How much is too much?

They say that a sinking ship exposes the rats on board. Likewise, it takes a crisis to expose fraudsters and unethical entities who thrive on a system while it flourishes. So the Madoffs, Rajus, Kenneth Lays and Thains of the world come into the open only when the system is drained of all the water that had been providing refuge to their unethical activities for so long. Almost all of us know what ethics are all about. Soon after the financial crisis began, people raised a finger against B schools, saying that a code of ethics is missing amongst the current breed of profit-seeking, dollar-hungry set of B school products. And so, most big B schools embarked on a mission to rethink their offerings to prevent unethical entities from entering the system.

Yes, schools do have a role to play in shaping individuals. That is why we had penalties in school for cheating on an exam. That is why we had harsh punishments for cheating in sport at school. But all humans are presumed rational, and we all know the distinction between right and wrong. A school can give us a code of ethics but internalizing it and making the distinction between what is acceptable and what is not, is a confluence of the ethics code and our own ethical appetite. We all wenr in arms when we heard about the fraud committed by Ramalinga Raju. We all watched with disgust as the crookedness of Bernie Madoff came into the open. We exclaimed how brazenly unethical their acts were as the swindled millions and millions of dollars. These were huge transgressions. But think of this. You break a traffic signal, and the cop stops you. How many times have you given a bribe just to get out of the situation fast? Why? Isn't bribery a form of corruption? And isn't corruption unethical? But then, this was a minor transgression, and a small bribe never killed or hurt anybody, right?

But who is to decide what is major and what is minor? And how difficult is it to make the move from good to bad, like the transformation of Anakin Skywalker to Darth Vader? Another point to ponder is that what am I to do if everyone around me is involved in an unethical practice, to book gains? By being ethical, I clearly end up losing. So, should I adopt the rational approach of maximizing my economic value or should I revert to the conscientious approach and believe in a cosmic justice and be satisfied with my being able to sleep peacefully at night, my losses notwithstanding?

I definitely do not have the right or wrong answers to these points. Because actually these are all decisions steeped in shades of gray. At the end of the day, it is a weighted average of your basket of priorities and only you are the judge of the weights to be accorded to each priority to come to a decision metric. The only argument I have is that quick gains are seldom ever sustainable and for me personally a spiky chart is worth much less than a steady level of success and satisfaction.

Power, Politics, Success and Excess

Lord Acton said, 'Absolute Power corrupts absolutely'. I couldn't agree more. And I somehow see some correlation between power and success. Now which follows the other is purely subjective, since some argue that success corrupts a person by making her believe that she is invincible and her confidence alone makes her feel powerful and so wield power. Some others argue that when power is on your side, success verily follows since the power to tilt balances in your favor lies with you. Regardless of which explanation we choose, one must really watch out for the event when power in success moves over to power in excess.

Take China. Undoubtedly she is a superpower. And rightfully so. She has taken all the right decisions, made the right economic moves at the right times. At a time when the world is grappling with dwindling exports, she still registers positive GDP growth. This is power and success. But push the lever a bit further and China presently sits on 2.1 trillion dollars of foreign reserves. The world wants the Yuan to be revalued. The world wants a level playing field, where market forces dictate export competitiveness, not Governmental controls which choose arbitrary exchange rates. But given China's power in the T-bill market, no one dare push her too hard. Now that is power in excess.

Take China again. Post the second World War, when the UN came into being to prevent hostile take overs of other countries' territories, people felt that there would never be anything like the rise of the third Reich. But take India and China since 1962. The bloody Sino-Indian war, where India lost a portion of it North Eastern part of Kashmir. And now, with the Chinese Government going all out to claim ownership of Arunachal Pradesh, Chinese Troops entering Indian territory and painting rocks red, dam construction on the Brahmaputra (which the Chinese bluntly deny... well, I wonder how can someone fudge satellite images then???), it really feels like a push of power to the side of excess.

But then again, economic might can do many things to many people. It is up to an economic power to exercise restraint and be responsible, since those one bristles on the way up are sure to keep watching and waiting on one's way down.

Confucius and Climate Change

The weather is beautiful. The skies are cloudy, the winds are cool. The atmosphere is absolutely intoxicating. The fresh smell of rain-soaked mud, the pitter-patter sound of raindrops, everything 'perfect' in the eyes of a romantic.

Would have been perfect, if only such a weather had existed in July, rather than October in Mumbai.

