On substance — yes, they have failed themselves, the stakeholders and India Inc at large. All the directors are culpable for having ignored the commonly accepted basis of good governance — accountability, transparency and integrity. In the process the directors have destroyed the hard-earned reputation of the firm, their own glitter and not furthered India’s reputation in global markets.

Moral of the episode, if one has to be drawn: It is not enough to have highly capable and qualified intellectuals on the board. Directors must accept the primacy of the need to perform. Every recent major failure has reinforced this simple theme.

A closer examination of the concepts actually reduces the whole issue of governance to one factor — accountability.

Can there be accountability — accepting the need to be ethical and fair to people who have trusted you when they are not looking over your shoulder — without transparency, the core of which is open, well-informed debate?

Can there be transparency without integrity — integrity in the quality of information, principles and decision-making?

The basic issue, it appears, is that Satyam appears to have thought itself accountable only to one individual who owns 8 per cent of the firm!

Companies are incorporated to perform within the norms defined by society; boards are constituted, by the company, to steward such performance while ensuring the firm complies with the legal, statutory and regulatory regimes in force. Unfortunately, the world over, form, defined as mere compliance, has overwhelmed the governance debate.

The substance, delivering sustained and ethical returns to stakeholders, is accepted intellectually but is seldom the focus for boardroom debate.

Performance demands that directors be held accountable to the stakeholders — equity investors, providers of debt, customers, suppliers and society. In a less onerous regime the accountability is restricted to the shareholders.

Satyam’s directors have ignored this fundamental tenet of good governance. By debating off line they have added no special lustre or unique dimension. While the compliance was as per law, the performance indicated a clear lack of accountability, even in the most lax regimes.

Was the consequence of this in-the-face attitude not realised by the august board members? Does one need to debate the grossly selfish nature of the request, let alone the decision? Could the board members not have consulted SEBI or the governance thought leaders in their respective countries?

Promoters, erroneously, believe that since they enriched the community of shareholders they have a right to turn things in their favour.

Making such a huge move, the directors ignored the major shareholders. The rebellion came from the constituency they chose to ignore — fund managers, major investors and customers. Why would a well-endowed set of intellectuals and high achievers take such a cavalier attitude to the real owners of the business? Could the directors not have consulted the main investors who, within 24 hours, drove them into a corner?

Was an EGM not in order when the firm is handing out billions of dollars? Keep in mind the same group approves investments on a few hundred million rupees worth of capex with due diligence and process.

The quality of the decision was poor; the quality of the debate seems to have been even poorer. Every known major scandal — Enron, Worldcom, the Wall Street crash — was driven by the greed of a select few, the few who enriched themselves at the cost of their trusting stakeholders.

The eminent directors could not have been ignorant of these instances, considering the number of times they have been played over and considering that all of them ought to have been familiar with the Sarbanes Oxley Act and specifically the provisions of SOX 404 and 409, not to mention Clause 49.

In summary, the failure was collective and absolute and arose from a poor understanding of a board’s need to deliver performance. India Inc has a huge learning, through the hasty decision of a father to help his sons. There is need for quality directors who can collectively deliver performance while ensuring the firm complies with the law.

Directors need to accept the basic tenet of accountability and agree upon the constituency they are accountable to.

There is a need for significant improvement in board processes and directors will have to accept the need for a structured and objective discussion as the basis for decision-making. Not just emotions.

The rigour of process in the boardroom should match that of process quality in the value-adding area. Good governance should be seen as a pre-requisite, not an afterthought. Only then, perhaps, can India Inc return to its 10 per cent growth ambitions.

More Stories on : Corporate Governance | Insight | Software | Satyam Computer Services Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page