Reliance Communications Ltd was recently subjected to a special audit by Dept. of Telecommunications. Other telecom companies also were specially audited. Special audit of RCom has resulted in a lot of fireworks and histrionics. The audit is supposed to have unearthed over-reporting of revenue by Rs.3000o million and underpayment of license fee by Rs.3000 million. The report is not yet officially released, but Mr.Anil Ambani's fulminations and barrage of invectives suggest that the report indeed contains such findings.
Mr.Ambani has contested the findings saying they were not discussed by the auditor with the company. The auditors (Parekh & Co) have confirmed that they had duly discussed with the company. Either the company or the auditor is economical with the truth. If the alleged findings are true, the company has outdone even Satyam. Satyam overstated revenues but did not evade any payment to the government. In the interest of governance and fairplay, DoT should release the special audit report in the public domain forthwith.
Friday, October 16, 2009
Thursday, October 15, 2009
Battle between brothers (the Ambanis)
There seems to be no end to the war of words between the Ambani brothers. Is it just sibling rivalry as psychologists would say or is it an epic war as between the cousin brothers, the Pandavas and the Kauravas as Gurcharan Das elucidates? If the latter, which brother would qualify as the just and which other as the unjust? One would also opine that it is unjust to elevate this drama to the glory of Mahabharata. Is Anil Ambani suffering from 'status anxiety' and fixated on proving to the world that though he is younger, he is not in anyway less representative of their father, Dhirubhai Ambani?
Whatever be the cause, the rivalry has to be assessed in terms of its impact on corporate governance, shareholder wealth etc. If the passion of brothers is sublimated to produce better corporate results, the economy would benefit immensely. But this is not what is happening. Anil Ambani, typical of his persona, is more in the news. He continues to blow hot and cold. One day he extends the olive branch. The next day he viciously attacks the 'corporate rival'. Mukesh Ambani is less demonstrative in public.
Do shareholders of either group deserve to have their companies devalued by public portrayal of personal meanmindedness? It is ironic that the minds of corporate barons are narrowing at a time when the market valuations of their companies could be poised for a quantum jump. Do the brothers, however wealthy they are, have a right to utilise the public space to settle their private scores? Or as some cynics believe, are they enacting a sham battle to fool the public and take governance for a ride?
Whatever be the cause, the rivalry has to be assessed in terms of its impact on corporate governance, shareholder wealth etc. If the passion of brothers is sublimated to produce better corporate results, the economy would benefit immensely. But this is not what is happening. Anil Ambani, typical of his persona, is more in the news. He continues to blow hot and cold. One day he extends the olive branch. The next day he viciously attacks the 'corporate rival'. Mukesh Ambani is less demonstrative in public.
Do shareholders of either group deserve to have their companies devalued by public portrayal of personal meanmindedness? It is ironic that the minds of corporate barons are narrowing at a time when the market valuations of their companies could be poised for a quantum jump. Do the brothers, however wealthy they are, have a right to utilise the public space to settle their private scores? Or as some cynics believe, are they enacting a sham battle to fool the public and take governance for a ride?
Wednesday, October 14, 2009
Smartness Risk
We have been witnessing recession in the global economy from October 2007. While there were initial fears that the world was fast sinking into the Greater Depression a la the Great Depression of early thirties of the last century, simultaneous 'quantitative easing' (the technical phrase for liquidity splurge) by all important economies including the US and China ensured that at worst we would suffer a Great Recession only.
What caused the economic mayhem? Global economic imbalances (mainly American deficits and Chinese balance of payment surplus), rapid erosion in home equity in America, over-financialisation of the economy, large-scale securitisation, misselling of derivative products and inevitable ups and downs in global economy have all been blamed for the crisis.
Who caused the crisis? Here the answer seems to be less divided. Brilliant engineers who entered the Wall Street via the business schools were smart enough to invent complex derivatives, clever enough to market them, intelligent enough to alchemise BBB investments into AAA but not wise enough to understand the implications for the economy. They were driven by the toxic combination of intellectual hubris and hedonistic greed. These value-destroyers set off smart bombs which exploded and destroyed economies while preserving and multiplying their own private riches.
What is the lesson for us in this calamitous drama? We should not crave for complexity. Simple Finance should remain as it is. It should not be converted into a rocket science which it certainly is not.
What caused the economic mayhem? Global economic imbalances (mainly American deficits and Chinese balance of payment surplus), rapid erosion in home equity in America, over-financialisation of the economy, large-scale securitisation, misselling of derivative products and inevitable ups and downs in global economy have all been blamed for the crisis.
Who caused the crisis? Here the answer seems to be less divided. Brilliant engineers who entered the Wall Street via the business schools were smart enough to invent complex derivatives, clever enough to market them, intelligent enough to alchemise BBB investments into AAA but not wise enough to understand the implications for the economy. They were driven by the toxic combination of intellectual hubris and hedonistic greed. These value-destroyers set off smart bombs which exploded and destroyed economies while preserving and multiplying their own private riches.
What is the lesson for us in this calamitous drama? We should not crave for complexity. Simple Finance should remain as it is. It should not be converted into a rocket science which it certainly is not.