2009, was declared a drought year. Cut to June- July 2009. Crops failing for want of rain, pictures in newspapers of farmers looking skywards, expectantly, all portrayed an image of the India of the 1950s. It looked rather sad, since those vivid images were a stark contrast to the image of emerging India that we generally perceive.

Cut to October 2009. A deluge in South India. A catastrophe that has not been encountered for over 100 years. Villages submerged, people dead, crops devastated, the rice bowl of India affected adversely. Before I was to leave Hyderabad, I was not too kicked about leaving behind a perfectly cool climate, to come to Mumbai, which I knew would be in her 'midsummer blues'. But I was also relieved to finally be able to travel at a time when there would be no flight delays thanks to bad weather in Mumbai. And surprise surprise, all such expectations were killed, when we were told that BAD WEATHER in Mumbai had delayed the incoming flight. All of us were stumped, since it is rather uncharacteristic for 'bad weather' to prevail in clear skies October! But then again, this whole confused weather pattern is unprecedented. Right from the frigid winter of 2007, in Mumbai, to the current rain patterns, it is bizarre! As though the Earth were screaming for help, by sending these incomprehensible signals.

And as though on cue, we have this whole impasse on the climate change dialogue. Confucius once said, " He who does not economise will need to agonize" Seems apt in the light of our current climate issues. I'd put in a post earlier (of outcomes and interests) on how expecting the emerging world to co-shoulder the climate change burden in a 50:50 manner along with the Americas and Europes of the world was almost certain to lead to a deadlock, with no amicable solution emanating thereof. And now, the UN General Assembly meeting has achieved just that, with everyone playing the penguin game - one where everyone waits for another to take the lead. In a classic case of what psychologists call 'mistaken attribution', the focus was more on WHO was responsible and WHO was not doing what was to be done, than on a clear idea on WHAT needs to be done to tackle the challenge as a global community. Here are some statistics in the map to prove why such circumlocutory behaviors are circumspect! The logic / rationale behind the developed world blaming their laggard approach on the lack of 'co-operation' from the emerging world is absolutely not justified.

The fact remains that the world is screaming for action. We need to act before it is too late. Mumbai, on the west coast of India is served by the South-west monsoon winds from June to September. Geography lessons in the lower classes had taught us that India has 3 main seasons - summer, winter and monsoon. And we also had specific months when these seasons would prevail. But imagine a classroom conversation of the future, if we don't take the cries of nature seriously -

"Teacher when do we have summer in India?"

"I can't say with certainty".

"Teacher how do crops grow?"

"Only with the blessings of God, since rains are never dependable"

What can we as the next generation do? Well, the usual stuff that we already know of, cut auto emissions, since that is the one portion of the emission story that is clearly in our hands. And on another level, we must use climate change idealogies as a guiding factor while choosing our elected leaders.

The Maoist Massacre

The scene was straight out of the Sippy flick - Sholay. Families massacred. Little kids targeted. The first reports called it a Maoist attack in Bihar. Later we realized that it was a fight - a casteist fight that resulted in such picked-out killings. And almost in immediate succession, just we heaved a sigh of relief, that Maoist rebels were not really wreaking havoc on civilized society, came news about the ruthless beheading of a Jharkhand cop by Maoists. For someone sitting in another part of this country, it felt revolting. What on earth is Maoism? And does it really promulgate violence targeted at children? Well, elsewhere in the world, such acts would be termed 'dastardly acts of terrorism', but ask the perpetrators here and they may as well say that this was their cry against the 'establishment'.

Studying developmental figures for the erstwhile 'BiMaRu' states, the plight is understandable. With a Gini coefficient at 0.318, the inequality in Bihar is stark. Reminds one of the situation during the French Revolution where the rich got richer and the poor got poorer. The state keeps screaming for all-inclusive, pro-poor growth. But when the law and order system is crippled, and the number of convoluted, inter-twined problems is humongous, the system takes some time to unlearn and relearn and implement. Granted, unemployment is high. Granted the poor are poor. Granted, the inequality is high as well. But the truth is, that efforts are being taken, and the results will show, sooner rather than later. That said, if the issue is with the Government, why not try to sort things out amicably? Killing children will almost certainly not endear the perpetrators with others who are suffering similar plights. If not anything, just like how the killings of innocent people by terrorists dilutes the so called 'cause' in the eyes of the common man, making the distinction between villainy and martyrdom even more stark, even if the Maoists, as per the original Mao Zedong doctrine are fighting for the rights of the poor peasant, they will be viewed with disgust and perceived to be another bunch of inhuman, insane, indoctrinated, inglorious, murderers and villains.

