A case study on Satyam

Hopping jets, raising money for school, advising political leaders across the world, teaching courses, working with government agencies, writing books and articles, rubbing shoulders with corporate captains on boards, suggesting to students practical marriage strategies, and more…

Living a whole new life, after a quintuple bypass surgery (‘five for the price of one’), Bala V. Balachandran, Founder and Hon Dean of Great Lakes Institute of Management, Chennai (www.greatlakes.edu.in), is in no mood to slow down. “The more and more you think a job is a joy and not a job, five years or ten years become yesterday or five minutes,” begins Bala, when we meet on the eve of the big day when his ‘new green campus’ -- located in Manamai Village, Mamallapuram -- was to be inaugurated.

“Now that it is clear that the American model has problems, where do we go for solutions,” he demands? The answer can be from Indian education and moral leadership, Bala hopes.

Excerpts from the interview.

On academia included in corporate boards.

There are a few things that professors who act as independent directors can ensure. First, why should financial statements be discussed at short notice? Why not we insist that sufficient time be devoted, prior to the exercise – say, ten days?

Second, why should we not take an active role in educating the senior management, without taking a fee? Because, if you take a fee, and it is exorbitant, then there is a question of independence-impairment.

Thus, we need standards for independent directors. Also, we should be proactive, knowing that we have a fiduciary responsibility, despite not being privy to day-in-day-out activities.

I also don’t understand how somebody can be a director in twenty companies, while continuing as a full-time employee at some other place, or as an entrepreneur. You cannot do that. Such a director could be hurting. You don’t need a Sarbanes-Oxley Act or Clause 49 to tell you this. When I see a list of twenty board memberships, I wonder if he or she is taking a rubber-stamp position.

On the Indian Institute of Corporate Affairs, the new school.

Working along with the Ministry of Corporate Affairs, we want to ensure that this new school takes as students, people with entrepreneurial talent from the rural poor, gives them all the academic and practical inputs to make them a Dhirubhai Ambani or Ratan Tata.

On a case study about Satyam.

The Union Minister for Corporate Affairs, Mr Prem Chand Gupta, and I are writing a case study, making a story of Satyam and Enron combined, and it will discuss the questions of fraud, corporate governance and so on. Deadline for the case is May 31. For the first time, a public servant, a Minister, is suddenly interested in coming up with a case to challenge the Harvard cases; it is great for this country.

Enron took two-and-a-half years to three years to go around. In the case of Satyam, the Government created a fantastic board with Deepak Parekh and others, and made sure the company could be sold to Tech Mahindra. Nowhere in the world have we seen such a swift action, resolving things in less than six months.

There is a general feeling that public servants are not so smart. I think they are smarter than some of the private entrepreneurs.

source: http://www.hindu.com/thehindu/holnus/006200904300931.htm

Relevance of IT and Software Asset Management in Corporate Governance

Corporate Governance is about principles, processes, systems and accountabilities that influence how business corporations take decisions, allocate resources/returns, execute responsibilities and undertake risk management, whether financial or otherwise, with an objective of protecting and promoting the interest of the shareholders, management, board of directors and the employees.

When we talk of accountabilities, risk management and allocation of resources from a corporate governance point of view, management of software as an asset and having a control on other IT and security related issues within an organization becomes relevant. Since the need for Software is all pervasive to any organization using computers to run its operations and that software distribution and usage is licensed (open or proprietary) and protected under IPR laws, IT governance becomes one of the integral parts of Corporate Governance.

Therefore, we can say that IT Governance is a framework for the organizational management to adopt industry standards and ethical practices to ensure a healthy, secure, productive and compliant IT infrastructure (both hardware and software), which enables an organization to achieve its business goals and objectives.

Businesses of all sizes benefit financially from IT governance. Research shows that:
• Businesses are 20 percent more profitable than similar firms with poorer governance.
• Investors pay 14 to 22 percent more for well-run, well governed companies.
• Top-rated corporate governance companies consistently return more than triple the profits to investors than that of lower-rated companies over 3, 5, and 10 years.

Ambani yacht ‘flounders’ on customs duty

A luxury yacht chartered by a subsidiary of the Reliance-Anil Dhirubhai Ambani Group (R-Adag) that was seized by Indian customs earlier this year will not be released until Rs28 crore customs duty is paid in full and a bank guarantee of an additional Rs15 crore is provided by the firm, a senior customs official said.

The luxury yacht named Tian, purportedly a gift for Tina Ambani from her husband, R-Adag promoter Anil Ambani, was seized in February by the central intelligence unit of the customs department in Mumbai following a probe that began in January. The customs official mentioned earlier, who declined to be identified because the matter has not yet been resolved, said the yacht had been seized “due to non-payment of duty. It was illegally brought to India and was used without paying duty.”
“Till now the department has received a draft of Rs25 crore from a representative of R-Adag,” the same official told Mint. “The investigation is still on and the department will release the yacht once the dues are recovered.” The department has also asked R-Adag to deposit a bank guarantee of Rs15 crore before it releases the yacht. The official said this was routine procedure pending a probe with the bank guarantee serving as collateral for any penalty that could be imposed.
The customs department has alleged that the yacht’s final destination according to its shipment papers was Colombo, Sri Lanka; it was to be unloaded at Mumbai from where it was to sail to Colombo.

According to the department’s investigation, the Tian was purchased in mid-2008 from an Italian yacht maker by Ammolite Holdings Ltd, a Channel Islands-based associate firm of Reliance Capital Ltd and brought to India on 31 October under a charter agreement with Reliance Transport and Travels Pvt. Ltd, an R-Adag company. The Channel Islands are located off the French coast of Normandy.
Reliance Transport and Travels later took permission from port authorities to park the yacht in Mumbai for a few days before it sailed to Colombo. The customs department has alleged that the yacht did not leave for Colombo for over three months and was instead being used in India without paying duty. Duty is usually paid at the destination—in this case, Colombo.

