Company to keep

The shocking revelations about large-scale fraud in Satyam,and the consequent free fall of its share price,mark a new,worrying,low. The Indian economy has not been isolated from the global economic crisis; but this is a development that cannot be blamed on a worldwide slowdown or on Wall Street’s greed. This is home-grown disaster. The timing could not have been worse. The stock market is fragile,as is investor confidence. Domestic investors have been reluctant to move out of the safest of investments; and foreign investors traditionally move out of emerging markets in times of crisis anyway. This will only exacerbate that problem,just when the Indian economy needs momentum to grow in the opposite direction. In addition,we are less than a fortnight away from the inauguration of the least globalisation-friendly American president in decades. On the cusp of a possible attitudinal shift in US policy towards offshoring,the collapse of one of the biggest Indian names in outsourcing amid allegations and admissions of ethical breaches is simply catastrophic.

That does not mean that we should overstate the nature of the crime. This scandal,while shocking,is something that has previously occurred elsewhere: there have been many,such as Enron,in economies both more advanced and more regulated. Reflexive,lazy “only in India” labelling should be rejected — condemned,even. This will require concerted effort on the part of government and industry,both: India’s strength in recent years has been its ability to produce great companies; and allowing that reputation to fall by the wayside is not in anyone’s interest.

What should thus be done? This should be viewed as a teaching moment. The perils of shareholders being passive,of unquestioning respect for “promoters” are laid bare; the time has come to ensure that corporate governance — the protection of minority shareholders,the empowerment of the common investor,the simple encouragement of the asking of questions,be placed at the centre of the agenda. Investigation of who was at fault,and when; who did not ask questions,and why not; and the assignation of blame swiftly,visibly,and correctly should be assigned the highest of priorities. Sebi has shown that regulation in India can be efficient; the time has come to look at whether auditors need a regulatory structure that can help support the market’s need for accurate information. And,in all this,let us not forget that the reprehensible behaviour of those responsible should not reflect on the basic worthiness of the company’s workforce. Satyam minus its current top echelons is a viable concern.

It can and should run under new management.