Whatever the cause may have been nothing justifies ruthless killing - be it the killing of children or of a law-abiding officer. More so, on or after Gandhi Jayanti, where the world celebrates the winner who never won, of the Nobel Peace Prize, a man who famously declared that 'an eye for an eye makes the world go blind'. A man who abandoned a rather successful non-cooperation movement after a retaliatory attack at Chaurichaura, just because the retaliation violated his principles of non-violence. If the Maoists were trying to send a message, I guess all of young India, (and I take the liberty of speaking on behalf of all other young like minded people like myself), feel that a message has been conveyed, of course, but a message that is horribly wrong, and completely contrary to the kind of picture the perpetrators wish to project.

Manic Monday - Are we Indians truly worth it?

Andie McDowell, Aishwarya Rai and Eva Longoria look us in the face and say - 'Because you're worth it'. But are we really worth it??? India is reeling under swine flu. That said, I just saw some reports of Chikungunya cases being reported in AP. Even a bustling metropolis like Mumbai was not spared. Pune and Mumbai became swine flu spots. And the administration received well deserved flak for not having a proper process in place to check the pandemic! We are supposed to be the sunshine country of the future. Linked with China, poised for growth, harbingers of the world economic order! And here we are faced with drought, (which climatologists claim is a natural occurrence once every 5-6 years, scientifically), a pandemic, the world economy is hit and all hell has broken loose!

Dr. Amartya Sen in his book Development as Freedom has compared the India-China story and described how the Communist, populist regime of China pre-reform focused on 'people development'. One can attribute some level of the people-centric policies to the Chinese culture, where education and all-inclusive health care are principles ingrained into their psyche. Chinese and Japanese were supposed to be the lodestars of human civilization and culture in the ancient times, after all. So, an offshoot of this deep culture, stood them in good stead, whereby by the time China got ready for reforms in 1979, they had a prepared, educated population all set to exploit the reformed economy to the fullest and steam roll their way into the future.

Could we perhaps even attribute this process to communism? Communism, as a philosophy speaks of 'down with the owner-worker relationship' 'everything belongs to everyone'. So could it be that these deep populist, equitable distribution seekers could allow this philosophy to creep into the realm of governance and ensure all inclusive provision of basic facilities? Take Cuba, for instance - it is supposed to have the best education and health care system in that part of the world. The statistics speak for themselves. 4th highest in literacy rate, with literacy rate almost reaching 80%. Before the Cuban Revolution, Cuba had the third-highest number of doctors per capita in Latin America, the mortality rate was the third lowest in the world, infant mortality rate was the lowest in Latin America and the 13th lowest in the world, and life expectancy was some ten years higher than the Latin American average. Kerala - the Indian state with the highest literacy rate, and maximum institutional births in India. Although industrial growth has been dismal, quality of life for the people is rather high in comparison to the rest of India. The key again was inclusion in provision of health care and education, that resulted in overall upliftment.

So, while China was prepared for the liberalization movement, India in contrast, when she liberalized her economy, opened up the economy to grossly under prepared people, who were still majorly illiterate and perhaps never understood the modalities of a liberal economy. As a result, to a very great extent, it appears as if the whole liberalization regime was either too premature, given India's gross lack of preparedness to rise up to the challenge, or the developmental part has a lot of catching up to do, to make up for the lost ground.

That said, it is perhaps not enough to just develop pockets. It doesn't make sense to have the most opulent sea facing mansion on one end, and Asia's largest slum on the other end of a city's spectrum. Unfortunately, this spectrum is indicative of the pattern existing in India as a whole as well, with interior India still struggling for electricity and water, while some other regions grapple with issues of floods. It is all a bit murky, and a lot of sorting out needs to be done. But at least the administration seems to have its heart in the right place. There has not been a famine in India since 1947, and Dr. Sen attributes this to the fact that we have a democracy, that ensures that vote bank politics prevents governments in office from not taking adequate steps to arrest famine in the wake of food shortages. One just hopes for words to get translated into actions and we hope that a sunshine nation like ours may not still, after 62 years of independence, grapple with issues like drought, policy initiated 'food crises' or curable diseases turning into pandemics!

