By Praful Bidwai
The dominant culture of our corporate nabobs has contempt for democracy and regards profiteering as its right – to be respected by the state.
THEY were supposed to be the brightest and the best – products of the finest that India has to show by way of technical prowess, and shining examples of what industry, perseverance and innovation can achieve in a globally important sunrise industry. Our information technology professionals put India into the cutting-edge sector of the world economy; they even helped make the earth flat, in the super-adulatory but illusory description of the Roaring Nineties.
IT rookies were considered “rainmakers”, who would produce miracles through unstoppable 20 to 30 per cent growth year after year. Why, some business analysts even thought computer software would become a new paradigm, where “development” could be achieved while bypassing the traditional route of industrialisation and broad-based services.
This magic wand would allow India to raise standards of living across the board without addressing the people’s elementary needs, including health care, education and nutrition, leave alone redistribution of assets. This might be the Great Shortcut our rulers have always craved.
Going by the mystique around them, our IT professionals personified the virtues of honesty, commitment, self-confidence, an adventurous spirit and loyalty to their companies, clients and shareholders. They could do no wrong. They were the best grooms on the marriage market. They were everybody’s favourites. They deserved all the pampering the industry got – tax exemptions, land at concessional rates, and low-cost connectivity.
The Satyam scandal has shattered the dream. We have a scam, where the amount stolen – going by promoter-chairman B. Ramalinga Raju – is two and a half times higher in absolute terms than that was lost in the Enron scandal. Involved here is every trick in the scamster’s book: forging bank certificates, inflating expenses, spiriting away assets, and browbeating senior executives.
It defies credulity to believe that over seven years Ramalinga Raju did not take large sums out of Satyam to buy real estate and other assets, influence business contracts, and bribe politicians and bureaucrats in return for favours. According to officials in the Ministry of Corporate Affairs, his family floated more than 100 companies, 23 of them branded with the “Maytas” name alone.
Underlying the Satyam swindle is the failure of all supervisory bodies, including PriceWaterhouseCoopers (PwC), the statutory auditor, independent directors, and Securities and Exchange Board of India (SEBI). Irregularities were reported in PwC’s handling of Satyam accounts in 2001, but there was no investigation. Similarly, complaints filed with SEBI were not pursued. PwC, which has audited Satyam’s accounts since 1991, should have faced punitive action from the Institute of Chartered Accountants of India (ICAI). The ICAI’s disciplinary council met, but failed to act.
Satyam’s independent directors acted largely as rubberstamps. When the board met in mid-December to approve the scandalous proposal to invest $1.6 billion in Maytas, it ignored the elephant in the living room: the conflict of interest in buying a company floated by the promoters’ family in an unrelated business.
Even worse was SEBI’s approval for Satyam’s foul transactions, including the Maytas deal. Other authorities also ignored complaints about illegal land allocations to Satyam group companies in different cities, in violation of their master plans.
A major reason for these gross failures of supervision and regulation is the naive belief that in order to create a favourable investment climate, state agencies must sincerely trust entrepreneurs, and it must be generally assumed that corporations tell the truth – unless proved otherwise. This makes nonsense of all considerations of prudence and precaution, including rigorous verification of accounts and tough investigation into grey areas. It also ignores the specific context in which the IT industry has recently evolved. This is marked by fierce competition in the low-value-added, largely repetitive software development business. Not every IT company is an Infosys, which reportedly looks for challenging assignments in high-end businesses. Although it was the IT industry’s Number Four, Satyam had 690 clients, most of them small. The average firm is smaller and faces bigger challenges.
Under tight conditions, there is an increased temptation to look for shortcuts such as artificially boosting company ratings by employing more people than necessary, paying bribes to win contracts, and moneymaking through funds diversion and speculative investments.
What is true of Satyam may be true of many other IT companies. The World Bank has blacklisted two well-known firms, besides Satyam, for making “improper payments” (read, open bribes or favours like stock options). This, plausibly, could be the tip of the iceberg. Official agencies have failed to discover irregularities or subject IT corporate activities to scrutiny on the assumption that they are, must be, all in order; it would be counterproductive to rock the boat. This has promoted lack of accountability and impunity, and encouraged IT entrepreneurs to assume that they are immune from critical scrutiny. Coupled with the celebration of the Greed Creed in our media and social discourse, and the neoliberal doctrine that there must be no limits on incomes, profits and wealth, this culture of impunity makes for a deadly cocktail.
Following the older Friedman (Milton), many of our businessmen have convinced themselves that their only corporate social responsibility is to make profits. And following the younger or lesser Friedman (Thomas), they tell themselves that the world is flat: it is only natural that their consumption should match that of the elites in the industrial North. So they must make money by any means.