Satyam saga shows holes in India corporate governance

By Rina Chandran

MUMBAI (Reuters) - Just three months ago, India's fourth-largest software services exporter, Satyam Computer Services received a Golden Peacock award from a group of Indian directors for excellence in corporate governance.

Now its board is in turmoil and its shares have plunged after a botched attempt to buy two infrastructure firms in which management held stakes, sparking concerns about conflicts of interest and a lack of transparency.

Analysts say the saga exposes serious shortfalls in corporate India that must be addressed to ensure its credibility in an increasingly globalised and competitive world.

Four independent directors have resigned from the board of Satyam since the scandal erupted. But that does not fix the problem, said Premchand Palety, director of the Centre for Forecasting and Research in Delhi.

"Independent directors are supposed to be the watchdogs, the ones responsible for safeguarding the interests of minority shareholders. They clearly failed in their duty," he said.

Satyam says it adhered to corporate governance rules, appointing the requisite number of independent directors with excellent credentials, including the dean of a top business school in its hometown of Hyderabad and a professor at Harvard business school.

But there are concerns that some directors may be too close to Satyam's chairman to be considered truly independent, and all of them failed to ask tough questions about the now controversial infrastructure deals, Palety said.

"If Satyam's board was convinced about the merits of acquiring (the two firms), then good corporate governance demanded that it should have taken into confidence at least the major institutional shareholders," he said.