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Saturday, 10 January 2009

To quote from Shantaram, ‘The only force more ruthless and cynical than the business of big politics is the politics of big business'.


 


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The friends of Satyam (Rogue's gallery)?

UK based World Council for Corporate Governance - Golden Peacock Award for 2008 - Satyam (now withdrawn)
 
Ramalinga Raju named Ernst &Young Entrepreneur of the year 2007

 
Take the role of Satyam's independent directors who are now trying desperately to distance themselves from the mess. What is even more depressing is that the independent directors included Harvard professor Krishna Palepu, Indian School of Business Dean M Rammohan Rao, entrepreneur Vinod Dham and former Cabinet Secretary T R Prasad. If a board so exalted and comprising so many eminent people cannot ensure adherence to corporate governance norms, there is something seriously wrong with the system.
 
 
 


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Friday, 9 January 2009

At least a fifth of the top 500 listed companies practice "creative accounting"


 

How did Satyam pull off India's biggest corporate fraud?
8 Jan 2009, 1843 hrs IST, REUTERS


Government has vowed to strengthen laws to prevent corporate fraud after Satyam Computer, the country's fourth-largest software company, shocked investors by revealing profits had been falsely inflated for years.

Chairman Ramalinga Raju resigned on Wednesday after revealing India's biggest corporate scandal in memory, sending the company's shares plunging nearly 80 per cent.

The following is an overview of how the fraud escaped detection for so long and what compelled a soft-spoken man born into a family of farmers to risk all.

Q: How did Satyam escape detection?

A: On the face of it, New York-listed Satyam did everything by the rulebook, with an international firm auditing its books, declaration of accounts in accordance with Indian and U.S. standards, and the requisite number of independent directors with excellent credentials, including a Harvard business school professor and a former federal cabinet secretary.

Raju, in his now famous 5-page letter outlining the deception, said no other board member -- past or present -- was aware of the financial irregularities.

Regulators were blindsided, and analysts and experts say there are "systemic flaws" in accounting and audit practices.

About $1 billion, or 94 per cent of the cash, on the company's books was fictitious, Raju said, and manipulation of the cash flow may be a reason why the fraud was undetected.

"Companies have manipulated P&L (profit and loss) accounts before, but cash flow is the Holy Grail -- you don't tamper with it," said Saurabh Mukherjea, an analyst at UK-based research firm Noble Group.

"Auditors generally assume if there is cash, things are OK. But there are plenty of accounting and governance loopholes."

India also lacks a culture of dissent, with shareholders and independent directors reluctant to question company founders.


Also Read
 → Satyam's CFO puts in papers; Board to take call on Jan 10
 → Satyam addresses media: liquidity a concern
 → Govt orders inspection of 8 Satyam subsidiaries
 → PwC says audit of Satyam in accordance with auditing standards


Q: What was the motive?

A: India's $50-billion information technology industry -- the poster child for India's economic liberalisation and rapid growth -- expanded at a scorching pace on the back of outsourcing demand from Western firms.

At the height of the boom, top software firms Tata Consultancy Services, Infosys Technologies, Wipro and Satyam consistently reported annual 50-per cent increases in profits every quarter.

Pressure to maintain this pace of growth, please investors and shareholders and justify inflated P/E multiples during a six-year bull run on the stock market have all been cited as reasons why Satyam cooked the books.

Some news reports say Raju was an aggressive investor in failed dotcoms, and the family also put money in real estate.

Raju, in his letter, said he had "not benefited in financial terms" as a result of the inflated accounts.


Q: Are there other Satyams out there?

A: Most certainly, say analysts and industry experts.

While there has been a plea from chief executives across the board against painting all of corporate India with the same brush, Noble Group estimates at least a fifth of the top 500 listed companies practice "creative accounting".

"At its most innocent it is not illegal, but account manipulation is very pervasive," said Mukherjea.

Q: What needs to be done to prevent another Satyam?

A: Tighter rules for accounting and corporate governance, including appointment of independent directors by selection committees, and greater oversight from regulatory and government authorities.

Noble Group also suggests separation of audit and consultancy functions at companies, and quicker publication of annual reports.




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Indian Or Israeli?


  

How does Israel's "military" offensive against Hamas and India's "diplomatic" offensive against Pakistan measure up to the laws of war? What are the consequences of the two approaches? Which one is better? 