Friday Funda : Protectionism

Remember the in-flight safety video? Where the oxygen masks drop during turbulence and you are told to mask yourself first and then help others out? Well, economic recessions and fluctuations are a lot like mid-air turbulence. They throw all sense of routine and uniformity out of balance and every one's life is thrown in disarray. At such a time, is it wise for a country to take on a similar 'protect yourself before you protect others' approach when it comes to economic growth?

The answer, I felt till a very long time was yes. Each one for himself. Tough times need tough action. And if I don't safeguard myself, how can I expect someone else to safeguard my interests?

As it turns out, this idea is wrong in a globalized world. Given the current economic downturn, many nations are feeling the pinch of recession, and are scrambling to save themselves from collapse. Underdeveloped nations that depend on the developed world for survival have had to bear the maximum brunt of the recession. But what is surprising is that in spite of the degree of development achieved by the developed world, in spite of the cushion of comfort the numerous years of growth have afforded them, the developed world also tried to scramble for cover! A glaring example is the 'Buy American' clause in the rescue package of the American government. I happened to see the hue and cry against this clause in Canada, whose dollar value of trade is the largest with USA, and it was then that the full force of the argument hit me. Look at it this way. The world is going through turmoil. Internal consumption is hit badly. So, to keep the economy afloat, you need to look outside - trade. And if your counter party (who happens to be an economic superpower) in the whole trade equation turns away, to protect his own interests, where else do you go? Superpowers are afforded that status for a reason - the immense accumulation of sustained growth over the years is actually supposed to put them in a position to help other 'comparatively needy' countries out in times such as these.

I remember having read an article once, when the whole cap on H1 visas came out in early 2009. The article spoke about parochial decisions that make a government want to look inward and at short term political benefits while forgetting about the long term implications of its actions. In other words, the article went on to say that in a recession, where a sudden spurt of growth through innovation is the need of the hour, if a country like US were to shut its door to skilled labor, they are in a way missing the forest for the trees! And later, when the recession goes away, the opportunity cost for the skilled labor may not be incentive enough to make them want to go to work in the US. At such a time, the long term picture would have effectively been ruined on account of protectionary tactics of the past.

Funda conclusion - Protectionism - not good. A superpower must use her superpowers to elevate all those suffering under recession, and such a mass elevation can alleviate every one's issues collectively.

Ikea pulls out of plans to set up shop in India - Retail, the big picture

Retail in India, I feel is a totally different story, as compared to retail in any other country. It is more of a cultural aspect than anything else, according to me. We as Indians are wired differently and for us, a shopping experience is not more about finding everything under one roof, as it is about going from shop to shop. Tell me, do we, and I speak of the ardent shoppers, feel happy and content after making a bulk purchase at one single shop? I, for one, don't. I feel like I have let go of some opportunity, in picking up all my bargains at one single shop. For this reason, I feel that retail in India is an all new ballgame, with the players needing to concentrate on how to break into the Indian psyche, and make a point.

Take for instance shopping malls in India. A typical mall in a foreign country has a whole host of shops that sell anything and everything from clothes to coffee to sweets to jewellery. And in India, that concept somehow doesn't seem possible, since for many jewellery shopping doesn't begin and end at People's, but rather begins at Zaveri Bazaar, goes all the way through Tanishq and ends perhaps at the place suggested by so and so's grandmother, since that shop is very conscious of quality.

How do we go shopping for clothes? We segregate our purchases into good clothes and replaceable clothes. So, the good clothes are bought at an upmarket place, while the use and throw variety is generally picked up anywhere. Likewise, furniture. The whole concept of assemble-it-yourself furniture is unknown to us. We need a cabinet made, we call Pandu the carpenter, who brings along another helper and wham! a cabinet is ready in 3 days, and the cabinet fits snugly into the 2 feet by 3.75 feet nook we pointed out to Pandu. So, that Ikea pulled out of its plans to enter India, is not very surprising to me.

Malls have mushroomed in India, more so in Mumbai over the past few years. But the funniest part is that some of these malls have sprung up in the heart of the 'flea market' shopping districts. I speak specifically of a couple of malls in Dadar in Mumbai. I, for one, could not understand why someone would set up shop while in direct competition with the road side shops who care two hoots about long term sustainability and margins. All they need is to turn in a profit for that day, so they can eat that night! Tomorrow is a new story that can be tackled separately.

What poses a question to me, rather is what the nature of retail in India, really is? Will malls continue to be looked upon as places to hang out in and nothing else? Will Mumbai see the closing down of many more of the mushroomed malls, like it happened with Crossroads? Will the Indian consumer get out of the traditional mindset and look beyond the shop around the corner? And also, what is the scope of organized retail in India, say retail through the internet, and what can incentivize the Indian consumer and hence the retailer to pursue the same goals?

