The Caste of a Scam: A Thousand Satyams in the Making--D.Parthasarathy
Chakri
'... An editor of a leading newspaper once remarked that corporate leaders
usually came up to him for names to fill top positions in their companies.
Their requirements were minimal - that the candidate should preferably be
male, not be a Muslim, and should as far as possible be a twice-born. The
real reason for corporate India's opposition to reservations in the
private sector is not any great appreciation of merit and efficiency. It
is rather the urgent imperative to protect their family inheritances (baap
ka maal) and positions (baap ka kursi), so that their incompetence in
facing competition in liberalized markets are not exposed. Even as they
have opposed reservations, they have revelled in reserving top positions
for their own sons, nephews, brothers, and increasingly sons in law
(rarely daughters, sisters, or mothers). ...'
The Caste of a Scam: A Thousand Satyams in the Making
D.Parthasarathy
Industry leaders, CEOs, and Corporate big-wigs have been falling over each
other to portray the Satyam scam as an isolated case, as a simple failure
of corporate governance. On the other hand critics from the left once
again have had a field day with their I told you so condemnation of
capitalist free market economies. There is also a moralistic middle class
which blames it on greed pure and simple. The fact that the Indian private
sector is largely dominated by family owned and controlled businesses of
sundry sizes, that caste, community, gender, and social networks play a
significant role in who gets nominated to top positions within the
companies, and how businesses are run, that these have significant
implications for corporate governance as well as corporate loot. These are
issues that are too dangerous and embarrassing at the same time, and so
are conveniently ignored.
An editor of a leading newspaper once remarked that corporate leaders
usually came up to him for names to fill top positions in their companies.
Their requirements were minimal - that the candidate should preferably be
male, not be a Muslim, and should as far as possible be a twice-born. The
real reason for corporate Indias opposition to reservations in the private
sector is not any great appreciation of merit and efficiency. It is rather
the urgent imperative to protect their family inheritances (baap ka maal)
and positions (baap ka kursi), so that their incompetence in facing
competition in liberalized markets are not exposed. Even as they have
opposed reservations, they have revelled in reserving top positions for
their own sons, nephews, brothers, and increasingly sons in law (rarely
daughters, sisters, or mothers). However much family and fellow caste
members may be groomed and be educationally qualified, the implication of
family control for good corporate governance is rarely recognized or
acknowledged. India's business leaders are quick to brush aside such
concerns suddenly developing a concern for protecting India's culturally
different and unique business tradition. This despite the fact that even
when the culturally unique great Indian business family splits, the
businesses are divided among male (usually male) family members, with no
concern for the interests of the business or that of the shareholders who
are not even consulted, all presided over and mediated by other business
leaders supposedly known for their honesty and integrity.
Not just top executive positions but directorships - including so-called
independent ones, are also based on kinship, caste, and community. No one
has bothered to ask how so many of Satyam and other companies floated by
the family have directors who are Rajus - related by kinship and caste.
How qualified are they to assume these directorships? Immediate and
extended family members assuming director positions is widespread among
most large corporates in India. Gender does not seem an issue here, as the
same men who deny positions in their companies to women from the family,
miraculously discover a great deal of merit in them when it comes to
appointing them to directorships in various companies. Also, it is
interesting as to how many of these independent directors and
vice-presidents are ex-bureaucrats usually from twice born castes. The
same private sector which criticizes the babudom for lethargy and
inefficiency finds dynamism, efficiency and merit once the bureaucrats
retire. After all is it not easier to thrive on government contracts than
compete in the free market, and expose ones inefficiencies? And what
better way to liaise with the government than to have ex-bureaucrats as
directors? Independent directors are also recruited from the academia from
the merit conscious IITs and IIMs, and other business schools. In return
for the prestige, sitting fees, and retainerships, vice-chancellors, deans
and directors only have to look the other way when corporate illegalities
are committed, and occasionally call upon these CEO to deliver convocation
addresses. For all their adulation of American style free market economy,
most industry leaders in India are not just reluctant but strongly oppose
corporate governance reforms which would put in place independent boards
and CEOs who will have the interests of business, employees and
shareholders in mind, and not the interests of founder and promoter
families.