NAMRATA GOSWAMI
West and South Asia are in turmoil yet again. 
A tenuous unwritten six months cease-fire brokered by Egypt between Israel and Hamas on June 19, 2008 expired on December 19 without an attempt at further renewal resulting in the break out of massive violence in Gaza. For starters, the cease-fire was already in troubled waters due to the dogged posturing by both sides: Hamas's refusal to put an end to rocket launches into Israeli territory; Israel's refusal to open crossings like Rafah for the movement of goods into Gaza from Egypt. 
In effect therefore, the violent outbreak was predictable. On the one hand, an isolated Hamas wants to utilize rocket firings to coerce Israel into uplifting its strategy of economic blockades against Gaza which has virtually rendered the former incapable of meeting the basic needs of the Palestinian people. Israel, on the other, is utilizing a massive air and ground offensive since December 27 till date to violently coerce Hamas into submission before any attempts at a future cease-fire are made. 
Sadly, this time around, the role of international mediators has been limited at best with the US undergoing a transition in its Presidency, the "trustworthiness" of Egyptian mediation under question by Hamas due to the former's false assurances that there will be no immediate Israeli military aggression post-December 19 and the EU's 27 nations unable to come to a consensus on the conflict.  Thereby, a historical tragedy of sorts is unfolding with heightened regional tensions between Israel and the Arab world. 
Meanwhile, in South Asia, India is also facing increasing tensions with its neighbour Pakistan in the aftermath of the Mumbai terror attacks. Consequently, certain security analysts have argued that India should perhaps emulate Israel's military offensive in Gaza in its own response to terror originating in Pakistan. Indeed, public debates in India called for surgical air-strikes on Lashkar-e-Toiba (LeT) camps in Pakistan during and immediately after the Mumbai attacks. 
Unlike Israel however, the Indian government has resisted a "knee jerk" reaction to externally exported terror and by far has shown better judgement with Manmohan Singh, India's Prime Minister stating that a military strike on Pakistan is at this juncture "off" the table. Instead, he stated that certain elements within official agencies in Pakistan support terror activities and must be brought to book by the international community. A diplomatic effort in this direction is underway with the Indian government sharing evidence of Pakistan's complicity in the Mumbai attacks with other nations in order to isolate it for supporting terror as an instrument of foreign policy.
Indians are naturally angry at their country's vulnerability to such terror. It is becoming increasingly clear to them that terror outfits can strike their cities and towns with impunity and that the state's counter-terror mechanism is weak, ineffective and unable to avert these attacks. Data tabulation of civilian deaths in 2008 terror attacks on Jaipur, Ahmedabad, Bangalore, Delhi, Guwahati and Mumbai indicates a figure as high as 800. Though the other terror attacks evoked public anger, it is the blatant nature of the Mumbai attacks by 10 LeT Pakistani nationals holding the country hostage for 62 hours that had raised the prospects of Indian air strikes on terrorist camps in Pakistan.
In order to understand the character of both the Israeli and Indian response to terror, it is rather pertinent to assess how they both measure up to the laws of war. Such an analysis will bring to the fore the nature of both responses, the consequences as well as indicate whether a military or a diplomatic response is the better of the two.
The Laws of War: Just War
The notion of "Just War" is a well honed historical tradition on the rules of war. According to this tradition, there are two aspects in war---recourse to war (jus ad bellum) and conduct in war (jus in bello). 
Jus ad bellum has six principles:
  • The first principle is "just cause," indicating that war could be waged between two legitimate political entities either for self-defence or the protection of human rights. 
  • Second, the authority that declares war must be a legitimate entity within the comity of nations. 
  • Third, war must be guided by "right intentions" and not by any hidden intent of self- aggrandisement by an individual or a state. 
  • Fourth, war must be the last resort. 
  • Fifth, it must have a high "probability of success" for the wager state. 
  • Sixth, the end result should culminate in positive benefits for the target state.
Jus in bello is based on two principles: 
  • "Proportionality of means," indicating that the "means" employed must not negate the good that war brings about in the target state. 
