The Hindu Business Line : ‘Corporate governance is about principles, mindset’

Bangalore, Jan. 7 The Chairman and Chief Mentor of Infosys Technologies Ltd, Mr N.R.Narayana Murthy, who has led key corporate governance initiatives in the country, feels that individual principles and mindset go much beyond the role- based processes to maintain good governance in an organisation. Business Line spoke to Mr Murthy to get his views on the Satyam episode. Excerpts:

What’s your view on the Satyam episode? What are the implications for the Indian IT industry?

It is shocking. It is disgusting. It is sad and it should have not happened. I hope the authorities in India and the US and the investigating agencies will take a quick, appropriate action, get to the bottom of it and punish the guilty, so that the foreign institutional investors and the Indian investors realise that this is an isolated instance and that the guilty will be punished. Secondly, all of us will have to walk an extra mile and demonstrate honesty, decency transparency and accountability a little bit more. I am sure that people will understand that one Satyam does not make the Indian industry.

You had championed the cause for Clause 49? How do you explain this kind of a situation?

This is a very strange thing because here the auditors have in some ways not realised what’s happening for such as long time. (These are from the statement of Mr Ramalinga Raju himself and I am not saying something new). Even the fictitious interest revenue is shown – I mean - what do you do? I think the auditors must certainly become accountable and some investigation must take place and they should pay the price.

Why is it that the auditors are shown in bad light every time going by the developments at Enron, Worldcom?

The auditors have to be independent. That’s why they are called independent auditors. They should not be under the thumb of the management. Obviously, this is a case where they were under the thumbof the management. Whether it is the Enron or Worldcom, the same thing happened. The auditors were under the control of the management. That is the fundamental principle. The auditors - PwC in this case - have to improve their processes, make sure that this kindof things don’t happen because it damages their reputation very seriously.

Is there a need to strengthen the regulatory mechanism in view of this incident?

In the end, a role-based system will go only so far. You need principles. You need culture. That’s why I say corporate governance is not just filling up check list. It is about culture. It is about mindset. It is about who you are. It is about the honesty and the willingness of the management and the shareholders at large.

Unless people realise that there is actually betterment for us in following good governance in the long run, what can you do? They have shown even fictitious interest for fictitious money. What will people do?

In the end, it is all about culture. It is all about your values. It is all about your aspirations and what you go after in life. Do you want short-term money or respectability? If you want respectability, then you will automatically do all the right things. I am sure Satyam must be under the Sarbanes Oxley Act also and even Clause 49 mandates that the CEO and the CFO sign. Although they may have resigned, I suppose they will be held accountable now.

Is there a need for tightening accounting standards? Is there a case for moving from accrual basis to realised basis?

The whole business is done on accrual basis. You can’t do cash accounting. I think it is about first the management realising that honesty is the best policy. Second, it is about creating an environment where there could be whistle blowers. It is about creating an environment where anybody will stand up and say ‘No, what we are doing is wrong and they can’t agree with it.’ Fourth, it is about creating an environment where respect matters more than just money or power. Also, you may want to bring in some changes in accounting roles etc; but it is not so much the accounting roles.

Do you think the credibility of India as an outsourcing destination will get impacted?

I don’t think there will be any impact on India as an outsourcing destination because one Satyam does not make the Indian software industry. There are wonderful companies - you have Tatas, Wipro and Infosys and there are many others. Customers realise this. After all they have seen in the US that one Enron or one WorldCom does not make the US industry. Even our customers will realise this and things will move on.

Any lessons that you see for the industry from this episode.

The lessons are that what we had always been saying at Infosys. Focus on gratification is a good thing. Focus on respectability is very important. Good governance in the long term will make people happier or peaceful and will bring tremendous rewards. Middle class values are the best values.