Hi,

Video Talk

The misspelling of the middle and the last words was intentional.  The original ‘Vini Vidi vici’ referred to Julius Ceasar and roughly translated to ‘He Came He Saw He Conquered’.

But Pranab Kumar Mukherjee, our Finance Minister “Came (to the parliament) Read (the Budget Speech) and Left (without making an impact)”

For a first Budget from UPA that had astounded the nation by the margin of its victory just a month back, it was lacklustre.  The FM needn’t have made path-breaking announcements but could have really given an indication of the road map.

The markets do not have to be so harsh either.  There was nothing that sounded like anti-market in his speech.

Perhaps the expectations pulled the entire exercise down!

Atleast the painful FBT has gone!  what a relief!!!

If Satyam was the poster boy of Indian IT, Subiksha was the star of the retail sector.  Perhaps this is the season of heavyweights crashing down like nine pins!!

The allegations against Subiksha are even more shocking than Raju’s confession.  Employees have not been paid salaries for a few months, vendors’ bills have not been settled for ages, landlords not paid their rents and it also appears that the government is also on the line.  Yes, Subiksha has not remitted the Provident Fund dues since June 2008.

Sales have come down only recently and so the big question is “what happened to the sales proceeds all these period, if none of the bills were paid?”.  Is there an Ahskibus somewhere around?  (Just in case you are wondering what I’m writing about, remember Maytas vs Satyam??)

Is this the end of the big retail dream of India?

I will come back with a few questions and if anyone has the answers, i would love to read them.

On 18th Jan 2008, I had the opportunity and privilege to be part of a panel under the auspices of Rajaji Centre for Public Affairs, Chennai to speak on “The Satyam Debacle”. The distinguished members of the panel were Shri G V Ramakrishna (GVR) (Former Chairman SEBI), Shri B S Raghavan (BSR) (IAS Retd & a noted writer on public issues) and Shri G Narayanaswamy (GN) (Auditor and Trustee of several institutions).

Shri GN opened the proceedings with a lucid presentation of the function of the Board of Directors, the Audit Committee, the Internal Audit function and the role of the external auditors.  He also touched upon the relevant portions of the balance sheet of Satyam computers.

Shri GVR spoke about the various entities involved in the fraud such as the management, independent directors, auditors, regulator, banks et al.  He also opined that there is an attempt to cover up the entire fraud by having multiple agencies involved in the investigation without any coordinating agency and likened it to a big jigsaw puzzle where the pieces are shared by many kids each unwilling to share their pieces with the others.

I opened with a huge disclaimer that in the absence of facts, all I had was theories and speculations. I had raised some questions about the veracity of Raju’s ‘confessional letter’ and cast my doubts about it being a single handed job.  I had briefly traced the fraud to the transaction level and wondered how it would be impossible to carry it out without the actual support of several people at different levels.  While I expressed my concern at the plight of the employees, I also expressed some doubts about the number of employees as it is being made out and felt that it would be much lower.

Shri BSR started his speech by sharing parts of his earlier speeches and  articles as early as 2002 and 2004 where he had envisaged corporate frauds with the active connivance of the various bodies.  He was especially critical of the Satyam Auditors Price Waterhouse Coopers (PWC) who had paid fines of $800 Million to the SEC for falsifying records amongst other misdeeds.  He also felt that Satyam had delivered quality work to its clients and hence cannot be allowed to fall.

Members of the audience then shared their views. Mr.Uppili, an equity research analyst, wondered about the fate of the Satyam employees.  Mr.Ramesh suggested that the culprits be severely punished as in the older times.

In the second round, Shri BSR and myself responded to some of the queries and comments from the audience and the session came to an end.

A disclaimer:  I did not make any notes of the speeches made by the other panel members and have relied upon my recollection of the same.

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Raju could have let the world find out the fraud in due course, if it did at all!  But he chose to blow the whistle with a difference.  He implicated none in his ‘confession’ and on the contrary, took all the rap and exonerated everyone else.

The question is ‘Why’?

Why this sudden pang of conscience with a truckload of generosity? Was he pressured into writing that note?  If yes, who was behind it?  And if he did it on his own volition, what caused the change of heart?

Or was this letter itself designed to send the entire world on a different direction?

