Monday, January 12, 2009

Satyam's ex-independent directors

The plight of Satyam's ex-independent directors must cause other independent directors to shiver in their shoes. They face a show-cause notice from the Company Law Board, probes by SEBI and law-suits in the US. The damage to their reputations has been immense. Let's see..
  • M Rammohan Rao has had to quit as director of the Indian School of Business. He has also withdrawn from the panel to select the Dy Governor of the RBI.
  • Krishna Palepu, it is reported, is under pressure to quit the board of Dr Reddy's Labs.
  • T R Prasad, former cabinet secretary, stuck to his directorship even after all the revelations. He has suffered the ignominy of being booted by the government of India, the very government he had served all his life.

At this point, one needs to distinguish between the aborted investment in the two Maytas companies (which the independent directors approved) and the accounting fraud. So far as the latter is concerned, we have to await the outcome of the investigations to establish if there were any failures on the part of independent directors.

The reason these guys are being pilloried is that they did not oppose the Maytas investments- and there is a presumption that if they could be so supine in that instance, they could not have been effective generally. Had any of the independent directors opposed that move, it is possible that they would have been given the benefit of the doubt in respect of the accounting fraud.

I notice also that most of the fire is focused on the two b-school academics, Rammohan Rao of ISB and Krishna Palepu of HBS. The two other academics (Dr M Srinivasan, former faculty in American universities and V S Raju, director of IIT Delhi) are not facing the heat to the same extent. I guess there is a feeling that b-school academics, who preach good management and governance to the rest of the world, must be held to higher standards. B-school profs on other boards had better watch out!

Incidentally, on the Net, what we are seeing is not just criticism of the independent directors, but abuse, plain galis. Liar, cheat, rascal- these are among the kinder expressions being used. I will refrain from reproducing the harsher ones.

In yesterday's Indian Express, Sandipan Deb has a comment that captures the sheer depth of sentiment against the independent directors and particularly the b-school profs:

His official CV states that “in the area of corporate governance, Professor Palepu’s work focuses on how to make corporate boards more effective, and on improving corporate disclosure”. Among the executive programmes he teaches is “Audit Committees in a New Era of Governance”. “He also co-led Harvard’s Corporate Governance, Leadership, and Values initiative, launched in response to the recent wave of corporate scandals and governance failures.”
A friend of mine wrote to Palepu. “Evidently,” he wrote, “you are guiding US-based global corporations in such matters. However, in your ‘home’ country, you are helping organisations like Satyam steal shareholders money. My question is simple—does this make you a traitorous hypocrite, or merely a greedy criminal? I’m inclined to the latter, but as an eminent Harvard professor, perhaps you can guide me on the correct terminology? Look forward to your response.”

Guess what? Palepu has not replied. “Greedy criminal”, I would think.


Krishnan said...

I can guess what may happen to the eminent professor dishing out his advice and collecting money and enjoying the attention of his friends and family - get SUED, I hope he does (as do the many other "directors" who are also culpable.

If Palepu remains in the US and continues to teach about corporate governance, I can imagine some investors going after him, directly.

I am wondering if the storms on Wall Street have made Business Schools wonder what they teach their students and perhaps go back to basics about human activity and wealth creation.

I am horrified that the word "derivative" is now a four letter word when all it means is a derivative or a gradient or a slope.

vsm said...

Clause 49 of the listing agreement has fairly elaborate provisions on Independent Directors, i think the regulator was not monitoring compliance.

livenewss said...

“Satyam value today $330m against $7bn six months ago accd to Financial Times.”


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