Duplicitous protectionism

The Groundhog is supposed to be the harbinger of spring. Once the groundhog is sighted on Groundhog Day people rejoice, since spring is round the corner and the dreary winter is almost over. Likewise, in case of a forest fire, the rhino is rumored to run out of the forest as though its own tail were on fire, and this sort of gives a cue to other animals to grab their coats and run! Then again, before Mt. Vesuvius erupted incinerating Pompeii, the legend goes that dogs all over the town howled, and acted crazy. Precursors, forebears, harbingers, whatever.

You might wonder why I am saying these things. Because I feel that we should have read the signs long ago. Remember how Mumbai and Maharashtra was held to ransom a few months back on the whole North Indian v/s Maharashtrian story? Well, now, with the global economic meltdown, British are out on the streets protesting and urging the government to provide them with right of way when it comes to jobs in their own country. Now, the US House wants to ban American companies that employ people on H1B visas. The bailout has fine print that reads - 'Buy American'. Why? because they want food cooked by the family to be eaten by family first before being given to the poor. Curb internal unemployment. Encourage indigenous industry first and prevent internal enterprise from being devoured by cheaper Eastern-world substitutes. Are they right? Who knows? One may argue that American tax payers' money had better be used to encourage American industry. But this argument never surfaced when the world was busy buying American debt. People call this 'Protectionist policies' when they are the victims. But the same people call this phenomenon 'protection of self interests' while they act as the enforcers of such policies. Duplicity? Indeed..............

Parallels exist everywhere. It is up to the informed, aware individuals to decide which way to go. Why not let the market decide which way to go, since history has proven time and time again that markets are by and far the most righteous, and fair entities in the game called life. Let the markets decide whether to 'buy American'. Let 'American' be competent enough to compete on the world stage unaided. Let the market decide whether a Jha or a Jadhav gets an opportunity. Let each compete on merit. This is the only way we can achieve overall development of our core competence.

The Audacity of greed

'These are extraordinary times and they call for swift and extraordinary action' Man of the moment, Barack Obama made this statement this morning at the White House, while discussing the need for energy independence. America is now on the threshold of being the leader of energy thrift going forward. As a person watching the economic crisis from the sidelines, albeit apprehensive, that the rapidly unfolding mess, which shows no signs of having been completely unraveled, I can only watch, and watch with hope that the measures being taken by various economic superpowers to try and extricate the world from depressed gloom might actually work.

But every now and then, there are reports of how the top management of big firms squandered precious money, and how these excesses would have practically gone unnoticed, had it not been for the economic crisis.

Topping the list is John Thain - Merill Lynch CEO, who spent $1.2 million to redecorate his new office. His splurges include - $2,700 for six wall sconces, $5,000 for a mirror in his private dining room, $11,000 for fabric for a "Roman Shade”, $13,000 for a chandelier in the private dining room, $15,000 for a sofa, $16,000 for a "custom coffee table", $18,000 for a “George IV Desk", $25,000 for a "mahogany pedestal table", $28,000 for four pairs of curtains, $35,000 for something called a "commode on legs", $37,000 for six chairs in his private dining room, $68,000 for a "19th Century Credenza" in his office, $87,000 for a pair of guest chairs, $87,000 for an area rug in Thain's conference room and another area rug for $44,000, $230,000 to his driver for one year’s work, $800,000 to hire celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.

He apparently signed off on a check for $3000 for labor for replacing the light bulbs on those sconces! It is appalling, since Thain (ex-director of NYSE and former Goldman Sachs employee) was the man appointed to turn Merill's futures around. Yup, turnaround alright! From bad to non-existent! Hurried bonuses for top executives, not disclosing the full measure of the rot to Bank of America before the buyout, and grossly stupid excesses define the Bank of America - Merill Lynch union!

This is just one case. Just before the Street came crashing down, at the start of 2007, Todd Thomson was ousted as head of wealth management at Citigroup since tough times called for cost-cutting and Todd's excesses came out into the open! Apparently the office boardroom, which was almost exclusively used by Thomson, had marble flooring and polished wood cabinets. His main office had a house for Flipper, which is fine, except that it was a tropical fish-tank. The office took on a more Forrester Creations look with Persian rugs and a giant wood-burning fireplace. Mr Thomson also ruffled angry feathers with his use of the corporate jet, relegating other executives to 'cheaper' transport, (which I am sure would have been nothing short of First Class on some high priced airline) for the return leg of a visit to China so he could travel alone with CNBC's Mario Bartiromo. Excesses indeed!!!

