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Heavy toll of tattered reputations

B.S. RAGHAVAN

A time there was when every company and business house worth its salt gave topmost priority to secure and retain the trust and goodwill of its customers and stakeholders and zealously guard its reputation, whatever be the cost and the effort that it entailed. Product recalls were rare, and so were entanglements in unsavoury litigation. Audit firms too commanded respect and no one even thought of questioning the veracity and authenticity of their certification of the balance-sheets and profit-and-loss statements.

Industrially advanced democracies, in particular, had led the rest of the world into believing that the systems and procedures that they had established for conducting business made any manipulation or machination impossible. Altogether, an aura of systemic impregnability and professional integrity was part of the accepted hallmark of many companies in the Western world.

This carefully cultivated brand image is in mud in the last 10 years or so. Untold number of instances of fudging of accounts, going by the euphemism of ‘creative accounting', financial finagling, and defrauding investors and customers alike, in collusion with well-known audit firms had been riveting the attention of the public at large all over the world.

The sinking like the Titanic of Enron which had been parading itself as a beacon of innovative excellence and futuristic business solutions and its auditors, Arthur Andersen, came as a shock to the people of the world and alerted them to something being rotten in the Western modes of transacting business. The procession of companies falling by the wayside that started then in the US has been continuing.

Reckless adventurism

The Big Four auditing firms and financial institutions have been falling foul of Securities and Exchange Commissions in the US and Europe which have levied heavy fines, sometimes of hundreds of millions of dollars, for some malpractice and malfeasance or other. JP Morgan and Goldman Sachs were some months ago fined 33.3 million pounds and 17.5 million pounds by Britain's Financial Services Authority (FSA) (the first and second highest penalties in respectively in its history) for serious violations of financial regulations. Goldman Sachs is under investigation by the US Securities Exchange Commission (SEC) for a transgression that cost the investors as much as a billion dollars.

The most recent instance is of Ernst and Young which has been accused of grave dereliction, if not criminal conspiracy, analogous, in the eyes of experienced professionals, to that shown by Arthur Andersen in the Enron episode, in hiding the ugly state of affairs in Lehman Brothers.

It can be said without exaggeration that the entire financial crisis in the West had its origins in the reckless adventurism of, and lack of control over, firms in the banking and financial sectors.

Mega serial

At least for all outward appearances, till the monumental fraud and cheating by Satyam, facilitated by the incompetence, at best, and complicity, at worst, of Price Waterhouse Coopers, came to light, business and industry, as also associated audit firms, in India had been relatively free from scandals of such Himalayan proportions. I do not recall any instance of the Securities and Exchange Board of India (SEBI) fining Indian companies ever at all, and certainly not on the same scale as the FSA and SEC.

The post-2G spectrum scenario and the published versions of Nira Radia tapes has made up for all that many times over. It has tarred in its wake the reputations of a number of entities, including the Tatas, previously assumed to be an exemplar of ethical norms and social responsibility, and sections of the media which had been the loudest in preaching values and virtues. The atmosphere has become so murky that a miasma of distrust surrounds everyone connected with the Government, business, industry and the media. To most people, what is unfolding seems only the beginning of a mega-serial of which the end is far, far away.

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