Satyam: a case of corporate corruption and fraud. But will we learn?

As if to validate my previous posts on how we've established an all-pervasive system of creating assholes as managers and leaders (to quote from the post "…this has totally dehumanised the managerial role, encouraged corporate corruption, and absolved managers of all moral and social responsibility. Assholes care about only one thing – profit!") , came the announcement from Mr. Ramalingam Raju, Chairman of Satyam, India's No. 4 IT Outsourcing company, that rocked India's corporate world. Mr. Raju admitted to a $1.6 bn fraud and resigned from the company. The company's stock tanked 80%. I'm not going to get into the details of exactly what happened, when – the various news stories do a better job of it.  I want to delve into whether pedigree matters, whether structure and systems really matter, whether washing hands off (read resigning) absolves people of their role in the mess and if we will ever learn.

Satyam's board was of high pedigree. It included Vinod Dham, a scientist known as the father of Intel Pentium chip, Krishna Palepu, who teaches at Harvard Business School, Rammohan Rao, Dean of Indian School of Business (my alma mater) andprofessor emeritus, Indian Institute of Management and TR Prasad, a former Cabinet Secretary in the Indian Government. The board actually approved Satyam's phony $1.6 bn deal to acquire two companies owned by the Chairman's family, to plug the fictitious assets created in the balance sheets. Dean Rao infact chaired that meeting. The world gave a thumbs down to the deal and the company's ADRs plunged by over 50%. Questions started being raised about the role of the board in acting against shareholder interest and against corporate governance standards. Were the board members just twiddling their thumbs when all the misappropriations were happening, or were they plain simple blind?

Pricewaterhouse Coopers happens to be Satyam's auditor. What were they doing?

To top it all, The World Council for Corporate Governance, with Ola Ullsten, the former prime minister of Sweden as its lead judge, recently ranked Satyam as among the best run companies in the world. Were they blind as well?

We thought the structure and system of having independent directors on boards, independent auditors, separate governance committees, would prevent any such corporate fraud. Apparently it's not enough. Sure the Securities and Exchange Board of India (SEBI) and government's Corporate Affairs department will launch a full fledged investigation into it, and may probably come up some more rules, regulations, disclosure requirements et al, but will that be enough? The fault lies in the ecosystem itself that creates managers with little moral and social responsibility - that's where we need to focus on. Unless we remove that evil from the core, it will keep manifesting itself in some Enron some Lehman some Satyam. 

Finally, most of the elite board members resigned in the wake of the scandal earlier. Is a resignation all that it takes to complete wash your hands of your role in creating that mess? Does a resignation let them off the hook? Only if we let them…