Wipro CFO is wrong

Raju, a small boy from Satyam never paid attention to the blogs to which he was subscribed to. I know he had read a few stories of ethics in the recent past. Not sure what made him open up for his misdeeds early this year. But, I am sure it's not my case studies that made his conscience take this call. I know many big leaders who are subscribed to my case studies never read it or if they read, they never give it a thought and if they do so, it's too late.

Raju is now arrested by Andhra Pradesh police on charges of criminal breach of trust, criminal conspiracy, cheating, falsification of records and forgery and faces a long imprisonment if convicted of misleading investors.

Dr. Byrraju Ramalinga Raju, the founder and Chairman of Satyam Computers, did his B.Com from Andhra Loyola College at Vijayawada prior to receiving an MBA degree from Ohio University. He has attended the Owner/President course at Harvard. For his achievements and contribution to society, he has been awarded Doctorate by Anna University Chennai on 14 Dec 2007 a year back. He had been awarded with Ernst & Young Entrepreneur of the Year Services Award 1999 and E&Y Entrepreneur of the Year 2007. He has also been held Dataquest IT Man of the Year Award 2000 and Asia Business Leader Award 2002 says wikipedia. (When & where Raju went wrong?)

This icon of leadership for India has now indicated that Satyam's accounts had been falsified over a number of years. He admitted to an accounting fraud to the tune of some 7000 crores rupees. He successfully covered-up this one for long. And surely, he deserves his award for the creative accounting and window dressing.

I was reading to transcript of a speech by Mr. Suresh Senapathi from Wipro on Corporate Governance and I want to quote him for his idea about corporate governance with entrepreneurial vision. He says that we have to create a framework and fabric of strong corporate governance for company's longevity. He emphasized on a strong entrepreneurial spirit known to churn out best professional managers marked to global benchmark of excellence for continued and sustained excellent results. Agree.

Now think about brands which gives you mark of the excellence for e.g. E&Y Entrepreneur of the Year Award. Mr. Senapati says Satyam is one of case. I really don't agree with him here. We all need to take responsibility for the Raju's failure. It's also not enough if we call it a third party system failure. It's like Pakistan claiming that it's not our mistake and its India's own weak security and its own internal political issues which remains the root cause of attacks on Taj & Trident.

PWC was auditor so they are under scanner. Other big fours see a business opportunity with this latest happening. Some are coming out with new solutions in areas of fraud and forensic investigation and others are coming out with new corporate governance regime and some are coming out with a new survey. Just to remind you, please fill the survey by KPMG, if you have received it. God Knows but that might help us find out the root cause of such problems which remain hidden for long enough and then to find out a solution which can create revenue generating opportunities for the big accounting firms and that might also bring back the lost confidence of inventors as a byproduct.

It can't be one of case for sure. There are many that remain to be unearthed and that's why the opportunity is. Current change in economic as well as political scenario will bring out some more misdeeds. Capital market and money market failures too will bring out many more. It's the time when conscience of many more will wake up. So wait and watch.

And the reality is, the corporate world has really failed to find the root cause for such sudden shocks. Satyam is no exception. Wipro CFO is wrong.

See this small video and draw correct analogies.



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The Invisible Act

When cheaters are invisible, there is surge in crime levels. When victims are invisible; result is the same.

It was almost an hour after the midnight. You could hardly hear your own voice due to the loud heart beating music in the pub. The auditor on a surprise visit who was not known to the bartender was trying to give cash to buy a drink. The bartender shouted that he needs coupons as taking cash is not allowed. The auditor shouted back, don't you know me, I come here every month; I always have paid cash here and no body denied it earlier. The bartender smiled and came closer and whispered - sorry sir, but we are being watched today.

Let's ponder on the above phenomena by way of a short story. A student named Vishnu Prasad Singh puts on a magical bracelet and founds that it made him invisible. With no one able to monitor his behavior, he proceeded to do woeful things - seduce a girl, murder her boy friend, and so on. This story posed a moral question, could any man resist the temptation of evil if he knew his acts could not be witnessed.

Paul Feldman's research says although there is no economic benefit in living a morale life, there is evidently some principles in man's nature, which interests him to do so. The research goes on to conclude that 87 % of the times people are honest and do not cheat. His research explains that cheating activities change with weather conditions, economic and political scenarios, and even they are different with different days of the year. Paul's estimate of 87 % is subject to presence of reasonable level of internal controls and safe guarding of the assets as appropriate.

Working environment, size of office and nature of boss are also among the factors which affect the level of cheating by the white collars. His research also found out that employees up the corporate ladder cheat more than those down below. Possibly this is due to the reason that they are not being monitored as much as the people down below. ( Alarm for Audit Committee !!!)

