Corporate Governance, my left foot!

Since everybody was now talking of Corporate Governance, I decided to see what it actually means. Well Wikipedia defines corporate governance as follows:

Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate Governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management and the board of directors. Other stakeholders include customers, creditors (e.g., banks, bond holders), employees, suppliers, regulators, and the community at large.

Corporate governance is a multi-faceted subject.

What happened in Satyam is not really a stray or lone incident. All those people who are screaming at Satyam would have been guilty of some form of violation of Corporate Governance. If corporate governance is to do with money, can you answer the following?

1. A newsmagazine does a survey and says Mr. K is the most respectable CEO in a particular industry. Immediately a competitor company goes on a huge marketing and media campaign and gets another magazine do a similar survey and get Mr. N another award. Cost Rs. 4 crores. Account debited ‘Marketing and Communication’.

2. The CEO of a NBFC finds all his classmates are running big empires in banks, so he goes about acquiring a financial distribution company, a mutual fund, a life insurance and a general insurance company, a commodity exchange, etc. and increases the number of people reporting to him/ her. Total cost Rs. 1000 crores.

3. One big group with extremely diversified business interests decides to invest in Retail, aviation, telecom, and financial services. Its main businesses are oil, metals, cement, etc. Suddenly the commodities business itself needs all the money – because of the slowdown in their markets. So this group decides to ‘borrow’ money in the commodity companies AND use it to fund the new generation business. Total cost Rs. 3000 crores.

4. One brother in a family decides to separate. The ‘family’ business is valued and this brother is ‘given’ a company to run. He has no qualification nor the track record worth talking about. Damage to the shareholders – unknown.

5. One group company is in BIFR. The other has a public issue, a GDR issue and an ADR issue.

We have all seen these events happen. I think many intelligent readers can even identify some of these situations – yet we have not done anything about it, because it is none of our business! You will also see many such events happening as some industries (aviation, financial services (retail) , insurance, telecom and other infrastructure companies) are gasping for money and their group companies will ’support’ them, soon!

In life, as in corporate India more damage is done by egoism than by alcoholism. Alcoholism gets recognised, and treated. Egoism is not recognised, shareholders pay through losses!

These are events which happen regularly in corporate India. Come, on we are used to it. Why are we cribbing about what happens in Satyam. Satyam is not an exception, at all. Satyam is the rule. Only thing is when the music stopped, Raju was left holding the parcel. He now needs to be punished.

Is it just a coincidence the last heard of accounting fraud also happened in Hyderabad and was signed by the same audit firm? If yes, that is fantastic. A simple practice of getting the bank confirmations to the auditor’s office (am I being old fashioned, I did my CA in the ‘80s?). A simple ledger scrutiny of the bank account, the TDS account and the interest account should have spilled the beans.

The amazing role played by ‘professional and independent directors’ seems like a joke. It is clearly a MTM club – one member gets another so that no body is allowed to disturb the nice happenings. One promoter told me about an independent director “He opens his mouth only to eat the sandwiches” – this sums up their role.

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4 Responses to “Corporate Governance, my left foot!”

  1. This is true. Almost all companies have serious corp governance issues. Not many promoters can make a distinction between company money and their own money. Also what about profiteering by companies? What about Pepsi buying potatoes at Rs. 3 a kg and selling at Rs. 500 in the form of Lays Chips? Or ITC spreading cancer and then talking about CSR work done in villages? Or executives in fund management taking 3 year views on investments because they will leave? Really difficult call.

  2. I Liked this post – I can almost identify with each of the examples. In fact the first example is clear, I know the person you have mentioned. Have worked for him and the amount of money that company spends on irrelevant market research is not funny! And MR is something that they get done by people who matter. Also you should have mentioned companies who do “Corporate” image advertising – lately it is L&T – and only on CNBC. What a way to talk up your share!!

  3. I could identify only three 🙁
    Pls give the names, any hints ?!!

  4. I agree with most of what you say – but what are your views on Mutual funds ethics? Indiainfoline with questionable practices is held by all mutual funds ……

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