Financial mess has become a complex affair. Good news is that the sting has created a public outcry and raised the bar in corporate governance. Never before even in the days of Enron whose impact on the market was much more significant has corporate governance become such a household word.
The government of India also needs to be complimented for moving quickly to punish the guilty and that includes the promoters, the auditors and independent directors.
It is not often that the public gets a full measure of an inside story. Satyam’s main contribution should be the unfolding of a soaded state of insider trading. The investigations reveal the large scale selling of the company’s shares by institutional investors days before Raju’s confession of cooking books.
What is unfolding in front of us is the market punishment to all the fraudsters. Satyam is a microcosm of the markets revolt against the fraudsters. Satyam fraud would have never come to light had it not been for the courage of a determined group of investors. The board had already passed the resolution on 16 December 2008 to acquire promoter’s son’s properties companies at an extortionate price of $1.6bn to cover the cash hole. The story has been repeated time and again in Wall Street during the past 18 months since the queues formed outside the Northern Rock, the British Bank and the French Bank BNP Paribas froze withdrawals from three of its funds.
Within a span of next 12 months the heads of world 5 biggest investment banks James Cane of Bear Stern, Lehamn Brother, Blankfine of Goldman Sachs, John Thain of Merryl Lynch and John Mack of Morgan Stanley lost combined personal wealth to the tune of $2.2bn.
The lead article in the journal tells the inside story of Wall Street greed which has led to the current meltdown. The scan show that Wall Street managers had been living in the world far removed from reality. John Thain who in October 2007 was appointed to rescue Merryl Lynch – Merryl Lynch has suffered loss of $6bn did not hesitate to pay himself salary and bonus of $83m. Story does not end here. He brought forward about $4bn indiscretionary bonuses after the sale of Merryl was agreed but days before the deal was actually closed. This was despite the record operating losses of $21.5bn in the fourth quarter which the tax payer have to fund through TARP (Troubled Asset Relief Programme).
These bonuses related to a year when Merryl’s total operating loss was $41.2bn. Mr Thane also spent $1.22m doing up his office which included $1400 on a rubbish bin. John Thain was the head of Goldman Sachs before he moved on to become the CEO of the New York Stock Exchange.
The current issue of Conde Nast carries an interesting story of ‘conspiracy’ of Goldman Sachs to take over the US financial system. Goldman Sachs has always been envied as the holy grail of investment banking and managed to remain one up.
Mr Bush’s Treasury Secretary Hank Poulson is a former Goldman CEO and his replacement at Treasury, Tim Geithner, was mentored by Goldman alumni. Mario Draghi, who is leading the crisis response for the EU is a former Goldman Vice Chairman. Ad Liddy, the new CEO of AIG, was Goldman’s Vice Chairman.
World Bank President Robert Zoellick was a Managing Director, Mr Niel Kashkari, 35 year old young man charged to oversee the $700 bn TARP was also a Vice President of Goldman.
In November, after Citi Group’s stock dropped more than 60% in one week, Poulson injected $20bn into the company adding to the $25m already committed.
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Super (Human) Independent Directors:
ReplyDeleteThe Hon’ble Union Minister for Corporate Affairs, who had delivered the inaugural address on 21st August 2009 at the “National Conference on ’Corporate Governance’” organized by the Institute of Directors, asserted the government’s commitment to demystify issues relating to corporate governance.
Referring to the new Bill on company affairs, the Minister said the government was working to simplify the law by bringing down the provisions from 600 to about 400. He further said that there was a need to restrict the number of directorship an individual could hold. “We don’t have superhuman being to be the director of 20-25 companies”.
“Those aspiring for the posts should be aware that it is a position of responsibility and not a joy ride,” he said. (Source: Business Standard (New Delhi Edition) dated 22nd August 2009)
The above issue of "Super (human) Independent Director" was commented upon by me on the blog “Indian Corporate Law” on 30th July 2009, aand is reproduced below:
Quote:
It is a human nature to be greedy at the expense of others. Some of these "Super (human) Independent Directors”, whose foremost duties toward the minority shareholders are being overlooked for the same reason. The IDs who are on the board of companies as high as around half century (50) will never be independent of mind( one of the main principle of Good Corporate Governance), thus not eligible & qualified to be on the board on behalf of these minor shareholders.
It is now the duty of the regulatory authority to intervene and make suitable amendments in sections 275, 276, 277 & 278 of company act and reduce the number of company an individual ID can hold to ten (10) instead of present fifteen (15). The regulatory authorities should also go a step further to include unlisted / private companies, in the forthcoming Indian Company Bill 2009 to curb gross misuse by some of these greedy Super (human) Independent Directors.
Source: http://www.directorsdatabase.com/
Unquote
In view of the above, it is pertinent that, those IDs holding such ornamental posts, on moral grounds should of their own resign from some of directorship before they are removed through the enactment of new company law and get humiliated later.
It would also be, not out of context to mention here that the Chairmen/ Chairperson / Nomination committees of those corporate should set an example of good corporate governance and ask these IDs, who are holding so many posts on the board to go immediately.
Not only, the reputation of these companies is at stake, but it would lead to plummet of these companies' shares in the stock market thereby affecting the minority shareholders values, like in the case of Satyam.
P R Chandna