of the US Justice Departments Sentencing Memorandum is the best

demonstration of mending ways from past mistakes, and how wrongs can be rigted by a

change in mindset and behaviour.

Ultimately, as in the case of Satyam, the issue is not just of money but of business

ethics. With opening of borders, liberalising global investments and trade have led to an

incremental upswing in corrupt practices. Business development expenses is the

password for a wide range of costs including kickbacks and bribes. From time to time,

there have been international initiatives to devise anti-corruption strategies.

There are several major international conventions, the OECD Convention of December
1997 on Combating Bribery of Foreign Public Officials in International Business
Transactions being the earliest. India is a signatory to the United Nations Convention

Against Corruption (UCAC), established in 2005, but has yet to ratify it.

There are also various voluntary organisations such as Transparency International with
powerful members, which have been party to anti-corruption instruments, and key tests,
for distinguishing soft and hard corruption between bribes, gifts and consultancy
payments, and acknowledging that in certain countries some of these are a must for

basics. However, none of these have been effective, largely because they lack an

effective enforcement mechanism.

Most conventions require each member nation to devise a code of conduct for public
officials, complemented by preventive measures in order to ensure an ethical business

environment in government offices and corporations, i.e. more of a watchdog attitude

than that of a bloodhound.

India also has anti-corruption and anti-fraud laws, such as the Prevention of Corruption
Act, the Prevention of Money Laundering Act and Rules thereunder, as well as various
checks under the SEBI Prohibition of Fraudulent and Unfair Practices Regulations,

2003. Yet the Satyam fraud happened, and became public knowledge, not because of

any stringent checks, but on the promoter’s confession.

The government stepped in and in exercise of its powers under the Companies Act,

1956 replaced the board with high profile independent professionals . Its another matter

that even earlier there were reputed independent directors on the Board which did not

prevent the downslide. The role of the new board was temporary and transitory, to

facilitate a takeover in order that the company and its business could survive .
On date there is a new management and owner, but that does not obliterate the
implications of the multicrore fraud being perpetrated, no less a serious white collar than

bribes and kickbacks.

The Serious Fraud Investigation Office (SFIO) was recently set up under the Ministry of
Corporate Affairs inter alia to look into cases of substantial involvement of public interest

in terms of size of monetary misappropriation and persons affected . In implementation,

this office appears to be a toothless tiger.

But to make the turnaround and reinforce faith in investors, both Indian and foreign, is in

the hands of the acquirer. The acquirer has to put in place transparent mechanisms of

business ethics and corporate governance on the lines of Siemens to proclaim to the

world that Satyam has truly emerged from the fraud era to one which befits its name.