  • The last criterion is discrimination and non-combatant immunity: civilians cannot be targeted in a war.
Case of Israel
Locating the present Israeli military offensive in Gaza within the Just War tradition throws up interesting insights on the effectiveness of a military offensive as the first resort in a country's counter-terror policy. 
First, Israel had a right to self defence since it was Hamas who first launched 88 rockets into Israeli territory on December 24 following an end to the cease-fire on December 19. It must be noted that independent analysts view Hamas's act as a response to the killing of three of its operatives by Israeli forces at the border. Nevertheless, Hamas's act constituted a violation of territorial integrity of another nation as cited in Article 2 (4) of the UN Charter. This is also justified under UN Charter Article 51 which states that "Nothing in the present Charter shall impair the inherent right of individual or collective self-defence if an armed attack occurs against a Member of the United Nations…"  Therefore, in this light, a military strike against Gaza is justified. 
Second, Israel is a legitimate entity in the international community and therefore has a right to self defence. 
Third, coming to the Just War criterion of "right intentions", Israel's intentions in Gaza are unclear. Ostensibly, it wants to stop the Hamas rocket launches from Gaza into its territory but the real goal could perhaps be to teach Hamas a lesson and brutally drive home the fact that it cannot view itself as an equal with Israel.
Israel's military offensive also does not fulfil the "force as last resort" criterion as it did not provide mediators like Egypt or Turkey a chance to work with Hamas towards extending the cease-fire. Neither did it give Hamas an opportunity for a truce by negotiating for a "phase by phase" opening of the crossings between Israel, Egypt and Gaza which could have brought in the much needed basic goods into Gaza. In interviews to the International Crisis Group, the Hamas fighters asserted that faced with an alternative between starvation and fighting, they would rather chose the later.
That apart, the Israeli military strikes also disqualify in the Just War criteria of "proportionality of ends", "probability of success", "proportionality of means" and "discrimination and non-combatant immunity".
The military strikes in Gaza have resulted in a severe shortage of basic commodities like food, water, milk, meat and medicines.Banks have collapsed leaving people with virtually no money to buy provisions. The Israeli strikes on Palestinian government institutions like interior, justice, education, finance and culture have raised doubts not only about the question of "proportionality of means and ends" but also starkly about Israeli intentions. The attacks on the civilian police have resulted in a collapse of the internal structures of law enforcement in Gaza.
Though Hamas is no Lebanese Hezbollah, being far inferior in training and arms, yet the "probability of success" in terms of Israel's so-called prime objective, stopping rocket launches from Gaza, is also under suspect. Though the military offensive might stop short range attacks, there is no guarantee that long range attacks will be thwarted. According to some senior Israeli security analysts, though the Israeli military planning is precise and clear, there is a diplomatic and political inability to state clearly the desired outcome/objectives of the war.
Worse still is the humanitarian disaster that Israel's attacks have created in Gaza. Till date, more than 640 people including children have died in the air strikes and ground offensives. On January 6, an Israeli air strike on a UN school resulted in the death of 40 women and children taking shelter there. Though Israel has claimed that it has given prior warnings to Palestinian civilians of impending attacks, such warnings are ineffective as there is no where safe to go. A case in point is the Samouni family of Zeitoun, Gaza City who left their own house after being warned of impending air attacks by Israeli soldiers but perished in Israeli air strikes while taking shelter in a relative's house.
Israel argues that Hamas utilizes civilians as shields but this does not negate the fact that from its early focused targeting of the Hamas's military wing, the al Qasam Brigade's15 training camps and limited port and costal facilities, Israel has gradually activated indiscriminate aerial bombings on civilian areas. The consequences have been the displacement of 80 per cent of civilians in Gaza with UN observers on the ground stating that a humanitarian tragedy is on the making there.
Case of India
While examining the Indian counter-terror response against Pakistan within the context of jus ad bellum, it is clear by now that India has a case for self defence.
