By M H Ahssan
The government ads disappeared as soon as the model code of conduct kicked in. No longer is the public being subjected to ads highlighting government did this, or achieved that unique record. But, one category of state-sponsored ad continues to play on — those nudging consumers into wakefulness, to be aware of their rights. These use examples from a wide variety of industries where consumers run the chance of getting short-changed — telecom, retail, consumer durables, and so on. These ads are beyond the sweep of the Election Commission’s eagle eyes because they purport to serve public interest and do not applaud the feats of any government ministry, department or politician.
All very nice. But are they appropriate? Or, timely? Actually these ads are quite evergreen but on the scale of priority, may be the government seems to be missing out on something. The strategic thing to do might be underlining corporate mis-governance and pressing investors to exercise greater discretion while choosing their investments. A series of ads highlighting how to detect corporate fraud, or how to see through accounting sleight, might have also provided the right kind of learning for the wet-behind-the-ears stockpickers. No one is saying remove the consumer awareness ads. But, post Satyam, there is simmering anger against what is seen as government’s tacit support for corporate malfeasance. A series of ads asking ordinary Indian savers and investors to awaken to their rights might have struck a right chord with a certain section of the electorate. In one stroke, not only would the government found resonance with voters but would have also been able to distance itself from the perception of being too close to the perpetrators.
But short-sighted politics refuses to relax its stranglehold over common sense. Despite all that has happened, the government continues to send out signals that it’s still strongly on the side of the majority shareholder, that its policy-making apparatus is still guided by the interests of the politically marginal, but influential, pressure groups. This is a calculated gamble, but can have disastrous results as has been experienced by many in the past. In the past couple of months, some government ministers have occasionally used the media to threaten punitive action against certain companies with suspect governance practices. But, these ministers are blind to the other side of the coin — that their threats raise questions about why were they sleeping at their jobs for the past five years. But, in the end, politics of expediency triumphs and government chooses overt action only for the consumer, and reserves covert support for the majority shareholder.
One would have expected some accelerated regulatory action after the Satyam episode. Take a look at the Institute of Chartered Accountants of India (ICAI). It has shrugged off any culpability for the Satyam scam. Sure, global audit firm Price Waterhouse was remiss in its duties as statutory auditor, but no one at ICAI stood up and declared that there’s probably something intrinsically wrong with, or missing in, the ICAI rules, regulations and guidelines. Most recently, in the accounting norms for foreign currency convertible bonds (FCCBs), instead of acting as the regulator, the ICAI is once again capitulating to the demands of its clients and is planning to relax the accounting rules.
Most FCCB issues were made in the heady days of the bull run and the continuing sensexual fizz gave issuers the confidence that their share price was divinely destined to move in only one direction — up. This belief then propelled many issuers to promise to redeem their FCCBs at a premium to face-value, in case the conversion to the underlying shares did not take place. Unfortunately, that dream run is now over, most bonds are trading at a discount to their face value and, given the depressing state of the stock market, are unlikely to get converted into common stock. Consequently, issuers now have to get ready to start redeeming these bonds, which will require large amounts of cash. What’s acted as a double whammy is the appreciation of the dollar, requiring companies to pony up greater sums of rupees. Prudent companies have been squirreling away money for this contingency from their profit and loss accounts over the past few quarters.
But, these are only a handful. Most of the companies are not recognising this impending liability; they are deluding themselves that the bonds will get converted into shares and, therefore, there is no need to set aside cash for redemption day. The compulsion to show higher profits today, in disregard for the tomorrow’s looming danger, is playing havoc with investor sentiment. Has the ICAI descended like a ton of bricks on these companies or the auditors that have chosen to ignore this phenomenon? You must be joking. It is instead studying the possibility of giving the corporate sector some relief on cash that was provided earlier. Investor sentiment be damned. As long as the investor population does not become a powerful voter lobby, don’t expect any meaningful corporate governance.
No comments:
Post a Comment