Next - AIG. CDS took AIG under. And while AIG went sputtering, gasping for help, 70 employees had been rewarded with a week-long stay at the luxury St Regis Resort in California. The bill? $440,000. And look at the audacity of greed (good title for a new book... I stake my claim on that title) , a week later, it came out into the open that the company was planning another trip – but executives cancelled that one.

Finally (hopefully) - Bear Stearns. This story just is the crown jewel of the excesses saga. Jimmy Cayne, long standing chairman of Bear Stearns, wanted to be Tiger Woods one day! He stressed more on Golf practice, and seldom ever came to work on Fridays. When I hear about investment banking jobs from my friends, I get the picture of 20 hour workdays, ears stuck to the phone, fingers glued to the blackberry, divorces, what not! But 'let the company go to hell while I play golf', seems like a fun occupation for earning 8 figure salaries! Even working days called for golf. Manhattan traffic? well, there's no one up in the sky! Helicopter rides to the green - well, golf was an addiction indeed. Nero fiddled while Rome burnt. Well, Cayne putted when BS went under. Apparently when two of his flagship hedge funds toppled, Mr Cayne was very much on course, I mean the Golf course! And when BS finally said goodbye, he was at Detroit at the North American Bridge Championship. Much like the case of old man Thain. While Bank of America implored Congress for additional taxpayer bailout, with Ken Lewis working overtime to resolve the mess, each day discovering new black holes, which Mr Thain had never mentioned, Thain was busy skiing in Aspen Colorado!

India is seeing its worst disgrace ever. Satyam, one of India's largest IT services provider has been embroiled in a dirty fraud. Latest news says 2 PWC partners in India have been put behind bars along with the perpetrators - B Ramalinga Raju and his brother Rama Raju. The fraud? Siphoning funds from the publicly listed Satyam (shareholders' money) into Ramalinga Raju's son's firm Maytas, while falsely depicting augmented cash and reduced debts. Sounds Thainy to you? Very much indeed, except that Mr Raju unfortunately has a prison loo at his disposal.

Extraordinary times bring out extraordinary stories indeed.....

India's Madoff - Made off with the millions - but how???

Satyam is a rude shock. In ways more than one. There are some key questions everyone wants to ask. Some key points that Indians need to ponder. This whole fiasco can be described in a few short stages. Satyam, a listed IT company wanted to acquire huge stake in Maytas, which is owned by the Satyam Chairman's sons, without so much as a shareholder consent. After investors raise hue and cry, the deal is called off, but an even bigger can of worms is opened, after a startling confessional by Mr Raju, about massive fraud in their books, causes India's fourth largest IT major to collapse like a pack of cards.

The key points to ponder here are first, how did seemingly independent directors approve unanimously the Satyam - Maytas deal? Did everybody forget that every shareholder whether he holds a million shares or just one share, is still an integral part of the investing body and has a right therefore, to know what is happening to his money? Second- what was the role of PWC? It is indeed one of the big 4 and it has a massive reputation and an even bigger credibility to live up to. Was it condoning the massive fraud? If not, then how did Satyam (whoever may be involved - CEO or CFO or Chairman or anybody) cook up such a fairy tale balance sheet. And manage to pull it off for not one or two years but 10 years??? Most importantly, how did auditors find evidences for the non-existant Rs. 5040 CRORES and the non-existent accrued interest of Rs 376 crores and the non-existant debt of Rs 490 crores????? And, how did they not find evidences for a liability of Rs.1230 crores?

We can consider this scam to be the worst in years, almost to the scale of the Madoff swindle! And, somethings need to be addressed and acted upon very fast. First, we would need to understand how such dubious figures were concocted. ICAI would need to rework the accounting rules to prevent frauds of this scale. Extreme freedom to capitalism leads to greed, as it happened in the US in the run up to the credit crisis, and extreme regulation will lead to a contrived economy like that of China or erstwhile USSR. Clearly self - regulation with independent directors need not necessarily imply a clear, transparently governed corporate entity. A certain degree of government interference is needed. In the case of Satyam, the FIIs dumped shares to express disapproval, and hence the Satyam-Maytas deal fell through. But is the retail investor and indeed the FII as concerned in case of all other listed firms? Case in point Sterlite's attempt, in September 2008, to transfer the high-quality aluminum business and merchant power to Malco, in return for the low-quality, high cost, copper Konkola mines, going through without shareholder approval. Does that mean that only Satyam lost out for not having been smart enough???? Morbid indeed. And finally, what does this bode for Indian IT? And indeed for India, since although this scam is compared to Enron in US, its impact will be far more debilitating to India than Enron was for the US, since IT is India's primary key to growth and economic success.