Intelligence reports confirm that the 10 LeT men responsible for the Mumbai attacks came via the sea from Pakistan. Therefore, a military strike on terrorist camps in Pakistan is justified.
Second, India is a legitimate entity in the comity of nations and therefore has the right to declare war in self defence.
An Indian air strike will also fulfill the Just War criterion of "right intention" since India's intentions are to specifically target terror camps in Pakistan's territory in order to safeguard its own territory from attacks orchestrated by terror groups there.
However, a war at this juncture may not fulfill the Just War criteria of "force as last resort" as Pakistan has to be given some time to crack down on terror groups in its territory. There has to be enough peaceful communication between the wager state and the target state before the decision to use force is taken.
Significantly, India is making a serious effort in this direction by giving Pakistan an opportunity to act against terror outfits in its territory. On January 5, India handed over a 69 page "evidentiary dossier" to Pakistan providing detailed evidence of Pakistani hand in the Mumbai attacks. Pakistan, however, is not helping matters much by its belligerent approach of denying any links of its nationals to the Mumbai blasts despite being provided concrete evidence.Subsequently, Indian External Affairs Minister, Pranab Mukherjee is writing about the evidence gathered to his counter parts in other countries to put diplomatic pressure on Pakistan.
These are steps in the right direction regarding the "force as last resort" criterion. The laws of war clearly state that any decision to use force has to be preceded by a serious diplomatic effort providing the target state a chance to right the wrongs. Hence, India's counter-terror response is by far superior to that of Israel within the context of Just War.
With regard to the criterion of "proportionality of ends", India will have to do a real-time "action-consequence" assessment of any military strikes on Pakistani based terror camps. If air strikes do take place due to Pakistan's continued belligerent attitude, India has to ensure that such strikes enjoy precision and do not result in heavy "collateral damage" similar to that of the current Israeli offensive. Also, the end result after Indian strikes should not leave Pakistan worse off than what it is today.
The most crucial criterion of jus ad bellum is, however, the "probability of success" aspect. The question we need to ask here is: what is the "probability of success" of Indian air strikes killing terrorists staying in terror camps, for instance, in LeT headquarters in Muridke, or camps in Muzaffarabad, Lahore, Peshawar, Islamabad, Rawalpindi, Karachi, Multan, Quetta, Gujranwala, Sialkot and Gilgit? The "probability of success" appears low as the terrorists are fully aware of arguments in India for strikes on their camps and therefore must have deserted these camps by now and merged with Pakistani civilians.
The criteria of jus in bello is also very policy informative with regard to any military strikes. Indian air strikes could be disproportionate in terms of civilian deaths in Pakistan as some of the main terror camps are housed near civilian areas. This could result in intense internal unrest in Pakistan, more disturbances in India's border areas like Kashmir and international condemnation.
The US "war on terror" in the aftermath of 9/11 in Afghanistan and Iraq has taken a huge toll on civilians. Afghanistan has suffered almost 1000 civilian casualties per year since 2001. Iraqi civilian deaths since 2003 are far more staggering. According to the Brookings Iraq Index (May 2003-March 2008), the US intervention in Iraq has resulted in 104, 317 civilian deaths. Israel's current military offensive against Hamas may appear tough on terror but will result for sure in further militarisation of Palestinian society, anger at Israel and long term insecurity in the region.
Given this outcome, India therefore needs to tread with caution regarding the military option against Pakistan. Though there is a justified reason for going to war, Just War criteria like "probability of success", "proportionality of means and ends", and "discrimination and non-combatant immunity" rightly indicates the dangerous consequences of a rapid reactionary response. Also, given the porous nature of India's borders and glaring loopholes in its internal security infrastructure, an Indo-Pak war may lead to further instability in the South Asian region. The possession of nuclear weapons by both states is an added reason for caution about any war talk.
Pakistan, however, needs to act more responsibly and undertake serious efforts towards dismantling the numerous terror networks existing in its territory. This is a debt it owes not only to itself but also to its South Asian neighbours as a whole.

