The Hindu Business Line : A case to steady corporates

But the latest one, l’affaire Satyam, would linger on in the collective consciousness of corporate watchers for a very long time not because it was the first or unique but because a scam-to-be was averted, thanks entirely to t he vigilance of enlightened foreign investors who voted with their feet in the New York Stock Exchange at the whiff of the news of an impending attempt at asset-stripping — proposed investment of close to a whopping Rs 7,200 crore in two privately-held companies enuring for the sole benefit of the promoter family both bearing the anagrammatic name, Maytas as their prefix.

Some home truths

The dramatic fall of 55 per cent in the share price had a chastening effect on the company which reversed its decision post-haste clearly looking sheepish if not contrite.

More importantly, it threw up several gnawing home truths which our policymakers cannot afford to ignore any further:

Minority shareholders can run the company — Satyam promoters hold only about 8 per cent of its equity. Minority rule is common in India when the remaining shares are scattered amongst thousands or lakhs of investors with no significant stakes;

FIIs and GDR/ADR holders do not have any voting rights under our law which seems to say we-want-your-money-but-not-your-interference often resulting in their hands being tied and feet being used to vote;

Corporate governance is at best a fad. L’affaire Satyam happened under the very nose of independent directors whose sobering influence alas has turned out yet again to be mere hot air. It has reinforced what many in the know have always been saying —independent directors cannot be truly independent unless their appointments are de-linked from the promoters;

The strict law against presence and participation of, and voting by, interested directors is followed more in breach than in compliance. Pray how else did the venerable independent directors chime agreement with the promoters when a blatantly monstrous proposal was placed before them;

Crucial decisions can be steamrollered by the board of directors without consulting much less taking the approval of the general meeting;

Diversification of activities is often euphemism and fig leaf for diversion of funds. The CEO of the company has gone on record with a straight face that since the IT sector was on the decline, the company’s fortunes were sought to be hedged through diversifying into real estate and infrastructure; and

Valuers often play ball with the incumbent managements in return for hefty fees.

Wakeup call

Satyam has been turned on its head both literally and figuratively. It would have the dubious distinction of becoming a valuable addition to the case study literature of management schools, including ironically, the Ivy League Indian School of Business, Hyderabad, whose chairman incidentally doubled in as the chairman of Satyam’s board of directors.

Public interest would however be better served if the wakeup call engendered by the heavy footfalls in the NYSE and the domestic bourses shakes our policymakers out of slumber.

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