& çâÌæÚUæð´ ·¤è ¥ôÚU Îð¹Ùæ ÁæÚUè ÚU¹ð´ ¥ÍæüÌ ¥ÂÙð ÜÿØ ÂÚU ŠØæÙ ÚU¹ð´Ð ãæÚU Ù ×æÙð´, €UØô´ç·¤ ·¤æ× ·¤ÚUÙð âð ¥æÂ·¤ô ©gðàØ ·¤è Âýæç# ãôÌè ãñ ¥õÚU ÁèßÙ ·¤æ ¹æÜèÂÙ ÎêÚU ãôÌæ ãñÐ ÖÜð ãè ÁèßÙ ×ð´ ç·¤ÌÙè Öè ·¤çÆÙæ§ü €UØô´ Ù ¥æ°, çÁ™ææâæ ¥õÚU ©ˆâæã ÕÙæ° ÚU¹ð´Ð ŠØæÙ ÚU¹ð´, ÜÿØ ã×ðàææ ¥æÂ·Ô¤ Âæâ ãôÌð ãñ´ çÁ‹ãð´ ÂæÙð ·Ô¤ çÜ° ÂýØæâ ¥æÂ ·¤Öè Öè àæéM¤ ·¤ÚU â·¤Ìð ãñ´Ð

COLUMN

Enron, Satyam: A wake-up call

Mamun Rashid
Most of us are aware of the Enron debacle- the most talked about corporate failure of recent times. Enron, once America’s seventh biggest company, filed for bank ruptcy on December 2,2001.
Only days ago, its bonds were downgraded to junk. The Enron crisis also cast serious doubts on the existence of top rated audit firms, Arthur Andersen, and more to say. generally about the role of the accounting principles followed by audit firms and corpo rate business houses.
While tire Enron story is now somewhat outdated, the lesson learnt from this debacle will stay valid over a long period of time With Satyam in India posing seri ous threat on tire ‘ Corporate India brand', this has today become more relevant. 'Satyam' a name that means 'truth' in Sanskrit is now being called India's 'Enron'.
Enron was under tremendous pressure to generate profits, to exceed ail peers, to jack up share prices and to upgrade corporate positioning. These however are not unfamiliar practices in the corporate world.
Then, what went wrong? It was running too fast, possibly on a thin rope, without building befitting capacities and fundamentals. Such behaviour made Enron compromise on its accounting principles, hide losses, overstate results to investors and adopt unethical management practices.
For Satyam, the Indian outsourcing giant, people are terming this as ' fraud', also blemishing the account of its auditor, Pricewaterhouse. In his resignation letter, Satyam Chairman B Ramalinga Raju confessed the fictitious build up of a cash balanceworth $1 billion.
In case of Enron, investors did not understand Enron’s books because the company shifted many debts to off balance sheet vehicles, where accepted market practices necessitated debts to be consolidated into the main accounts. It should have also avoided the practice of investing staff retirement funds in company shares.
In the wake of serious concerns regarding Enron's financial statements, the company revised its financial statements of 1997 to 2000, downward. However, investors desired that the possible
merger with the rival company, Dynegy, would have restored confidence and thus halted the unwinding of Enron's book. Dynegy took a closer look at Enron's book and with some surprise to all, decided not to proceed. This made the bankruptcy of Enron inevitable.
It was almost the same case with Satyam, trying to merge with the real estate arm, to draw in confidence. But the corporate adviser, Merrill Lynch, found a big hole in their reported cash balance artificially inflated operating margins and profit figures, posing serious threat to the integrity of their financials as well as management practices despite being a publicly listed company in India and in the US. The balance sheet gap kept building up because of the artificial reported profit figures over the years. Each year's marginal gap ultimately ballooned over time and there was no escape from the burst.
As Satyam's chairman Raju said: “Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor perfor-
mance would result in a take-over, thereby exposing the gap."
Apart from Enron's tragedy, the whole corporate world was shocked by the shady practices followed by one of the world's top 5 audit firms-Arthur Andersen. It was said that for partners and professionals at Arthur Andersen, there was only one-way to move up: figure out new ways to keep Enron happy. More than 100 Andersen staffers were devoted to managing this relationship, which was worth more than S50 million a year, enough to keep a leading audit firm far from blowing the whistle. Several top Enron executives including its chief accounting officer had come from Andersen. Andersen even cut a deal to handle some of the internal' auditing work for Enron along with vetting its public reports for the trading firm's audit committee. All these money-making partnerships made Andersen blind to everything that happened at Enron. I don't know whether history will add the same slurs to Pricewaterhouse, but people are raising eyebrows about the standards being followed by audit
Global Rankings (IRGR). Now Pricewaterhouse is telling that its audit report for the last eight years relied on potentially false data provided by the company and should be disregarded.
Questions are being raised about the practices of moving financial obligations to off book vehicles, inflating profits or jacking up share prices. Investors and bankers may learn not to trust companies that report mysteriously spectacular profit growth, auditors will be warier of bosses' pressure to sign dodgy accounts; rating agencies and regulators may be more nervous about companies that do not come clean with their activities. Besides, regulators will also be cautious before being blown away by the market reputation of a company.
There are perhaps many cases in Bangladesh, which are similar, if not worse, to Enron. Many Satyam may be in the making who knows? A jailed business tycoon, in his test! mony to the law enforcing agency (on his alleged role in tax avoidance, despite his companies being practi cally profitable) during interim regime said that he did what his accountants told him to do.
Another businessman, on his alleged role in buying government's land or disputed lands at throw away price, blamed his legal counsel for advising him to be able to cover up, in case of need. We came to know of these incidences because they were published in A national dailies. But not all such malpractices get reported.
Therefore, it is essential that a proper standard of corporate disclosure be enforced in the country. Non-disclosures may help organisations to understate and overstate profits, to the benefit of certain segments and more importantly, resulting in the deprivation of some segments, including the general public and the government. By adopting malpractices in disclosures, companies also put themselves in high risks. We therefore need to change for the better, make our activities as transparent as possible, share our successes with the community and remain accountable to our regulators, people and most importantly to the future generation.
The writer is a banker and economic analyst and can be reached at, mamun 1960@gmail com.
firms.
Our readers know that auditors have somehow always been in an uncomfortable position of having to judge the financial Integrity of the companies that pay them. However, with the emergence of market economies and intensifying pressure to produce everrising earnings and stock prices, the corporate world began to push the accounting boundaries like never before. Auditors were thrown the role of an enabler, more like a business partner and used to clear' corporate failures with a green pen'.
What did we learn from Enron? - hiding debt or financial fundamentals can be suicidal for any company. Satyam also suffered similar consequences and the repercussions of the breach of trust of the investors are still to follow. The 'Satyam Scam' is indeed an irony, especially after Satyam won the Golden Peacock Global Award for Excellence' in corporate governance for the second time in 2008. It was also rated the “Best Corporate Governance Practices", in 2006 and 2007 by Investor Relations