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So, globally, is Indian IT going to be tarred by the Satyam brush?
Business scandals tarnish names in a big way. No matter how much good work a firm has to its credit, one bad deed stands out like a sore thumb. The global telecom industry, for instance, still recalls the WorldCom fiasco with a grimace; Enron spells fraud in the energy industry, and Tyco will always be remembered for its CEO's mega-scaled embezzlement. So now that Indian IT is very much an integral part of the global tech industry, will ‘pulling off a Satyam' be indelibly linked to this industry?
To share their views, we present A Narayanan, CEO, eUdyog.com; Arjun Sethi, an advisor and angel investor in early stage ventures based in Silicon Valley; Bhaskar M V, chartered accountant and partner, Bhaskar, Aparna and Associates; Gopi Natarajan, CEO, Omega Healthcare Management Services; Rajan Chandras, a New York-based senior IT consultant and contributing editor to IntelligentEnterprise.com; and Rakesh S Shetty, group managing director, AccFin Business Solutions.
What led to the Satyam disaster?
Now while many a tech start-up may be quick to brush aside this example as being possible only in large corporations, there are lessons in the Satyam story for corporate leaders of all hues. For starters, are the factors that allowed the Satyam promoters' greed to take root and fester for so long, typical of a certain kind of firm?
Citing the disadvantages of the owner-driven business model that so many Indian IT companies have adopted, Chandras opines that, "The ‘ownership mentality' often creates ethical challenges in owner-managed firms that widely owned and professionally managed companies are spared. The concentration of ownership and executive powers in a single individual leads to the kind of absolute power that in turn leads to corruption."
This observation particularly relates to start-ups, as most tend to have owner-CEOs in their early stages. Although investors tend to bring in a professional CEO sooner, rather than later, as the promoter usually continues to have executive powers, the potential for ethical conflict is a persistent risk.
Lessons for start-ups
And given that prevention is always better than cure, Natarajan emphasises that, "Fiscal discipline and ethical practices are a must from the first day of any company's operations. Unless that discipline is set from the beginning by the management, it would be very difficult to rectify things, when matters have gone awry."
To this end, Shetty suggests that start-ups work towards building a structure that ensures transparency and sound corporate governance. "While most Indian start-ups develop people and then try out all sorts of managerial models to suit the existing human resources, they would benefit more by having a clear roadmap on transparency and corporate governance. The absence of a second line of management is the most common lacuna in the Indian corporate system, which needs to be addressed ab initio," he recommends.
This is not to suggest that a firm should not invest in its human resources. Narayanan observes, "Over-valuing people who are at the helm of affairs with the aim of ensuring their constant presence in the media and high rankings in popularity charts can be dangerous. He explains why: "To stay one up, most management teams are forced to be innovative on a 24x7 basis. The need to be one up may at times force them to cross the ‘line'."