Am waiting with bated breath to know the answers for these questions!

Good night!

I’m shocked to read that instead of Raju ‘being produced before SEBI’, he will be meeting the SEBI officials tomorrow and that too at the Satyam office.  This means that he is still at large and likely to be so for quite some more time.  Possibly, the SEBI officials might even be requesting him for some information and also seeking his help and cooperation to further their enquiry.

What are the law enforcement agencies waiting for?  I would have guessed that the politicians would like to appear on the side of the public opinion (although they care a hoot for the public, leave alone their opinion) and make a drama of an arrest but this is unbelievable.

More than Raju’s action of defrauding the system, this display of apathy by the government would send much stronger wrong signals to the global business community.

Although he has made a confession, he is still an accused and not a proved convict in the eyes of law but this hesitation on the part of the AP police or the central teams to even arrest him is definitely not acceptable.  He might have appeared to have confessed but that does not make him a saint.

We are again proclaiming to the world that there exist 2 distinct sets of treatment or response to crime.  If the accused is financially or politically weak or incorrect, we would parade him before the media  and share every detail of the investigation with the media at every available opportunity but if the person has strong connections and wealthy, then we would not even touch him.

Jai Hind!

Day not far when Rahul becomes PM: says Pranab Mukherjee, the person who reportedly felt he deserved to be the PM immediately after the assassination of Indira Gandhi.  Hence he was sidelined by Rajiv and his coterie for quite some time and spent his time in wilderness.  And being a politically savvy person (except on that one occasion in 1984) he would not have made that remark without realizing the implications.  What a great fall for a person who was once India’s finance minister!!

This remark of his has also revealed the thinking within Congress that Sonia can / will not be the PM.  Given her age and ‘experience’, it is too early to write her off but if the Congress is now pitching Rahul, they have given hopes of Sonia becoming the PM.

If someone reading this blog thought that I am equating Pranab with Congress, then be informed that his is not the lone voice.  Digivijay Singh, Arjun Singh, Veerapa Moily and Prithviraj singh have been saying it different fora.  Our PM had already endorsed that Rahul is the future of our Nation during the UP polls itself!

Back to Monarchy!  Let’s welcome the new King!!

An ID (too looong to type every time), as perhaps defined by our legal system, is someone who is neither an employee nor a promoter.  I do not know of any special criteria that would qualify one as an ID.  That’s not really important now!

The real question is “Do Promoters and Management of companies really consider their Boards as leading the organization or are their Boards mere formality?”  A corollary would be  “Would a company’s management respond professionally to the views expressed by an ID, even if they are not favourable?”

My considered guess is that most organizations treat their Board Members and more so their IDs as necessary evil, as a statutory requirement, whom they would inform on a need to know basis and would not suffer much questions, leave alone a scrutiny.

With this attitude, corporate governance is more a myth than reality!

I was amused to read Raju’s letter where he has categorically stated that none of the board members (past and present) or the members of the senior management were even aware of the dish leave  alone the recipe (cooking has been repeated ad nauseam).  This perhaps is an indication of the pressure that was brought on Raju to write that letter.

Let me explain why I find it so amusing!

Anyone with the basic exposure to business will agree that transactions generate revenue.  For example, if there is a sale, there would be in most occassions an order and surely an invoice followed by a receipt when one gets the money.  if it was deposited in the bank either as cash or cheque, there would be a pay-in slip and if electronically transferred, there would atleast be an advice.

Let’s look at the inflated sales and profits and more importantly Receipts.  Clearly, an organization of the size and complexity of Satyam would not run a manual accounting and order processing system.  Possibly it is one of the ERP software products.  In such cases, it would simply be impossible to just casually insert a few crores of rupees into orders, sales and receipts.  One would need to create a mountain of trail (paper or electronic) to get that value into a system.  Even assuming that Satyam did a Rs.250 crore inflation every quarter, they have done it successfully for 20 quarters and that is no mean feat!  Even a blind man would be alerted to the level of additional activity that would be required.  And most importantly, Raju and his brother alone could not have created this entire paperwork on their own.  It would clearly require an army of accountants, possibly innocent but nevertheless a mecessity.  And the Rajus cannot pass on these instructions directly to the operating people who are entering the transactions and hence the CFO and other C level people would be involved, directly or otherwise.  No one would, in his right mind, sign documents of this value without some validation and if some one did, they do not deserve to be in that seat at all.  Either it is complicity or sheer inefficiency.

