The recent corporate fraud by the largest Indian info tech outsourcer, Satyam Computer Services, has again raised doubts about the possibility of achieving ethical standards in corporate governance.
Satyam was ranked as one of the best-run companies in the world. Now, Satyam’s chairman, Ramalinga Raju, and its many cofounders have been detained and they are all under investigation by the various agencies of the Indian government for their multi-billion-dollar scam. They were involved in massive accounting frauds by inflating profits and returns of the company to keep on raising the stock market valuations. Although India’s ruling elites are desperately trying to avert Satyam’s outright collapse, they are reluctant to trace the role of neoliberal reforms, which created a congenial atmosphere for this massive corporate swindle.
It was the biggest corporate scam in India’s history, often described as India’s Enron, although the money involved was much greater than that of Enron, around $1.5 billion. Since September 2008, Satyam’s balance sheet was overstated by some $1.03 billion. When the balances actually stood at $50 million, the official figure was stated as $1.08 billion. To manage the gap between its imaginary and real assets, money was raised in all possible ways and even promoter shares were pledged. It is alleged that, through the concealed transfer of funds out of Satyam, many other businesses such as Maytas Infra., operating in real estate, were run by the family of Ramanlinga Raju. By influencing the authorities, Maytas Infra., got a $2.4 billion contract to build a 71-km rapid transit metro system in Hyderabad. Inflating the number of Satyam employees by 10 to 12 thousand to create fake salary accounts was also one of the alleged frauds.
Ironically the word “satyam” means truth, and in the name of “satyam” the investors’ hard-earned money was swindled. The corporate lobby and the mainstream media found fault in the greed of some individuals and tried to offset the issue by propagating the myth that the good corporate governance with ethical standards could avoid such frauds. Also, Satyam’s scam was projected as an isolated case. In the era of deregulation, nobody in the corporate world was concerned about values and standards and the only concern was the accumulation of profits and financial capital. And the standard malpractice was showing high profits to push up share prices. On such occasions, regulatory agencies would either become defunct or collaborative with the fraudulent activities of the corporations. Dereliction of duty by India’s market regulator, the Securities and Exchange Board of India (SEBI) was evident, since it failed to spot the falsified financial statements of Satyam. The role of the London-based audit firm, PricewaterhouseCoopers, was highly questionable since they signed off on the cooked books and permitted Satyam’s balance-sheet misdeeds for over seven years.
Whenever such scandals appear, there would be a torrent of sermons on the need for “core values of ethics, integrity, transparency and corporate governance.” Agreeing that the Satyam scam tarnished “the corporate image” of India, Prime Minister Manmohan Singh advised corporate leaders and managements to “hold positions of trust for shareholders, workers, and other stakeholders” and set “the highest standards.” Given the track record of giant corporations and their mega-scams, such wishful thinking would forever remain a pipe dream. With the assistance of the elites and with the huge tax concessions by the government, the big corporations accumulate enormous financial capital. In this drive for centralization of capital, they indulged in all kinds of misdeeds. Hence, the fraudulent behavior is inherent in the present system of corporatism.
Also, the present corporate order has created a kind of consumer culture among the sections of upper middle classes who are self-centered with an endless drive to seek money for their luxurious needs. The corporatists are profiting from their aspirations by luring them to invest in their shares for quick profits. But the massive plunge in share prices as a result of frauds and the consequent collapse of the corporations lead the share-holders to give up everything, including their hopes for life. Such developments and scams are not new in the West, and in the US, but, they were being speedily exported to the developing world.
To arrest all these maladies, doing away the corporate-based economic order is the only solution and creating an alternative order based on the principle of workers’ control in all spheres of the productive process and the equitable distribution of the proceeds like the profits.
The Satyam episode has again provided evidence that corporations, in their drive for profits and labor-exploitative practices, would never bother about so-called corporate ethics, corporate governance and ethical standards. In the coming Parliamentary elections in India, from April 16 to May 13, the corporate scam will be one of the main planks of the Left to target the Congress-led coalition government.
N. Gunasekaran is a political activist and writer based in Chennai, India. The opinions are his own.
From The Progressive Populist, April 15, 2009
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