Window dressing of unethical practices during empire building should be condemned as much as blue-collar crime
By Sanjay Jha
ED, DALE CARNEGIE TRAINING INDIA
B RAMALINGA RAJU’s Satyam won the prestigious Golden Peacock award for corporate governance. It turned out to be his swan song. Electricity major Enron had a massive employee handbook on ethics. The company, with ingenious finesse, electrocuted itself.
White-collar crime as a term has a peculiar snobbish vulgarity attached to it; like the hedonistic excesses of a debauch begging sympathetic consideration. White-collar and Armani- suited crime usually escapes harsh public condemnation because it is committed by high society’s sophisticated gentry under the reassuring veneer of corporate respectability against a Swiss backdrop. There is greater revulsion against the traditional paunchy politico with the suspicious countenance of a Suresh Kalmadi than a stone-faced, clean-shaven supposedly suave Shahid Balwa.
Conventionally, white-collar crime is understood to mean perpetrating internal fraud for private profit. With the 2G scam, the definition needs exponential expansion. The astronomical loss of Rs. 1.76 lakh crore to the exchequer means a corresponding amount in illegal corporate windfall. Maximising equity valuations through price-rigging, acquiring licences by deploying slush funds, or willful procedural violations are all part of the new Fendi fraud in Burberry mufflers. While the blue-collar worker gets sweaty on rising food prices, the boardroom baron coolly wire-transfers millions into secret accounts.
The most fundamental requirement is speedy trials, swift justice and heavy penalties. But first, we need qualified human resources. Take the esoteric concept of credit default swaps that had Lehman Brothers, AIG, etc, suddenly evaporate into Manhattan’s twilight. Even the CEOs of these financial institutions did not know head or midriff of these complex derivatives. Imagine a poor CBI officer detecting that intricate economic offence.
Integrity is like oxygen. The higher you go, the less there is of it. Lessons in ethics might help
Second, as the 2G scam reveals, India is witnessing a mad gold rush syndrome. Financial crime in India, if properly investigated, could touch a staggering 50 percent of Indian companies. Thus, India will need special legal provisions dedicated to financial embezzlement. Enron’s Kenneth Lay and Jeffrey Skilling were convicted. Martha Stewart, Bernard Madoff and Allen Stanford were promptly sentenced. But in India, barring the two Big Bulls Harshad Mehta and Ketan Parekh and the controversial Kapal Mehra of Orkay Silk Mills, there have been no serious convictions.
Third, we need fast-track special courts for prompt justice. Jail sentences must be accompanied by hefty financial fines for customer/ investor compensation. Any out-of-court settlement must be in the public domain.
Fourth, collective responsibility of the board of directors will substantially diminish the propensity to rubber-stamp audit committee reports. Satyam’s bizarre cooked books were approved by PriceWaterhouseCoopers. Corporate governance is Indian business’ most abused shibboleth. Megalomaniac owners influence Cabinet posts and judicial decisions.
Fifth, all compliance contraventions noted by the audit committee chaired by an independent director must be disclosed on the company website for public, shareholder and media consumption. Hiring of lobbying firms and political contributions need to be disclosed.
Sixth, SEBI must be given the power to impose serious collateral damage, like a life ban on fundraising that prevents bankrolling of rehabilitation.
Last, the private sector must be brought under the Right to Information Act. If the country’s natural resources and land assets are involved, then the entire affected community has a fundamental right to information.
Integrity is like oxygen. The higher you go, the less there is of it. Some serious lessons in ethical leadership might also help. At least in theory.
These views are personal