It is not by accident that independent directors, auditors, and CFOs
associated with the Satyam scam have pleaded guilty to the lesser but more
ignominious charge of incompetence than be arraigned for the higher crime
of complicity in financial irregularities. The CFO of Satyam - Vadlamani
Srinivas has confessed that he does not pay much attention to the details
of the balance sheet, and that he just passes the balance sheets and
accounts statements prepared by his assistants. Perhaps the CFO was
recruited on the basis of reservation and hence was incompetent and
inefficient? He has also stated that PricewaterhouseCoopers the auditors
of Satyam never pointed out any deficiencies during their discussions with
me. PricewaterhouseCoopers is known for recruiting from the IIMs and other
reputed business schools. Is it the IIMs and other business schools that
have produced the incompetent auditors employed by the company? Or perhaps
PricewaterhouseCoopers recruited candidates through reservations? One of
the independent directors of Satyam was the Dean of the prestigious Indian
School of Business which only recruits on the basis of merit. He has been
reported as being stunned by the revelations of Ramalinga Raju, and in his
resignation statement said that he had absolutely no prior knowledge of
the scam. What was he doing then on Satyams board as an independent
director? Clearly, owning up to incompetence and ignorance seems a safer
step than disturbing the family based governance structures of Indian
companies. How else can private business schools make money through family
owned business MDPs?
Satyam, Maytas, and Nagarjuna Finance - the three companies that have been
involved in financial irregularities and are on the verge of collapse, are
not only run and controlled by members of the Raju clan, but also have
several other professional employees and directors who have or have had
links with other Raju owned companies and government institutions. Such
linkages are not uncommon in the capitalist west, nor is it uncommon in
western capitalist countries for such companies to survive or even thrive
on government contracts. What is different is that for a company like
Maytas with little infrastructure expertise to get huge government
contracts, to get these contracts implemented through sub-contractors over
a long period, to obtain land at a fraction of the market cost, all these
require the building up of intricately linked caste and political networks
over a long period of time. Despite being numerically small, the Rajus
have been financially and politically powerful enough to influence
whichever government has been in power in Andhra Pradesh. It is not
surprising to read newspaper reports talking about members of the Raju
community being in despair, or that Ramalinga Raju had a meeting with
members of his caste community before confessing to his role in the scam,
or even that his caste fellows have pledged financial support for his
legal battles.
Newspapers have also reported on the support for Ramalinga Raju among the
villagers who have benefited from the development works undertaken by
Satyams philanthropic and charitable arm - the Byrraju Foundation. The
enthusiasm of India's big companies for corporate social responsibility in
the form of rural development works belies its criticism even by
neo-liberal enthusiasts. On the one hand free market fundamentalists such
as Milton Friedman have questioned the ethics of diverting shareholder
money for social purposes - a criticism that cannot be easily brushed
aside. On the other hand, corporate leaders wishing to attain the status,
prestige and power of erstwhile zamindars, have started sundry foundations
with shareholder wealth ostensibly in the name of carrying out rural
development activities, but also with the additional objective of finding
sinecures for spouses, siblings, children, in-laws and other kin group
members. It would be an interesting exercise to find out how many of these
foundations are headed and run by spouses and other relatives of CEOs, and
how many of them went through a proper process of recruitment, and were
selected on the basis of merit. The ethics of using public money in the
form of shareholder wealth for family benefit is not something that
concerns even the most progressive of our CEOs and managing directors.
For that matter, how are CEOs and managing directors recruited in Indian
companies? Was Ramalinga Raju appointed as CEO of Satyam after a rigorous
search, selection, vetting, and recruitment process? Was his son Teja Raju
appointed to Maytas on the basis of being the best from among a pool of
candidates? Did he have the requisite qualifications and experience in the
infrastructure sector to head Maytas?
So long as companies are controlled and run by people occupying top
positions and linked through caste, community and social networks, even
the best of corporate governance regulations and practices cannot prevent
scams and financial regularities. So long as corporate boards are occupied
by family members and caste fellows who have little or no responsibility
to shareholders and whose interests are restricted to wealth maximization
and retaining positions solely for family members, a thousand, or maybe
even a million Satyams will be played out across the country.
> kafila.org/2009/02/13/the-caste-of-a-scam-a-thousand-satyams-in-the-making/
D.Parthasarathy, Professor, Department of Humanities and Social Sciences,
Indian Institute of Technology Bombay. Powai, Mumbai, 400076, India.