Here is my summary of the whole Satyam story so far - Satyam Saga.

Of frauds and scandals - Wrong thing at a wrong time

It wasn't a premonition that made me write about Satyam yesterday. But it is a demolition that has made me write today. Satyam, one of India's strong IT firms has reported fraud. Fraud of the first kind. Reported cash where there was none, and reported under exaggerated spending figures. Wait, it got worse. This has not been a trend of the past year or two, but of the past 10 YEARS! And the worst part is - PWC audited them and Satyam was ranked one of the top 50 companies of all time in corporate governance. Well, a rude shock indeed.

When the world is reeling under a credit crisis, stock markets are spiralling to hitherto unknown depths, the mayhem is spreading to other sectors after affecting manufacturing and housing, unemployment in the West keeps augmenting, general investor sentiment is to hoard cash under the mattresses, the world needs some strands of hay to cling on to! Unfortunately, now, since freely flowing credit has dried up, all the skeletons are coming out of the closet, much like the bones on a riverbed can be seen during a hot summer as the river dries up! First - Bernie Madoff - a classic 'iski topi uske sar ' story. Remorseless profiteering, using unfair means. Now, Satyam, whose woes began with a crazy diversification of stockholders' money into a family enterprise finally leading up to the opening of the ugliest can of worms India has ever seen since Harshad Mehta.

This has loads of implications and repercussions. India has a rather strongly regulated banking sector. So, India was spared the debilitating effects of the credit crisis the world now faces. IT and IT services are India's main USP. But India is still a young nation. We haven't even reached a 3 digit figure for years after independence. So, facing fraud in the sector that in a way differentiates India from other emerging markets is, tough and sad to say the least. Investor and client sentiment would decidedly begin to spiral down. Where can India then move to find its elusive economic stronghold?

So much for India. A bigger repercussion according to me, is the dent on the credibility of the Big 4, at least in India. Auditors are historically feared by all firms, big or small. Now, if a huge auditor has not noticed anomalies for not one, but 10 years, its like the 'Dark Ages' all over again. Who do we believe? Madoff has sparked off fire on the SEC in the US. Will Satyam cause ICAI to re-visit its processes? Must SEBI also stop resting on its laurels and begin to ensure that the prices of stocks are truly aligned to the core competence of the listed firms? But then again, will an over-reliance on external governance result in contrived growth on account of controls based on extreme caution and suspicion? Will this eventually turn the whole world RED?????

Terrorism in India - It is a management case study

2008 was a bloody year. Literally as well. Carnage everywhere. The mayhem in Iraq and Afghanistan continued undeterred, while the world continued to burn elsewhere as well. South Ossetia, DR Congo, Zimbabwe, Pakistan, Tibet, Israel, Sri Lanka, India (all over - Jaipur, Delhi, Mumbai, Guwahati) and now Palestine. The color of the flame however was the same - a violent yellow, with splashes of blood red everywhere.

I wrote a lot during the Mumbai carnage. A lot is an understatement. Well, when your manager asks you and your team to please work from home (since people are their most valuable capital), TV is on a terrorism overdrive, Gtalk conversations revolve only around the 'dastardly' acts of violence inflicted on Maximum city, anxious clients send emails asking us to be safe and please not worry about work deadlines and going out is ruled out, since for family, we are the only one of the kind, annnnnd, the only tool at your disposal to vent out the thoughts stacked up inside your mind is something.blogspot.com, you, tend to write. And write I did, like here.

The thoughts ranged from anger to frustration to outrageously enraged to plain stumped. Now that the dust has settled and the Mumbai terror attacks have formed the topic of discussion for Indian diplomats and foreign ones with an Indian interest, all that is left is retrospection and a push for urgent action.

