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| Wake up call for India Inc |
| Shobhana Subramanian & Varun Sharma / Mumbai Jan 08, 2009, 00:55 IST |
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Companies will need to pay far greater attention to corporate governance from now on.
India Inc’s reputation hit a new low the day Ramalinga Raju attempted to bail out companies run by his sons with cash from Satyam Computers. Now that reputation is almost in shreds and it will take more than the combined efforts of industry leaders to convince the world that this is an isolated instance. As one senior industrialist said, India will now be on the back foot and almost defensive about its achievements.
 Of course, one can’t paint every management with the same brush; the larger business houses should emerge relatively unscathed from this event but many mid-sized companies, which haven’t quite got there, will now have to answer many more questions. It’s not that frauds do not happen in other countries; for sure they do. But the fraud at Satyam is so large and audacious that foreign investors will take their time figuring out whether the rewards of investing in Indian stocks are worth the risks.
They will be but only if the corporate sector gets its act together and does it quickly. First, senior business leaders need to work together to put Satyam back on the rails –that will show the world that we are capable of responding efficiently to a corporate crisis.
Next, corporate India needs to prove to investors that it takes corporate governance seriously—currently few companies pay any regard to corporate governance, but shareholders don’t seem to mind. And since the accounts will be scrutinised more closely than ever, every company will need to be more transparent about its operations and financials. Indian firms have got away for too long by making too few disclosures---many of them do not even tell shareholders the basics about their wholly-owned subsidiaries.
To some extent, it has been the fault of shareholders, who have let promoters off the hook, once too often. One reason for that has been the paucity of companies which are considered to have top quality managements, of which there aren’t more than a handful. However, unless shareholders stay away from those managements that run their companies like their personal fiefdoms, promoters will continue to behave the way they have.
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