And as for the Board Members, the less said the better.  If they too were blind to the soaring profits and unutilised cash, not just once but over 5 years, they were perhaps just decorative pieces and nothing more.  Obviously, this does not absolve them of the criminal liability.

And what can we say about the Auditors?  Without their cooperation or blessing, this could not have happened.

So if Raju believes that others can be left off the hook just by that paragraph he is either naive or doesn’t care.  I’m inclined to the latter.

Let’s wait for more such philanthropic words!!

While it is easy and convenient to crucify Raju and Satyam at this juncture, it is imperative to look at the real losers and winners.

First the winners:

1. The Media: For more than a month after the Mumbai attacks, the media in general and the business press (both print and electronic) in particular, was getting restless for want of sensationalism. Thanks to Raju, there is something to talk about or to show all 24 hours, leave alone that most of it is conjecture and the rest is drivel. Wow! What content!! Given that there are lot of villains like Raju himself, Satyam company, Board of Directors, Auditors etc, it is like a dream run for the press.

2. “Experts“: Everyone from SEBI to ROC, from NASSCOM to ICAI are being interviewed. Doesn’t matter if they are current or ex, they have suddenly discovered corporate governance, auditing standards, India Inc as a platform to pontificate and they are doing a great job.

3. Competing IT companies: This is a great way to begin a new year what with good employees, prized client accounts are available for the taking! Great story to tarnish the reputation (whatever is left) of Satyam at deals being negotiated or renegotiated! Tech Mahindra is already talking about the telecom business of Satyam!!

4. The law makers at SEBI, ROC et al: Using this as an opportunity, these institutions will start demanding greater disclosures (whatever they did with the existing ones, nobody knows), more forms to fill and file (with the adjunct fees as well)

5. The ruling party and the opposition: With this great story in front, who is going to be bothered about inflation, fitting response to terrorism et al? All the ministers will now issue statements to show their concern for the stake holders and hope that the other real issues will fade away. The opposition will try and blow it up to cover its own flanks and try to derive political mileage.

6. Investors: This might be really shocking when i say that Investor community will a winner out of this fraud. True, they have been shocked out of their sleep but if they continue to stay awake, they would make better investment decisions than just follow the herd. they would also become more sensible in having a portfolio that is quite diverse. They would perhaps take all the ‘guidance’ with a pinch of salt and actually start investing rather than speculate.

7. Stakeholders of Satyam itself: This is ridiculous! They have just lost their shirts. how can you call them winners? All along when the satyam share price was rising on the back of the cooked-up figures, these very same people made merry and had a party. All those who were operating in the Satyam counter, went on a long ride for quite some time and only yesterday had a free fall. They gained more than they lost! Not easy to digest??

That’s quite a handful, isn’t it? Now let’s take a look at the real losers!!

1. The staff at Satyam: The worst nightmare is not knowing whether there is going to be a job at all! For those employees who have been asked to leave, they may have to deal with the circumstances of losing their jobs but atleast they know that they don’t have one. But those who are facing the uncertainty of their job would oscillate between hope and despair and hence most hit.

2. The existing Customers: They would be in a dilemma that Hamlet faced “To Switch or Not to Switch, that’s the question!”. The stigma that enveloped the accounting would soon spread to the technical aspects and the various commitments made by the employees on behalf of the company. One can’t be sure if the same guy will be around the next time. At the same time, it is not easy to switch vendors in the interest of continuity.

3. The Independent Director community: Those who have been Directors only in name will start wondering if it was all a mistake, especially if they have a reputation to stake. They will stay awake at nights worrying if the managements of the companies where they are serving as Directors, are keeping dirty secrets away from them and when these skeletons would surface. Actually, this would be a blessing in disguise because Independent Directors would perhaps for the first time act really independently!!

4. The Auditor Community: It is quite unlikely that the Auditors were fooled for so long but even if they were, it is a serious act of omission which would call for criminal liability under the existing provisions. Now Auditors will be a tainted lot for some time but like the directors, it is a great opportunity for them to put their act in place and start really auditing than just sign on the dotted lines!!

More to follow!