Why do we need immediate action after Mumbai? India shining. Over the last decade, India was a glorious investment destination for people across the world. As recession began to hit the big boys of the world economy, many looked to the east for support. India-China. But soon, the hyphenation with Pakistan (India-Pakistan, a dreaded term from which India had managed to slowly but surely move away), sort of managed to preponderate over the hyphenation with China. I had an opportunity to speak to a person who invests in real estate in the US. With the real estate bubble bursting with disastrous effects in the US, he looked to invest in Indian housing. But one statement he made was, 'How can India expect investment in the country when the country's own peaceful existence is perennially threatened?' Ouch! On that score, our nefarious neighbors with hostile 'non-state actors' seem to have dealt a massive blow. A recent article in the economist underlined this fact, and this sorry event has effectively dented international confidence in India. Do I feel bad? Yes. Can I blame the international community? No. How many invest in Rwanda? Or Zimbabwe? Or Sudan? Unless India gets serious about internal security, we cannot aspire to become the world leaders, torch-bearers who can and will bring the world out of economic gloom. Also, India has historically been a patient nation. We have put up with multiple insurgencies by our neighbors (a whole post was dedicated to our 'honorable neighbors' here). But this time, with the terror attack reaching horrendously evil limits, everyone is scared. What happened in Mumbai can happen anywhere. Suspicion will abound, since every commuter with a big bag sitting next to me in a subway, will be looked at with a million thoughts and images in my mind. People are scared. Real scared. They are more disgusted with the failing system that failed to avert this attack, than with the terrorists.

What kind of action can be taken? US has imposed a 46 year trade embargo on Cuba, because Castro overthrew the America-backed dictator Batista. Can the world community do the same to Pak? Will that help? Well, for a country that has always been sending defence ammunition meant for a war on terror, to the perpetrators of terror, how long will it take to find another means of propping up the already failed economy? Like the filmy dialogues by our Hindi movie villains - 'I wasn't born a criminal, Samaj ne mujhe aise banaya', a trade embargo could perhaps send Pakistan further into the clutches of terror. When Mumbai happened, the youth urged for war. A surgical war even. That was the anger translated into a wish for immediate action. Look at Israel and Hamas. I for one feel that the Israel-Hamas conflict is akin to India-Pak. Nefarious, meddling neighbors, perpetrators of crime and terror, disturbing peace in the region, making the everyday man worry whether he'd be alive the next day. Too many similarities right? The recent conflict - Israel has launched an all out war against Hamas. Is Israel really to blame? Granted Hamas was elected to power in Gaza. But the elected government had resorted to trouble making. Rockets in the backyard everyday, killing a handful of Israelis almost daily. Israel, has historically never been a calm and patient country. But nevertheless they put up with the shelling and killing for a while. At one point, like the protagonist of a Premchand novel, one would want to just pick up a stick and hit back. And hit they did, BIG TIME! But what happens? A personal evil agenda, of a handful of terrorists (in this case Hamas) who operate from the cushy comforts of their safe havens kills hundreds. The retaliatory effect is disastrous. Is war, no matter how surgical, an answer? I think, No. Terror is a new enemy, and we need to think out of the box to cure this canker, before the 'eye for an eye' strategy renders the world blind.

India has chosen the diplomatic route against Pakistan. Piling pressure through US, UK, UN. This pressure has so far only resulted in eyewash. There are hints of imminent war. Only hints. Since only God knows the effect of war between two nuclear powered nations in a precarious place like the Asian sub-continent, whose Middle eastern part has been ravaged by war and violence for ages. But can Satyagraha help against barbarians? I don't know. I, for one have always felt that Gandhiji won independence for India, because the British were still civil and cultured. But this time, the enemy is evil, and barbaric. Another kind of a fight is needed here.

But one thing we ought to notice in this whole carnage story, is the fact that only Israel or USA or Russia can actually launch an all out offensive against another country. Why? They have the political and economic power in whatever way that may be, to face the world after their 'job' is done. So, like I'd written in one of my earlier posts, there are only two things that we can do, in the immediate future. Beef up internal security - cameras, spot checks, tight intelligence, civilian alertness, breed suspicion. Yup! Breed suspicion. It's better to be suspicious, than dead! Second, build the economy and the political system to a level of strength, so strong, that like the world fears action against Israel or China, for the numerous ills they may harbor, we Indians become a true force to reckon with, and we don't need the intercession of any other country into our 'personal affairs'.

Perhaps what happened in Mumbai, can actually influence the thinking millions in India and across the world to perhaps put on their thinking caps and find a solution that could really work and in Pranab Mukherjee's words produce 'tangible results'... What say?