Dr. Namrata Goswami is an Associate Fellow at the Institute for Defence Studies and Analyses (IDSA), New Delhi.The views expressed here are that of the author and not necessarily that of the IDSA.



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Thursday, 8 January 2009

Satyam board hailed from heights of business and academia


 

Satyam board hailed from heights of business and academia

By James Fontanella-Khan in Mumbai
 
Published: January 7 2009 20:13 | Last updated: January 7 2009 20:13
 
Satyam's independent directors were among the most respected and renowned in India, as they covered key political, academic and corporate roles on the subcontinent and internationally.
 
Mangalam Srinivasan was appointed as an independent director of Satyam in July 1991. An acclaimed academic and management consultant, she was one of the first women to be invited as a fellow to Harvard University's Center for International Affairs and is an adviser to Harvard's Kennedy School of Government.
 
Apart from her academic and business career, she has played key roles in several governmental organisations. Ms Srinivasan worked as an adviser to Indira Gandhi, India's former prime minister, in the 1980s and was a consultant to the United Nations on corporate social responsibility. Ms Srinivasan was the first director to resign in December after the World Bank barred the Satyam from doing business with them and after the group's botched attempt to buy two companies controlled by the family of B. Ramalinga Raju, the chairman.

 
M. Rammohan Rao, who chaired the controversial board meeting on the acquisition of the two companies, which was scrapped after investors revolted, was appointed as an independent director of Satyam in July 2005. He is the dean of the prestigious Indian School of Business at Gachibowli on the outskirts of Hyderabad, the city where Satyam is based. Before becoming dean of IBS, he headed the Indian Institute of Management, Bangalore, where many of the subcontinent's most successful business people have been trained.
 
As an internationally recognised academic, Mr Rao also taught at the Stern School of Business, which is part of New York University.
He sits on several boards in India, including APIDC Venture Capital and Bharat Electronics. Mr Rao was also a member of the Reserve Bank of India panel formed to recruit a deputy governor. However, he was forced to resign from the panel as the Satyam scandal developed.
 
He resigned from Satyam's board on December 29.
 
T.R. Prasad, who was appointed to Satyam's board in April 2007, is one of two out of six independent directors who has not resigned from his post since the scandal broke in mid-December.
 
Before joining Satyam, Mr Prasad held a number of key roles in government. He was formerly cabinet secretary and member of the Finance Commission of India. He was also secretary of Industrial Policy and Promotion and chairman of the Foreign Investment Promotion Board.




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Monday, 5 January 2009

Scientists dismiss 'detox myth'

http://news.bbc.co.uk/1/hi/health/7808348.stm
 
  
There is no evidence that products widely promoted to help the body "detox" work, scientists warn.

 

The charitable trust Sense About Science reviewed 15 products, from bottled water to face scrub, and found many detox claims were "meaningless".

 

Anyone worried about the after-effects of Christmas overindulgence would get the same benefits from eating healthily and getting plenty of sleep, they said.

 

Advertising regulators said they looked at such issues on a case-by-case basis.

 

The investigation, done by research members of the Voice of Young Science network, was kicked off by a campaign to unpick "dodgy" science claims - where companies use phrases that sound scientific but do not actually mean anything.


 

They challenged the companies behind products such as vitamins, shampoo, detox patches and a body brush on the evidence they had to support the detox claims made.

 

No two companies seemed to use the same definition of detox - officially defined by the Oxford English Dictionary as the removal of toxic substances or qualities.

 

In the majority of cases, producers and retailers were forced to admit that they had simply renamed processes like cleaning or brushing, as detox, the scientists said.

 

Toxins

 

One researcher investigated a Garnier face wash which claimed to detoxify the skin by removing toxins.

 

The "toxins" turned out to be the dirt, make-up and skin oils that any cleanser would be expected to remove, she said.

 

A five-day detox plan from Boots which claimed to detoxify the body and flush away toxins was also criticised for not being backed by evidence.

Evelyn Harvey, a biologist who looked into the product, said that if consumers followed the healthy diet that was recommended alongside the supplement they would probably feel better - but it would have nothing to do with the product itself.

 

The researchers warned that, at worst, some detox diets could have dangerous consequences and, at best, they were a waste of money.

 

Tom Wells, a chemist who took part in the research, said: "The minimum sellers of detox products should be able to offer is a clear understanding of what detox is and proof that their product actually works.

 

"The people we contacted could do neither."

 

Alice Tuff, from Sense About Science, added: "It is ridiculous that we're seeing a return to mystical properties being claimed for products in the 21st Century and I'm really pleased that young scientists are sharing their concerns about this with the public."

 

The Advertising Standards Authority said it would investigate such claims on a case-by-case basis if a complaint was made.

"If a product is making claims not substantiated by the evidence submitted by the company we would challenge that."

 

A spokeswoman from Boots said its five-day detox plan encouraged people to drink water and includes ingredients that "battle against toxins and help protect from the dangers of free radicals".

 
And Garnier commented: "All Garnier products undergo rigorous testing and evaluation to ensure that our claims are accurate and noticeable by our consumers."
 



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