Another customs official familiar with the case and who also did not want to be identified alleged that Tina Ambani had taken the yacht to Goa during New Year celebrations. However, in its reply to the customs department, Reliance Transport and Travels has claimed that the yacht sailed to Goa to test a repaired generator in late December 2008 and returned on 2 January.

In response to Mint queries, an R-Adag spokesperson said: “We have already communicated our stance to the concerned authorities.”
The funds for the charter came from a Singapore-based firm, Gateway Net Trading Pte Ltd. Ammolite Holdings, according to the customs official mentioned in the first instance, is a small firm with “share capital of $100,000 (Rs50.4 lakh today),” while Gateway Net Trading is an associate firm of Reliance Communications Ltd, also an R-Adag company.
In a letter to the customs department dated 18 February 2009, Ammolite Holdings and Reliance Transport and Travels have denied evading customs duty. In the letter, which has been reviewed by Mint, Ammolite Holdings said: “The yacht was duly and validly brought into Indian waters in compliance with all laws and regulations with the permission of the customs department.”
Ammolite Holdings and Reliance Transport and Travels have also said the Rs25 crore paid was a voluntary deposit “to demonstrate bonafides and to avoid any unwarranted or unpleasant consequences”. The two firms have also requested the department to release the yacht and refund the money.
The yacht—a Custom Line 112 Next, 34m flying-bridge fibre glass vessel—has been valued at about Rs100 crore by customs authorities. A July 2008 report in this newspaper had estimated the price of the yacht at Rs200 crore.

source:http://www.livemint.com/2009/04/21234138/Ambani-yacht-8216flounders.html?h=B

Analysts express concern on R-Comm's accounting policies

It might turn out to be a good quarter in terms of subscriber additions for Reliance Communications, but when it comes to its consolidated profit and loss, analysts express concern on lack of clarity on its alleged below-the-line accounting policies. CNBC-TV18's Sajeet Manghat delves deeper.

Even though Reliance Communications' quarterly additions brought cheer to the street, analysts are still grappling with the below the line accounting practice that R-Comm follows for its consolidated accounts. Over the last three quarters, analysts have been raising questions seeking clarity on the financial charges on its consolidated financials. The concern is the alleged mismatch in its financial charges in its standalone and consolidated numbers.

R-Comm's standalone results for the nine months ending December 2008 had a financial charge of Rs 937.91 crore. While in the consolidated statement, it posted net interest income of Rs 618.86 crore. A clear difference of Rs 1556.77 crore.

Which, according to analysts, means on a standalone basis the company has an interest cost of Rs 937.91 crore. On the consolidated profit and loss which includes its subsidiaries, it gained Rs 1556.77 crore, thereby reflecting a net interest income of Rs 618.86 crore.

Analysts are finding it difficult to understand how a company could earn interest income when its net debt rose by Rs 3400 crore to Rs 18,600 crore in Q3. In a conference call, transcript of which is available on the R-Comm website, analyst Vinay Jaising raised a query on the same issue, "Firstly on the balance sheet, we have seen that net debt increased by Rs 34 billion up to Rs 186 billion, despite that we have net finance income coming in at Rs 1.5 billion. Last quarter, we were explained that there could be some derivative gains and higher other income on account of cash in hand. If you can throw some light out there?"

Satish Seth, Vice-Chairman, R-Comm, responded saying, "The finance charges comprise of interest income and expense, foreign exchange gains and losses, including foreign exchange gains on bank balances and financial investments and amounts receivable from foreign subsidiaries. A composition of this is giving a net result of income."

Analyst Vijay Jaising further probed saying, "Just on that, I understood the break up. But when you have such high net debt, how do we get interest income?"

To which Satish Seth replied, "Primarily depends between the cost of debt and income on cash balances. That's one difference. Secondly, on the foreign exchange gains and financial investments, because part of the interest also gets capitalized because it's part of the capital work in progress."
Not Just Vinay Jaising, other telecom analysts and CNBC-TV18 have raised similar concerns. CNBC-TV18's repeated attempts since March 26 on the same issue and reconciliation between standalone and consolidated profit and loss have elicited no response from the company.

source: http://www.moneycontrol.com/india/news/cnbctv18comments/relaincecommunicationsaccounting/analystsexpressconcernrcommsaccountingpolicies/market/stocks/article/393658

The Key to Successful Corporate Social Responsibility in India

Corporate social responsibility is a topic of keen discourse around the world and India is no exception. However, it appears to us that prevalent CSR practices – the organization of blood donation camps, to cite just one example -- are symptomatic of a failure of corporate governance.

It is a sign of bad corporate governance when managers donate to causes that their companies are in no way better positioned to address than individuals are.

As trustees of corporate assets, are managers not exceeding their brief when they divert resources in this fashion and pursue personal passions with corporate resources?

Would it not be better to distribute profits among the shareholders and employees and leave it to their discretion, as individuals, to contribute to the causes that they deem fit?

Again, CSR is sometimes treated as being no different from image building. But such an approach is short-sighted and therefore not good corporate governance.

"Hypocritical window-dressing" – to use the famous phrase coined by Milton Friedman -- of this kind is soon found out and has not been shown to be very effective for image building.

But when the "CSR strategy" of a company gets merged with its competitive strategy so as to become indistinguishable from it, it is a sign of good corporate governance taking shape. There is no more a need for CSR as a stand-alone activity.

source: http://online.wsj.com/article/SB124019930116534151.html