Saturday, January 10, 2009

'Satyam' Eva Jayathe

The title for this post is a a sanskrit equivalent for "Only the Truth will win". That is what many of us believed until recently. 'Satyam' in sanskrit means 'truth' and 'Satyam Computer Services' was a name that stood synonymous with growth, best practices and the IT revolution of India. 'Satyam' (as the company was fondly known) has put Hyderabad on the global IT map. Satyam stood for entrepreneurship, Satyam stood for truth. In fact it was a common saying that Hyderabad had two towers. 'The Charminar ' and 'Ramalinga Raju' and the latter founded Satyam.

The last few weeks have been far from good for both Satyam as well as for Ramalinga Raju. With the latter admitting on committing a fraudulent forgery of vital information, he is tonight in jail, and stands a very good chance of being judged to serve a jail term of 10 years.

The Satyam SCAM has set the bells ringing, across the world. Many companies who are known for their best practices, will soon come under the scanner. Investors will have to look beyond the performance parameters of a company. They may have to be well informed about the 'quality of earnings' as an independent decisive factor in making investments. All these issues have raised concerns in the minds of the average investor. The question is 'How can I trust the quality of a company's disclosed earnings?'

Many people have understandably misinterpreted that these tragic developments with SATYAM (or earlier with ENRON) have conclusively demonstrated the evils and the devils of the free market and liberalisation. It might seem to be inevitable to conclude that corporate failures of such natures negate the merits of free market. When corporate giants collapse, the earth shakes under them. Business confidence will lower. Investors may be wary. All these consequences are not good for the economy. If poor 'corporate governance' can cost the nation of its trust in the free markets, it is undoubtedly clear that measures need to be taken to ensure right standards of governance.

The most easiest solution is not necessarily the right solution. Enacting more statutory laws , instilling more stringent checks to seal the crevices through with corporate malaise ooze may sound absolutely necessary.I do agree that more the laws and more the interference, lesser will be the chance of a fraud against a share holder. But I would like to point out that too much of a statutory intervention can lead to unnecessary bureaucracy and increase the complexity of operations and hence not serve the purpose of a free market.As the regulators enforce transparency, investors will have a flood of information that the companies would be forced to share with them. The volume of information made available can confuse shareholders or even hide the important facts, defeating the very purpose of transparency.

The problem here is akin to the problem of terrorism. and terrorism cannot be solved by increasing security services for all the citizens. (Read:You can't cure Terrorism with ASPIRIN ! ). Law can enforce order in a society. It cannot enforce values.Corporate governance-- unfortunately is a value. Corporate governance is not about the number of Board meetings convened, nor about the attendance report of the directors. It is not about certification by external auditors nor about the practices of the auditing firms . Corporate governance is about values and good citizenship. It is about the responsibility the corporate owes to the society that allows it to create wealth.

Apart from other things the fall of Satyam has proven a simple adage, that inspite of everything, no matter how long it takes "Truth shall prevail Victorious". "Satyam Eva Jayathe".

1 comment:

Sita said...

What has happened to Satyam would have definitely rung the warning bells for the other corporate giants.Its true that all the MNCs will be brought under the scanner now.

Its sad that laws are misused, when relaxed bit.

Hoping to see Satyam back on track again, for the sake of its employees and investors, who are not part of and aware of the scam.