Savings Experiment: Snow Removal
The Money Man Behind Rick Santorum: Who Is Foster S. Friess?Harvard Business School (HBS) got its first black eye from Enron when an alumnus about which HBS had written gushing cases, Jeff Skilling, ended up causing one of America's biggest corporate frauds. And now Enron and HBS are joined again with the scandal at Satyam Computer Services (NYSE: SAY) -- whose stock finally opened yesterday on the NYSE and plunged 86% -- which has been dubbed India's Enron.
Satyam's founder and chairman Byrraju Ramalinga Raju is a graduate of HBS's executive education program. And HBS accounting professor Krishna G. Palepu was on Satyam's board of directors. But both of these gentlemen are gone now. And while I would have thought that Palepu would serve on Satyam's audit committee -- he opted out of that rule because of a consulting contract he had with Satyam which he felt would have compromised him had he served on the audit committee.
Palepu said he didn't learn about the fraud until after he had resigned from the company. So we are left with many questions: Why did Palepu resign if it wasn't because of the fraud? As an accounting professor, why didn't he detect problems with its books? (It would have been simple to compare Satyam's stated cash position with the content of its bank accounts). Was Palepu window dressing on Satyam's board? Did he just fly to India for the board meetings and accept his compensation or did he ask probing questions and try to understand Satyam's finances and strategy?
And with Raju joining five other HBS alumni in savaging the global economy, is there something in the water at HBS that produces these kinds of leaders?
As it celebrates its 100th anniversary, HBS might consider a bit of self-examination on that front.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and is the author of You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing.
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Reader Comments (Page 1 of 1)
1-14-2009 @ 2:16PM
governanceexpert said...
This is not the first time that Dr. Palepu has been caught napping or turning a blind eye to corporate governance. He has been on Satyam's board for the past seven years and it would require more incompetence than from a Harvard Professor (who has authored books on accounting and corporate governance) to not be able to detect these scams..
He has been on the board of a bank called Global Trust Bank (which collapsed), Satyam, and EMRI (a massive fraud masquerading to be india's version of 911)
If Jeff Skilling and Ramalinga Raju have learnt from these kinds of professors, no wonder they were so good..
1-15-2009 @ 12:38AM
anamika said...
If anything, the auditors will have to be held responsible for verifying the cash position with the bank statements. I want to know how many boards/audit committees in India check cash balances of companies with banks - they take the auditors facts and look for any material discrepancies. Unless concerns were raised by the auditors - internal or external or other parties, it is difficult for independent directors alone to detect this level of manipulation, given that the board heard from only management (perpetrators were Chairman, CEO , CFO ?) and auditors. Unfortunately, unlike in Enron there were no internal whistle blowers as well ...atleast any that came to light.
For instance, it is said (rumored ?) that PCAOB reviewed PwC's audit (http://economictimes.indiatimes.com/articleshow/3975112.cms) of Satyam - and no glaring red herrings were thrown out. No analysts raised any significant concern - only question raised around Oct '08 was why there was a large current account balance and the CFO fudged the answer but no one pushed it any further , nor any articles came out in the media.
Let's get all the facts out before making strong judgements against one ....it seems that it was a collective failure of corporate governance and not jump to hasty judgements.