Asatyam Saga; A cultural or a moral issue?

January 11, 2009

An American and a Chinese were once visiting a cemetery where their friends where buried. The American carried a beautiful bunch of flowers, whereas, the Chinese bore a bowl of cooked rice. The American found it ridiculous that any one would think of leaving food at a graveside. “Do you really think,” he asked his Chinese friend, “that your dead friend would come and eat the rice that you are leaving here?”

“Yes, of course,” retorted the Chinese. “He will come and eat the food around the same time as your friend will come out to smell the flowers that you are leaving for him.”

This anecdote, in my view, provides a good cultural framework for understanding the ethical debate surrounding the sordid Satyam saga. For Westerners, an act is either RIGHT or NOT RIGHT. Cooking accounts is something that is “not right.” Period. However, for Orientals, the picture is not so Black & White. Everything is in-between; which implies, that sometimes, this in-between can be a dirty shade of grey. Their worldview is more complex and more twisted than the more straightened view of an Occidental businessman, which is why, I was not surprised, when a colleague nonchalantly retorted, “Everybody does it. Satyam did it at a wrong time, when the economy was down and got caught.” Tch! Tch!

Do you know that even accounting is culturally influenced? Companies in some countries routinely keep double and triple books for different purposes or have complex ownership structures, particularly in case of family ownerships. This may be extremely confusing for a U.S. pharmaceutical company seeking to strike an alliance with a Chinese or an Indian drug maker, creating an explosive cultural mix.

With this framework, one can understand why corruption has always remained and will probably always remain a deep-ridden, endemic issue in countries like India, Pakistan and China. It could not be stemmed out in the Ohio-University-educated Ramalinga Raju. Beneath the veneer of a sophisticated, IT entrepreneur, he must still have carried his unique cultural baggage. The mask got ripped off only when things got too hot to handle during an economic slowdown.

Morality, in my view, is a very difficult word to define. If, we presume that it has something to do with values or ethics, even these are not absolute, indisputable terms as different schools of thought (Utilitarianism, Deontological, Contractualism, Egoism, etc.) have interpreted these concepts differently, and often, conflictingly.
The notion that good corporate governance means maximizing shareholder value derives from the neoclassical theory of market economy. However later theorists felt that even this perspective has limited value in understanding the operation and performance of a business corporation or the institutions that govern it.

Enron, Worldcom, Madoff, Parmalat, indicate that successful collusion occurs even where there exist efficient means of policing cartels of self-interest. Cheats benefit unless they are detected and once detected are swiftly punished. They cease to violate the terms of an agreement, when there is fear that loyal members will retaliate, or there would be severe penalties for the offence. This kind of policing, obviously comes from within. It cannot be imposed by outside agencies. Indeed, “overregulation is the quickest way to make a bad scandal worse,” says a Wall Street Journal article, correctly acknowledging that “corporate fraud doesn’t just happen in America….. fraud is possible even under the nose of smart overseers.”

However where there is “implicit collusion,” as witnessed in Satyam’s case, where certain stakeholders (independent directors, regulatory authorities etc.) may have had some knowledge of the goings on but took no action, the problem becomes more acute. Detection of such collusion is often very challenging, especially in a culture where “capital-related offences” are not considered as serious, or attract as severe a penalty as crime against a person. Only if there be a policy in place that encourages an enterprise to report collusion, reward the informant (the ‘whistleblower”) and use the information against the remaining enterprises, such scams can be held in check, although we know from our experiences of Enron and Worldcom that such a system of checks and balances does not even exist in the Western world, which is how Enron and Worldcom remained undetected for so long, when in societies where the cultural tolerance for such crimes is lower than in the Eastern world.

This brings us to the question —- what is the lesson learnt from Satyam?

Simple. Corruption may pay in the short-run, especially when you are flowing with (and not against) the tide. However if you are looking at long-term gains and business sustenance, this is not a recipe for profit. In his book, Managing Corporate Ethics, Francis Joseph Aguilar (2004) asserts that it is essential to integrate morality into the very fabric of a company by incorporating ethicality into every process of the organization, including strategic planning. “Making a firm’s long-range navigation system an integral part of its normal strategic planning process, when done right, is undoubtedly the most effective way for aligning business operations with the organization’s values and ethical aspirations.”

Unless, that is done, we may continue to have more Satyams, Enrons and Worldcoms crawling out of the woodwork.


Comments

4 Responses to “Asatyam Saga; A cultural or a moral issue?”

  1. SBL on January 12th, 2009 1:25 am

    Nice blog. Thanks for sharing……
    Regards,
    SBL

  2. Satyam scandal - Can other Indian outsource vendors be Trusted? | Outsource Portfolio on January 18th, 2009 4:58 pm

    […] have been reading a lot about Satyam accounting scandal, various news about questioning  Indian capitalism, trust and integrity and accounting practices […]

  3. outsourceCebu on January 26th, 2009 3:48 am

    This issue enables offshore services and customers to recheck and re-evaluate their terms, agreements and partnership. This is really hurting the BPO business. This line is very true “Corruption may pay in the short-run, …this is not a recipe for profit”.

  4. A crisis of credibility | Outsource Portfolio on February 1st, 2009 10:11 pm

    […] then, beginning this year, an avalanche of troubles fell on the beleaguered company, when the promoter Ramalingam Raju “confessed” to having siphoned off millions from the listed to two unlisted companies […]

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