The New Year has got off with a bang. India's Big-4 IT company has shown that it does not have underwear - the king without clothes and all along we believed that they were the best. Satyam Computers is a billion dollar plus company doing great business, employing 50,000 people across the globe....... and living a fraud.
The boss man at Satyam confessed that he has been cooking the books of accounts since the past 7 years or more. And this fudging has snowballed into a huge $ 1.2 billion hole in the company's statement of cash in hand and bank deposits. If this was not enough, Raju also said that revenue figures had been and margin statements for the quarter were inflated !
Satyam board had approved the purchase of companies owned by Raju's sons and the shareholders smelt a rat and Satyam's stock tumbled 55% on NYSE. The decision was withdrawn in an hour but this action brought greater scrutiny and the house of cards collapsed within a few days.
Governance norms were thrown to the wind by this company which was recently recognized by an award for good Governance (Golden Peacock).
What is surprising is that the directors, auditors, accountants and managers all say that they did not know about this. And this fraud has been going on for so many years now. So we must assume that Raju is super human and a super-genius to be able to put a mask on so many players at the same time and be able to successfully cloak numbers in the account statements repeatedly.
According to Raju he could not get off the tiger he was riding. It is common knowledge that you sleep with the devil and you get burned. He started a con job and the con grew bigger and bigger and there was no way he (or his cronies) could handle it.
And all these cronies are crying out loud claiming innocence. The auditors say that they relied on documents provided by the management ! The CFO says he did not check the balance sheet and that it was prepared by his VP !! The Directors say they accepted what was presented to them - ta face value !!! It is highly irresponsible to sign on public documents asserting they are correct and then not being able to stand by the same documents. All these people were busy being wined, dined and rewarded with cash and gifts and never gave a thought to their responsibility towards the shareholders.
Hope they are brought to book too, and get to see a jail from the inside. The reason is that this is a typical line of thought - nothing will happen it is India. Our investors association hardly has any teeth to fight for rights and bring these large corporations to closure. Well for once they were wrong because they did not factor shareholder anger in the US.
And thank God for this wake up call. Companies must embrace the practices of good governance not for complying with public sentiment and regulatory requirement. Any corporate leader with a decent amount of common sense can reap benefits of good governance by way of efficient processes and increased brand value which will provide ROI in the form of savings and stakeholder / customer confidence. The trick is in implementing governance initiatives in the spirit and do not worry you are not exposing yourself but you will be cleaning your act.
Showing posts with label bad govenance. Show all posts
Showing posts with label bad govenance. Show all posts
Thursday, January 15, 2009
Wednesday, January 30, 2008
Societe Generale .. messed up information security controls
They say that they have SIX levels of controls.... so were the controls working ? or were they drunk (or disabled to allow easy access) for over a year.
And what were the auditors doing !
And the managers to whom M Kerviel reported.
Obviously Societe Generale team has no clue about the concept of Segregation of Duties, or Identity Management at the first level. One would expect that SOD would be in place and responsibility levels would be established. There seems to be no limit on the transaction value which an individual can transact and to top this sad state of affairs, there is no oversight on the actions of the trader.
The the spirit of Governance is sorely lacking in terms of communication, in terms of transparency since this is a public institution, in terms of (seemingly) witch hunting, in terms of absolving the Chairman of any responsibility in the affair. The basic tenet of good governance is that the bosses are responsible for EVERY MESS as much as they are responsible for every win, and that they have to know what is going on in the organization, especially when the risk is so high.
Incident Management sucks - their Communication plan is all messed up. Every statement has been made when their knee jerked. Statements do not seem to be backed by any investigation and just make allegations. Then there are mis-statements like the correction of the original amount of $ 7.1 bn being split into 5.1 from the trade and 2 from the sub-prime exposure.
Their reputation is already in the pits, and with these gaffes, they are just making themselves look sillier and sillier. If bank chairmen are such, I think I can do a better job
Risk Management ... does it exist outside their policy book ? They claim to have the most sophisticated risk management system, but does it exist in practice ? That is the catch and this is how it is everywhere. Policies are made along with loud noises but then what ? Does the policy move into practice and is the practice sustained, is the billion dollar question. Everyone wants to know how this works at SG and it is anyone's guess if these guys are going to share their sob story.
The jury is out on this ......... a trader is exposed for about $ 50+ bn which is enough to wipe out the bank. And NO ONE IN THE BANK KNOWS ! So does he not report to anyone. Are there no pay-outs or pay-ins which have to be entered into the books of account, no checks to issue, no payments to acknowledge - do we assume that he made the trade, then HE wrote up the books of account and then HE signed any check / voucher. In other words he (a junior trader) ran the bank department or HE was the department.
We do know that red flags were raised about his positions, so was his work put under review and was a limit set to his activities.
......... there is much much more here and it will be a great drama which will unfold over the next few days / weeks. We have the first statements from the 'rogue trader' and as he talks and as the police investigate at SG we shall see and hear a lot more.
The article on the BBC website is an interesting read. SocGen Unhedged, by Robert Peston
And what were the auditors doing !
And the managers to whom M Kerviel reported.
Obviously Societe Generale team has no clue about the concept of Segregation of Duties, or Identity Management at the first level. One would expect that SOD would be in place and responsibility levels would be established. There seems to be no limit on the transaction value which an individual can transact and to top this sad state of affairs, there is no oversight on the actions of the trader.
The the spirit of Governance is sorely lacking in terms of communication, in terms of transparency since this is a public institution, in terms of (seemingly) witch hunting, in terms of absolving the Chairman of any responsibility in the affair. The basic tenet of good governance is that the bosses are responsible for EVERY MESS as much as they are responsible for every win, and that they have to know what is going on in the organization, especially when the risk is so high.
Incident Management sucks - their Communication plan is all messed up. Every statement has been made when their knee jerked. Statements do not seem to be backed by any investigation and just make allegations. Then there are mis-statements like the correction of the original amount of $ 7.1 bn being split into 5.1 from the trade and 2 from the sub-prime exposure.
Their reputation is already in the pits, and with these gaffes, they are just making themselves look sillier and sillier. If bank chairmen are such, I think I can do a better job
Risk Management ... does it exist outside their policy book ? They claim to have the most sophisticated risk management system, but does it exist in practice ? That is the catch and this is how it is everywhere. Policies are made along with loud noises but then what ? Does the policy move into practice and is the practice sustained, is the billion dollar question. Everyone wants to know how this works at SG and it is anyone's guess if these guys are going to share their sob story.
The jury is out on this ......... a trader is exposed for about $ 50+ bn which is enough to wipe out the bank. And NO ONE IN THE BANK KNOWS ! So does he not report to anyone. Are there no pay-outs or pay-ins which have to be entered into the books of account, no checks to issue, no payments to acknowledge - do we assume that he made the trade, then HE wrote up the books of account and then HE signed any check / voucher. In other words he (a junior trader) ran the bank department or HE was the department.
We do know that red flags were raised about his positions, so was his work put under review and was a limit set to his activities.
......... there is much much more here and it will be a great drama which will unfold over the next few days / weeks. We have the first statements from the 'rogue trader' and as he talks and as the police investigate at SG we shall see and hear a lot more.
The article on the BBC website is an interesting read. SocGen Unhedged, by Robert Peston
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