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Satyam shows B-schools too need a codeof ethics

The Satyam Computer Services Ltd scandal has shown what bad corporategovernance can lead to. It will take some time before the story of the fraud unfoldsfully but as of now, it seems to be much more serious than just the windowdressing of the balance sheet. Probably Satyam created its contradiction in the truesense with Maytas Properties Ltd and Maytas Infra Ltd, and money was siphoned offfrom the computer software services firm to buy real estate and bribe politiciansthat eventually led to its fall. In the process, shareholders wealth and confidencehave been devastated. The management has put the careers of its staff in jeopardyand the image of Indian companies has suffered greatly. Some years in jail for thekey perpetrators of the fraud look inevitable.Most of the people primarily involved in the Satyam scam have a connection with

reputed business schools.

Also Read Premchand Paletys earlier columns

B. Ramalinga Raju has a masters in business administration from Ohio University

and has also had a stint at the Harvard Business School (HBS), where he attended

the owner/president course. But it seems this education didnt help him in his

transition from the mode of governance suitable for a small entrepreneur, which he

was before starting Satyam, to the kind needed to run a public limited company,

where one deals with other peoples money.

Satyams audit committee consisted of independent director M . Rammohan Rao,then dean of the Indian School of Business (ISB). He was on Satyams payroll,drawing a compensation of Rs13.2 lakh, besides getting 10,000 shares for anominal value of Rs2 each. Satyam was paying another director, HBS professorKrishna G. Palepu, Rs91.91 lakh, plus 5,000 shares for Rs2 each. Raju cleverly usedthe HBS and ISB brands to cover up his unethical activities. Like Rao, Palepu tooshould resign from HBS; he was closely associated with Raju for several years andhas brought a bad name to his institute by failing to protect the interests of

shareholders. Rajus other possible accomplice PricewaterhouseCoopers, the

auditing firm, is a regular recruiter from the Indian Institutes of Management(IIMs). It no longer has the moral right to continue operations. To assume Satyam is an isolated case would be folly. Window dressing of balance

sheets is a common phenomenon in the Indian corporate sector. In the licence raj

era, it was common for firms to give one set of accounting documents to the sales

tax office, another to the income-tax department and yet another to the banks from

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where finances were sought. In those days, it was difficult to do business honestly,

even for big companies, as money had to be siphoned off to cut through the red

tape. With economic reforms in the 1990s, doing business without greasing palms

became a possibility. But still, manipulation of accounts is practised by some to

siphon off funds or to inflate share prices which are then mortgaged to financialinstitutions to get cash.

This raises the issue of corporate governance and what business schools can do

about it. Stricter laws or more government interference will not help much if the

people running affairs dont internalize basic ethics. Making students aware of good

governance practices is the job of business schools. Cases such as Satyams fall or

the rise of Infosys Technologies Ltd can convey how ethics are good for any

business in the long run. But the best way to preach issues of ethics is to

demonstrate them. In most Indian business schools, governance is in crisis, and

this has a negative influence on students. It presents wrong role models and an

unethical culture at the starting point. Beating the system seems more lucrative.

It is time business schools had a code of ethics for their own governance. IIMs can

jointly draft the ethics code for all the processes and practices in an institute and

for the conduct of the governing board, director, faculty and students. There should

be clear guidelines of conduct for directors or faculty members who join boards of

companies. If any faculty member lends his name to a board, he is also lending the

name of the institute he represents, and should be made more accountable.

Similarly, ethical ways of internal processesincluding admissions, faculty selection

and evaluation, the selection of the director, student evaluation, interaction with

industry, placements, etc. should be clearly defined. Such a document can be a

guide for all business schools. Maybe this could be the agenda of the next quarterly

meeting of all IIM directors.

Premchand Palety is director of Centre for Forecasting and Research (C-fore) in

New Delhi, from where he keeps a close eye on Indias business schools. Comments

are welcome at businesscase@livemint.com