Satyam seems very much like India’s Enron. The strong brand that had been created, with a name that meant truth, was respected by its customers and was attractive to very high quality talent. The independent directors on the board were people with top credentials and the auditors were one of the top four names in the business. Yet, both the size of the deceit and the length of time it went on were remarkable, leading to a justifiably strong and loud outcry.

 

However, I am completely surprised by the reaction of so many wise people on what the scandal means for India. One writer in one of the Indian dailies, a Lord no less, wrote with amazing pathos: “even as recently as August 2008, India was touted as a success story, …we all knew it was a bit of Davos dalliance. But now four months later, after the September terror attacks in Delhi …26/11 and now Satyam, India is not shining. Will it ever again?” And there are others asking corporate India to walk further to prove its credentials.

 

I am surprised that corporate India and, indeed, India needs to carry such a burden. The tone of the writing smacks of a colonial hang up still evident after more than 60 years of independence and in the midst of the Madoff scandal and, indeed, the fall of the global financial system as we knew it.

 

India has many problems that relate to poverty, an absent social infrastructure, a malfunctioning legal system and a democracy which finds its institutions constantly under challenge, but frankly, India’s democracy, in such poverty, is never really in doubt and is remarkably robust. Some of the world’s best companies have grown out of India and many more will come. No, Satyam does not challenge any of this or put any extra weight on Indian firms, unless its leaders go around saying things like this. In the US, leaders did not say this after GM, Worldcom, Xerox, and the list goes on, as it does in Germany with investigations into some of the top names for allegations of corruption and bribery. In today’s inter-connected world, people are competing with everyone, everywhere, for everything and there will be sinners and saints. The sinners will need to be brought to book—whether in India, Germany or the US.

 

The onus on the regulators and the legal system is to book the guilty. This is important and necessary. Justice will need also to be expeditious. Unfortunately, the system in India is slow and leaky. It is as good a time as any for India to take the opportunity to review its systems and see whether they can be brought to comply with the best international standards. It should also be incumbent on India to see that the process moves faster. That will be the best learning from the Satyam affair.

 

So, reports that the authorities moved in late to seal the company accounts were disappointing. The process on how to deal with such a fraud needs to be better institutionalized, with people in these government agencies chosen for calibre and experience. Boards will need to be more vigilant and the regulators may make it mandatory to change auditors more regularly. Chief executive officers (CEOs) determined to cheat must beware that once discovered they will pay for their sins quickly. That is what needs to be learnt.

 

The lesson for companies is that reputation will matter more. This will be true in India and abroad. It will command a premium and can become a source of competitive advantage. Customers will be willing to pay more to deal with firms they believe will not cheat them or go bust because of skimming by owners and CEOs. For service businesses or in businesses where there are long-term contracts with dependencies over time, customers will look for the comfort that their partners are trustworthy. The importance of building, nurturing and fortifying a company’s reputation will be reinforced. Building a reputation always takes time, is difficult, and does not happen on its own. It will require the leaders to recognize its importance and understand that if they want to create companies that last, that survive, they will need to invest in the reputation of their brand. It will require companies to create a culture in which honesty is rewarded. In pursuing targets, cutting ethical corners is never tolerated and not allowed to become an excuse for non-performance. Anecdotes and stories that form part of the firm’s history need to reinforce this value.

 

Reputation will be tested both when times are good and bad. But reputation will be built by doing the right things when times are tough and everyone inside sees this. This will require uncompromising integrity.

 

Corporate India is not stained by Satyam. However, managements, boards and shareholders across the world are reminded that they need to be on guard. Audit firms need to introspect how their teams could have fallen so low or been so incompetent. But, most importantly, the guilty must be brought to book. The regulators and the government should see whether their machinery is of the calibre and competence to act decisively and with speed.

 

Unfortunately, instances such as Satyam will recur across the world, as will burglary, rape and murder. It should be made more difficult and punishment should be swift. Good guys need to be on guard.

 

Janmejaya Sinha is managing director, India, The Boston Consulting Group. The views expressed here are personal. Comment at theirview@livemint.com

 

URL: http://www.livemint.com/2009/01/11205630/A-problem-of-ethical-deficit.html