Some $1 billion in U.S. funds may have disappeared in the Enron-sized fraud confessed by Satyam’s now-jailed chairman. But the scandal has shown something else missing, too: India has no collective shareowner coalition lobbying for investor-friendly rules and enforcement, according to the lead news story in this week’s Global Proxy Watch.
Many other markets have such players: think the Council of Institutional Investors (U.S.): the NAPF and ABI (U.K.); ACSI (Australia); AFG (France); or PFA (Japan), for instance. They don’t always succeed in pressing fund interests; but they help.
“We need a coordinating body for shareholders, in India and in most markets,” contends Peter Taylor of Aberdeen Asset Management, which was Satyam’s largest institutional shareowner until it sold out in disgust last week.
Lax oversight by Indian regulators such as the Securities and Exchange Board of India enabled the Satyam fraud, but Satyam is also listed on the NYSE Euronext. It and other U.S. and U.K. exchanges routinelyl waive strictest rules on financial audit committee expertise in order to attract business from ADR issuers like Satyam. While it’s not yet clear that better corporate governance couuld have prevented the years-long deception, it would have made it more difficult to pull off.
There were red flags, however. GovernanceMetrics International, for one, warned in September that Satyam had no financial experts on its audit committee and that its board did not meet independently of management, providing no oversight of the family-run company.