Sunday, October 11, 2009
An educative blog
Gary Becker, a Nobel laureate in economics and Richard Posner, a legal luminary are hosting a joint blog from December, 2004. This is perhaps one of the longest continuous associations between any two brilliant minds !
Every Sunday, they pose and discuss a different issue that is of general interest and importance. www.becker-posner-blog.com is a delight to those perennially interested in sharpening their thinking process.
Every Sunday, they pose and discuss a different issue that is of general interest and importance. www.becker-posner-blog.com is a delight to those perennially interested in sharpening their thinking process.
CEO remuneration
Economic Times says that a rough and ready calculation shows that top managers get remunerated to the extent of Rs.1.5 lac for every year of experience. This is an average measure and does not betray the stratospheric salaries earned by (or more precisely showered on ) some CEOs. The newspaper also reports that top management compensation grew in FY 09 much faster than corporate sales or profits. Recessionary trends were perhaps responsible for this.
The minister for company affairs recently asked CEOs to avoid 'vulgar' levels of (self-)remuneration. Corporate bigwigs rallied immediately against government dictates. The minister softened his stand. The prime minister has now said that the decision is with the companies. Last year the prime minister exhorted the CEOs to be more careful regarding their pay.
It is suggested in some quarters that shareholders ought to become more active in approving the compensation to top management. Well, compensation committees are very much in place in many companies though it is very doubtful if they are taking their role seriously. What do the shareholders do when the compensation details are placed for approval? They unanimously pass such resolutions.
Shareholder activism simply does not exist in our country. Recently, in the AGM of one Chennai-based company, one shareholder expressed his view that a particular director who was too busy to attend any of the committee meetings and AGM of the company should not be re-elected. This opinion was supported by two other shareholders. When the resolution for re-electing the said director was taken up, one of the latter two shareholders duly proposed the resolution and the other one seconded the proposal. So much for shareholder activism !
The minister for company affairs recently asked CEOs to avoid 'vulgar' levels of (self-)remuneration. Corporate bigwigs rallied immediately against government dictates. The minister softened his stand. The prime minister has now said that the decision is with the companies. Last year the prime minister exhorted the CEOs to be more careful regarding their pay.
It is suggested in some quarters that shareholders ought to become more active in approving the compensation to top management. Well, compensation committees are very much in place in many companies though it is very doubtful if they are taking their role seriously. What do the shareholders do when the compensation details are placed for approval? They unanimously pass such resolutions.
Shareholder activism simply does not exist in our country. Recently, in the AGM of one Chennai-based company, one shareholder expressed his view that a particular director who was too busy to attend any of the committee meetings and AGM of the company should not be re-elected. This opinion was supported by two other shareholders. When the resolution for re-electing the said director was taken up, one of the latter two shareholders duly proposed the resolution and the other one seconded the proposal. So much for shareholder activism !
Saturday, October 10, 2009
Nobel for Obama
President Obama has reacted with grace to the award of Nobel peace prize for him. "I don't deserve it, but I accept it as a call to action". No one needs to teach Obama what to say. If there ia a prize for articulation, he would win hands down.
Does he really deserve the Nobel so soon and that too before he hopefully starts delivering on his words? Opinions may differ, but there is unanimity on one thing. It is that he owes the prize to George W.Bush. His predecessor has made his job very simple. He has only to undo whatever Mr.Bush did and do whatever the latter had left undone. I wonder if Obama has conveyed his thanks to George W.
The Nobel Committee has acted smartly in incentivising the American president to continue to abstain from bellicosity that the world has come to associate with Uncle Sam.
Does he really deserve the Nobel so soon and that too before he hopefully starts delivering on his words? Opinions may differ, but there is unanimity on one thing. It is that he owes the prize to George W.Bush. His predecessor has made his job very simple. He has only to undo whatever Mr.Bush did and do whatever the latter had left undone. I wonder if Obama has conveyed his thanks to George W.
The Nobel Committee has acted smartly in incentivising the American president to continue to abstain from bellicosity that the world has come to associate with Uncle Sam.
Friday, October 09, 2009
The China puzzle
Stephen Roach, a well known economist, in his new book "The Next Asia" quotes none other than the Chinese premier Wen Jiabao as saying, "The Chinese economy is becoming increasingly unbalanced, unstable, uncoordinated and unsustainable". Very strong words indeed especially from a prime minister. The words were uttered in March 2007 and are now famously called as "four uns". He could as well have added that the Chinese statistics are unreliable, unsound, untrue and unscientific.
Combination of unbalanced economy and unreliable data is a potent mislead that will belie all our predictions and unsettle all our plans. Therefore the hype regarding this century becoming the Chinese century or even the Asian century is far-fetched.
American economy is a learning economy. It is also innovative. The lessons of ongoing economic crisis will enable the American economy to correct its extravagance, pull up its socks and reinvigorate itself. As time passes by, the Chinese threat to US economy will recede further.
Combination of unbalanced economy and unreliable data is a potent mislead that will belie all our predictions and unsettle all our plans. Therefore the hype regarding this century becoming the Chinese century or even the Asian century is far-fetched.
American economy is a learning economy. It is also innovative. The lessons of ongoing economic crisis will enable the American economy to correct its extravagance, pull up its socks and reinvigorate itself. As time passes by, the Chinese threat to US economy will recede further.
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