Posted by: John Elliott | January 19, 2009

Satyam will not trigger changes in Indian companies’ DNA and culture

Two of India’s leading high tech entrepreneurs have both made the same point about good corporate governance in the past few days – it is either in a company’s culture and DNA, or it is not. The inference of their remarks is that it was not in Satyam Computer Services, the leading Indian software company whose founder and chairman, B. Ramalinga Raju resigned on January 7 and admitted to years of fraud.

One of the entrepreneurs was Narayana Murthy, chairman and a founder of Infosys, probably India’s most admired software company, who I have just spoken to for an article on Fortune.com about the longer term significance of the Satyam crisis. He says that corporate governance “is a mind set, not a check list – it’s about culture, aspirations, transparency, and striving for respectability”.

The other was Kiran Mazumdar-Shaw, founder chairman of Biocon, India’s best known biotech company. In an article in the Times of India on January 15, she wrote that it was important to check a company’s DNA rather than just relying on official regulations:

“Investors and observers need to be able to assess the DNA of the company to establish the real state of governance and resultant assurance that evolves from this……..I believe the answer lies in decoding the good and bad genes that make up the DNA of any company.

“Once this understanding is obtained, the defence against these potential temptations lies in the DNA of the company. This includes the underlying governance principles, the integrity of the board and the senior team, and the values of the organisation which are embedded in the decisions taken. 

“Many boards today are cosmetic boards with directors that add little value and are irrelevant to the specific field of the company. The Satyam board certainly had familiar well-known names that were seen to lend credibility, but failed to navigate Satyam into clear waters”.

Narayana Murthy believes businesses have generally been “evolving towards better governance and transparency and a realization that good governance is in your own interest”. Satyam’s scam however illustrates that the evolution is slow and India’s culture is a long way off what Murthy calls “corporate democracy, pluralism and transparency”.

Raju gathered in his board room impressive names who included a former top bureaucrat (a cabinet secretary), a management school dean, and a US-based IT specialist, and also floated the company in New York which is regarded in India as another badge of respectability.

He ticked the items on the good governance check list and even won awards for what he was doing, but clearly did not have the culture.

And with all respect to the bureaucrat involved, no company in any country hires such a person in order to care for the interests of the shareholders or good governance – he is hired for his government contacts and potential as an influence peddler.

Murthy says that companies in India have come to realise in the past ten years “that if you fiddle your accounts you can get away with 100 crore rupees ( approx $20m), but if you make your company stronger and have good governance you may get 1000 crore rupees – good governance is in your own interests”.

He is proud of the way that Infosys shares information. “When we review progress there are 20 people in the room, then we consolidate the information we gather so no one person can decide what the revenue for the last quarter has been”.

What we still don’t know of course is how many people there were “in the room” when Satyam did its figures. Just the Raju family? Plus one or two top executives, and/or the non-executive board members, and/or the business heads? How many people are culpable?

The question now is whether the Satyam scam is enough of a watershed to propel India into the sort of reforms that are needed – most importantly transforming the ethics of (mostly) regional politicians who invested in Satyam, protected it, and helped it and the Rajus’ Maytas infrastructure and construction companies to obtain business.
 
I suspect not because there is no moral outrage in India about what has happened, and because the existing partnerships between corrupt politicians, bureaucrats and businessmen is too good a gravy train to stop.

Sadly, I believe life will go on as it has in the past, with some companies following genuine good governance but many family controlled companies continuing with Satyam’s DNA and culture.

See also on this blog:
https://ridingtheelephant.wordpress.com/2009/01/12/satyam-rebuilding-begins-but-indian-corporate-fraud-runs-deep/
and
https://ridingtheelephant.wordpress.com/2009/01/07/satyam%e2%80%99s-raju-lifts-the-lid-on-indian-corporate-fraud/
and
https://ridingtheelephant.wordpress.com/2008/12/17/markets-kick-satyam-into-line-%e2%80%93-but-india%e2%80%99s-reputation-for-corporate-governance-is-hit/
and
https://ridingtheelephant.wordpress.com/2008/09/22/%e2%80%9cfamily-silver%e2%80%9d-at-risk-on-hyderabad-metro-project/


Responses

  1. […] Satyam will not trigger changes in Indian companies’ DNA and culture « Riding the Elepha… on January 28, 2009 at 4:14 […]

  2. lying/deceit/obfuscation/greed/cheating/lack of transparency/reliance on obviously flawed data/etc/whatever you wish to call it–all lead to defective inter-personal communications/relationships/activities. it would be constructive if the leadership(both public and private sector) of at least the usa and india could come to this realization and collaborately commit to effective reforms that would actually place the interests of the citizenry, from which the actual power of republican/parliamentarian democracies derives, foremost in each and every decision they make. such dreams are the essence of our hopes!

  3. if you were to ask me on corporate governance and comments of the so called holy cows, forget it. you dig deep, every one is the same. I would like to ask how much money has been made by each one of them on stock market manipulations and by way of dividends.

    why are they continuing to ask for land allocations and dispensations from respective state governments despite raking in Moolah both in stock markets and dividend pay outs. raju got caught they have not been, being smarter. just check on the relationship betweem shobha developers and infosys. they are all the same, few get away with it raju gets caught. regards, syngal

  4. I think India needs to work out how it plans to respond to crisis or scandal in general rather than confining the discussion to say corporate governance and fraud.

    It is clear that the government consistently, in every event that is even slightly unusual is unable to respond quickly, because it is tripping over itself.

    If we look at the government response to the Mumbai terror attacks or how long it took to arrest Mr. Raju, the scale of incompetence is grotesque. At its worst it has resulted in needless loss of life.

    Sometimes governments need events to occur simply to be able to conceive them. 9/11 is perhaps the best example of that. But not defining which agencies should be primarily responsible when there is a domestic terrorist attack or corporate fraud resulting in paralysis by analysis is just not acceptable.

    These kind of things have been occurring in India at lower levels for decades, yet no successive government despite the much vaunted brains behind the administrative service has defined a contingency in case a larger event occurs.

    It was beyond farcical that so many government agencies decided to get involved in the Satyam fraud, yet it took almost a week before an arrest was made, despite clear evidence and admission that laws had been broken.

    How long should ordinary Indians put up with that kind of incompetence. Its disgusting. The Civil Service works to protect its fiefdoms whilst the politicians of this country work to preserve their power.

    At what point do we as educated Indians get to say enough is enough? The way I see it never.

    The notion that good governance should be in the DNA of a company is an apt one, not because it makes the point of Mr Murthy or Mrs Shaw, but rather because it contrasts with the point they are making. DNA at its essence is a chain of instructions, if one part of that chain malfunctions or is incorrect then you get something that was not intended or even an abomination.

    Companies rely on chains, sometimes leaders and leadership provide enough inspiration or admiration to ensure that the DNA chain remains as intended, but that is not always going to be enough to counter human nature. The suggestion that it may be, a little naive in my opinion.

    That is certainly not the how the world works, not as I know it anyway.


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