Although, we are aware and have read about many white collar crimes, we know very little about practicalities of the white collar crime at the various levels. The reason is that there are very few cases which have been reported and have come to light and the most of the embezzlers lead quite and theoretically happy lives as they have not been detected.

When you don't know who the victims of white collar crimes were, you also don't know with what frequency or in what magnitude it happened. Now there is a question - from whom, exactly, did the master of Enron steal? These cheaters had remained invisible to the victims and vise versa.

Amazingly, the silent theft of our shared wealth has gone largely unnoticed because we have lost our ability to see the commons. What to say about the white collars who are amongst us.

Let's do Insider Trading !!!

When Ranbaxy's promoters decided to sell their stake to Japanese Daiichi Sankyo, many believed that the deal was already known to few in the market and a case of insider trading cannot be ruled out looking at the performance of Ranbaxy on the Dalal Street during couple of months prior to the deal.

Many others think that Ranbaxy has passed the test of compliance as well as good governance as far as the insider trading law and the takeover code is concerned; the deal offered same price to all the shareholders including promoters.

Analyses of all the listed Indian companies, including Ambuja Cements, Centurion Bank of Punjab and I-flex Solutions that were acquired in the last two years also showed similar pattern in their stock prices compared to that of Ranbaxy. In all these cases, stock prices of these companies outperformed its industry peers during couple of months prior to the deal.

In a recent path-breaking verdict, the Securities Appellate Tribunal had said that a person indulging in insider trading cannot be punished unless proven that he had unfair advantage over other shareholders. The ruling has far-reaching consequences considering that insider trading by nature is extremely difficult to prove.

Now, the question is how others will behave in the future as far as insider trading is concerned. Well, I think all depends on the ethical values of the persons and how they take inspiration from the above case and the applicable laws at the time. Let us discuss the ethical dilemma keeping in view the above case, the existing laws and the level of ethical values prevailing in today's business world.

All of us have seen many examples of people violating ethical standards in extremes. However, there are also many far less extreme examples of violation of ethical values. When people evade tax or cheat banks to get loan or lie on their CVs; one might think this as an unethical behavior. However, if the other person has made up his mind that this behavior is acceptable, a conflict of ethical values arises which is difficult to resolve.

The argument that it is ok to violate ethical standard is commonly based on the rationalization that everyone does it. Many argue if it's legal, it's ethical. This philosophy assumes perfection of laws. The likelihood of discovery of the behaviour and the severity of the penalty or consequences also determines if the unethical behaviour is acceptable.

Should a business correct an unintentional double billing to one of its customers when the customer has already paid the bill in full? If the seller believes the customer will detect the error and respond by not buying in the future, the seller will inform the customer now; otherwise the seller will wait to see if the customer complains.

Nowadays, many movies, television serials, and other media subscribe unethical behavior in name of Entrepreneurship creating the impression that unethical business behavior is normal behavior. The people behind these media conclude that management cannot conduct itself ethically and at the same time have its business succeed financially. Also, many conclude that actions must be extreme to constitute unethical behaviour. There is considerable evidence that none of these conclusions about business ethics is correct.

A large number of highly successful businesses follow ethical business practices because its management believes that it has a social responsibility to conduct itself ethically and in the long run such actions would also result in business success for them.

An ethical dilemma is a situation a person faces in which a decision must be made about the appropriate behaviour. Auditors, Accountants, Audit Committee and other business people face many ethical dilemmas in their business careers. For example, dealing with a client who threatens to seek a new auditor unless an unqualified opinion is issued presents a serious ethical dilemma when an unqualified opinion is inappropriate or continuing to be a part of the management of a company involved in insider trading.

Now think - You are on the Audit Committee of a company dumping thousands of litres of untreated water in a nearby river and which cannot afford the cost of replacing the equipment to stop further spills. If the environment ministry orders the comapny to replace the equipment, it would be forced to cease its operations. Will you report the matter to the environment ministry?

Many frameworks have been developed to help people resolve ethical dilemmas. The purpose of such a framework is in identifying the ethical issues and deciding on an appropriate course of action using the person's own values. Following is a relatively simple approach to resolving ethical dilemmas:

a. Obtain all the relevant facts
b. To ensure assumptions are not treated as fact
c. Identify the ethical issues from the facts
d. To determine how each stakeholder will be affected by the dilemma
e. Identify the alternatives available to the person who must resolve the dilemma
f. Identify the likely consequence of each alternative
g. Decide the appropriate action