Saturday, July 31, 2010

Indians' unconcern for finality

It is a trite saying that India lives in eternity. Occidental anxiety to 'settle issues' and 'move on' is typically absent in India.

For instance, a judge may be allegedly venal; in case he or she is not politically backed, probes and investigations would follow. After these processes consume enormous time without nearing the truth in any way, impeachment proceedings may be set in motion which will meander along till cows come home. In the meanwhile, the judge may have retired, deceased or settled cosily abroad. Impeachment proceedings will get aborted at some stage or the other. In the event all are happy that all procedures have been gone through though the fact that no finality has been reached does not bother anyone.

This is a far cry from what obtains in the western countries. When the Barings Bank was bankrupted by a rogue trader called Nick Leeson, no time was lost in establishing his guilt and awarding condign punishment. He was duly imprisoned and released when the sentence was completed. He reinvented his life and is now one of the most sought after speakers on Risk Management. This is not an isolated case where justice was delivered in time, finality was reached and life moved on.

In India however such cases are few and far between. Resolution of the Satyam company's persona is one such rare event. (Of course, punishment of the fraudsters may not happen anytime soon.The lower court which is now seized of the criminal matter will take a lot more time to pronounce judgement. After that the promoters will certainly go on appeal to higher courts and ensure indefinite delay in judicial proceedings.) The company is not comatose only because the government took extraordinary pains to "showcase" our ability to wriggle out of a crisis.

It is too soon to forget how the Global Trust Bank was systematically plundered by the promoters who are yet to face justice. Indians have an enormous tolerance for lack of finality. Why is this so? Is this because we believe in rebirths and therefore look for continuity from one birth to the next and take it for granted that what is unfinished in the present birth will come to fruition in subsequent births ? Whereas the westerners seek to close their life accounts in what they believe to be the one and only birth, Indians tend to carry over from birth to birth and look for finality at the end of eternity which by definition never occurs.

Wednesday, July 21, 2010

Relevance of Auditor's Certificate : Infrastructure Development Finance Co.Limited

IDFC is issuing Compulsorily Convertible Cumulative Preference Shares (CCCPS) to specific investors. In terms of Chapter VII of the SEBI ICDR (Issue of Capital and Disclosure Requirements) Regulations, the company has to disclose the details of investors to the shareholders while issuing the shares on preferential basis. IDFC has accordingly sought shareholders' approval as required under the provisions of Sec 81(1A) of the Companies Act and Chapter VII of SEBI ICDR Regulations. The Postal Ballot Notice issued to the shareholders mentions that the Conversion Price for CCCPS is fixed at Rs.176/-

The Notice also mentions that "It is proposed to obtain a certificate from Deloitte Haskins & Sells, Statutory Auditors of the Company, certifying that the price for conversion of CCCPS into equity shares is calculated in accordance with requirements of SEBI Regulations." This prima facie gives the impression that obtention of Auditor's Certificate is treated more as a formality to fulfil SEBI requirements and that the auditors would perforce issue the compliance certificate. This is indicative of perfunctory adherence to SEBI guidelines and scant regard for relevance of auditor's certificate.

This was taken up with IDFC as follows:

"Your statement that "it is proposed to obtain a certificate from DH&S certifying that the price for conversion of CCCPS into equity shares is calculated in accordance with requirements of SEBI Regulations" has converted the certification process into a mere formality and also belittles the auditor in the process. You will agree that it is not a good corporate practice to take its auditors for granted and to consider SEBI Regulations as just a procedural requirement whose sequence is of little importance. The certificate should be at hand before issue of the notice."

IDFC was kind enough to respond as under:

"IDFC believes and always follows the high standards of corporate governance in all its activities. In this case, in terms of provisions of Section 192A of the Companies Act, 1956 read with Postal Ballot Regulations, the Company is required to provide a period of 30 days to its shareholders to cast their votes. At the same time, in terms of SEBI ICDR Regulations, the price of the security to be issued and allotted on preferential basis is required to be arrived by taking into consideration the average of the weekly high and low of the closing prices of the equity shares quoted on a recognized stock exchange during the two weeks preceding the Relevant Date which is 30 days prior to the date of declaration of the results of postal ballot. Hence, it was difficult to print and dispatch the notices to ~ 3.05 lakh shareholders after getting auditors certificate. DH&S has issued the certificate and the same is available with the Company.

I hope I have answered the questions."

IDFC is taking refuge under apparent logistical problems whereas the real issue relates to constructive non-adherence to well-intentioned SEBI regulations and the proclivity to consider auditor's certificate as a mechanical formality.

Friday, July 09, 2010

PNB's "Consensus Banking" ?

The annual report of Punjab National Bank for the year ended 31st March 2010 says the following under 'Corporate Governance" (page 17):

"All our decisions are consensus decisions involving voice of our stakeholders". (Bold letters not mine). Wow ! Do only like-minded people work in the bank ? Is honest dissent discouraged? If no decision is taken in the absence of unanimity, the bank must be missing many opportunities for growth of business. Perhaps we should not take vapid statements seriously.

Arithmetic mistakes are another matter.In page 115, it is reported that 197263 shareholders have shareholding of nominal value of Rs.500 or less totally amounting to Rs.106823070. Simple arithmetic would show that even if every such shareholder has shareholding of nominal value of Rs.500, total will only be Rs.98631500. This table is entirely wrong.

I wonder how companies are confident that shareholders do not read their annual reports.

Saturday, July 03, 2010

The "Jabulani effect" : G-H outplay A-B

The shocking exits of Argentina and Brazil even at the quarter finals stage of the World Cup are an unprecedented disaster to soccer aficionados all over the world. The decline of South American football skills was shocking beyond words.The city of joy (Kolkata) went into mourning when Brazil was knocked out by Holland. The crushing 0-4 defeat of Argentina at the hands of Germany sank the football-crazy Kolkata into unfathomable despair.

Why did the unexpected happen? "Jabulani", the ball produced by Adidas has been criticised by almost every team in the World Cup for its unpredictable behaviour. Its speed and direction of movement puzzled both the forwards and the goal-keepers. "Jabulani" has become an idiom for something or someone that is universally condemned. It is easier to 'handle' Jabulani than to 'kick' it. This peculiarity of the ball was exploited by Uruguay's Luis Suarez who used his "Hand of God" to block an otherwise certain goal for Ghana. Subsequently even Asamoah Gyan's fabled footwork could not convert the penalty into a goal for Ghana.

Argentina's Maradona and Brazil's Pele spent more time recriminating each other than in motivating their respective teams. This resulted in their mutually assured destruction. But the psychic octopus, Paul has had the final say so far. It had predicted the victory of Germany over England and also Argentina. Though born in England, this octopus is domiciled in Germany. It remains to be seen whether Paul is merely jingoistic or a soothsayer nonpareil.