There is a move to clarify that the primary responsibility for preparation and presentation of the financial statements of companies would be that of the management. They are to carry a disclaimer from the auditors that their opinion does not amount to an assurance of the future viability of the enterprise or efficiency or effectiveness with which the management has run the business.

The modified format would require companies to state explicitly in their annual reports that the primary responsibility of preparing and presenting financial statement lies with the management. Is there a Governance issue here?

Does it tempt the Board also to plead the same?

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Et reports that RBI has directed the FIs to ensure that their directors ensure that their directors ensure that end-use of funds and other "sensitive" issues are brought to the board for discussion in companies where the promoters, company or the group have a history of diversion of funds.

"This brings a large part of India Inc under the nominee directors' micro-scope, considering that most corporate groups have at least one rotten apple in their stable, where willful default of institutional loan has taken place, contributing to the pile up of non-performing assets exceeding Rs. 60,000 crore. The RBI directions are still vague and not as strong as DCA would have liked them to be. Yet they still place the onus of responsibility on the nominee directors to ensure that promoters do not take any decisions relating to the end-use of funds without bringing them to the board.

This indirectly makes the nominee directors responsible for monitoring the end use of funds, which is a step forward, though the weakness lies in not specifying what would be punishment in case the nominee director fails in delivering his duty.

The RBI directions also punch a hole into the excuses made by nominee directors till now that as part time directors, they can be held responsible only for decisions taken by the board and not for the day-today functioning of the company as the nominee directors now have to ensure that those issues which have a bearing on the funds lent by them have to be brought to the board.

Interestingly, even this level of accountability is being forced on nominee directors not by the government but by parliament. After nearly two years of relentless battle, the Parliamentary Standing Committee on Finance headed by Shivraj V Patil has forced this level of accountability. If this committee had its way, it would debar the institutions from lending to willful defaulters for a period of 15 years, slap a 10 year bar on FI nominees under whose part-time directorship the diversion of funds took place, force higher level of disclosures on companies floated by willful defaulters and dilute the secrecy clause in banking deals."

(Source: Economic Times, 19th March)

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ET reports that the ICAI has mandated that every member would have to undergo peer review staring April1, 2003. The ICAI has constituted a 15-member peer review board comprising among others officials from Reserve Bank of India, Securities and Exchange Board of India, Comptroller and Auditor General, Department of Company Affairs. It has also nominated six of its Central Council members to the board too.

The board will over the next one year empanel about 500 auditors who would undertake peer review. The implementation of the review would be staggered over three phases. In the first phase, chartered accountant firms, which undertake audit work for PSUs, banks - nationalized, private and foreign, and for companies with turnover in excess of Rs. 50 crore or paid up capital in excess of Rs. 5 crore.

In the second phase, all other auditors who audit corporate entities would be taken up and in the final stage, all other auditors would be subject to peer review.

The objective of the peer review would be to ensure that ICAI members comply with technical standards laid down by the institute and have in place a proper system for maintaining quality of audit work.

The board on the basis of the report submitted will issue a certificate to the accounting firm. The certificate will have three-year validity.

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There is a relaxation in the application of the accounting standard on 'related party disclosures' (AS-18). It would now be mandatory on all listed entities and other business reporting enterprises with turnover of more than Rs. 50 crore only.

AS-18 had come into effect in respect of accounting periods commencing on or after April1, 2001 and had been issued earlier as a mandatory standard for all enterprises. Reportedly, ICAI felt that the SME segment needs a concession on the plea that the benefit of such disclosure is less than the cost of transaction!

Accordingly, as per Business Line reports, AS-18 will now be mandatory on enterprises whose equity or debt securities are listed on a recognized stock exchange in the country and also on enterprises that are in the process of issuing equity or debt securities that will be listed on a recognized stock exchange as evidenced by the board of directors' resulting in this regards.

This accounting standard will also be applicable to all other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs. 50 crore."

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Dr. Rakesh Mohan, has pleaded for transparency in the regulatory system with Centre and State level actions. . The workshop had been organised jointly by the Confederation of Indian Industry (CII) and the World Bank.

A study on 'Competitiveness of Indian manufacturing: Results from a firm level' released at that occasion revealed that labour productivity varied widely across states and whereas the average value-added per worker was Rs.225.2 for the best investment climate States, it was Rs. 137.7 for the worst.

The survey shows that Delhi's value-added per worker was less than Rs. 150 and its value-added per unit of labour cost was also the lowest as compared to other states.

India as a whole generated lower value-added per worker as compared to Thailand, Malaysia, Philippines and South Korea, Dr. Dollar pointed out.

The percentage of management time taken to deal with Government officials on regulatory and administrative issues in India was almost 16 per cent, while in the case of Besides the high interest cost of 5.5 per cent of sales also affected the competitiveness of domestic industry when compared to less than 4 per cent in Indonesia, South Korea, Malaysia, Philippines and Thailand.

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The department of company affairs is planning to amend the Companies Act, 1956 and hike penalties for condoning corporate offenses. Penalties for offenses like non-filing of returns or documents, non-payment of deposits etc are likely to go up from the present level of Rs. 500 - Rs. 5000, to Rs. 5 lakh to escape punishment. At present, the Registrar of Companies and the Regional Directors are empowered to pardon companies by charging per offense penalty ranging from Rs. 500 to Rs. 5000. The field officers are likely to be stripped of these powers to grant amnesty. According to data compiled by the DCA, a total fine of Rs. 44,06,205, including through amnesties, was imposed on 10,362 companies by the different wings of the department during FY 2001 - 02.

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The Department of Company Affairs (DCA) has decided to prosecute full time directors of public sector undertakings (PSUs) for failure to prepare accounts and file returns regularly with the Registrar of Companies. According to DCA, PSUs, both at the central and the state level, routinely seek exemption from filing returns and holding annual general meetings, often under the pretext that the government has not appointed auditors. The Comptroller and Auditor General's Office has since streamlined the process and ensure that auditors are appointed in time to finalise the accounts.

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The basic objective of the audit report is to formally communicate the auditor's opinion on true and fair view of the results of operations and state of affairs of the enterprise as presented by the financial statements prepared by the management. According to new directions issued by the Institute of Chartered Accountants of India (ICAI), modified audit reports would contain, a statement of responsibility of the entity's management and that of the auditor. The modified format aims to correct general perception that the responsibility of preparing accounts is that of the auditor of the company.

The ICAI has also mandated that every member will have to undergo peer review starting April 1, 2003. ICAI has constituted a 15-member peer review board comprising, among others officials from the RBI, SEBI, the Comptroller & Auditor General and the department of company affairs. The Board will, over the next one year, empanel about 500 auditors, who would undertake peer review. The implementation would be staggered over three phases:

1st Phase: CA firms which undertake audit for PSUs, banks and large corporates, exceeding turnover of Rs. 50 crore

2nd Phase: All auditors for corporates

3rd Phase: All other CA firms and auditors The objective of the peer review would be to ensure that ICAI members comply with technical standards laid down by the institute and have in place a proper system for maintaining quality of audit work.

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Business Line reports that ICAI would hold discussions with the Reserve Bank of India and the Securities and Exchange Board of India in the first week of April on whether banks should be exempted from segment reporting. This is in the wake of RBI endorsing banks' request that they should be granted a one-year exemption from itemized reporting of segment performance. It may be recalled that SEBI made segment reporting mandatory for all listed companies from the quarter ended December 31, 2001.

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ET reports that the Department of Company Affairs (DCA) is working out a fresh set of stringent guidelines including mandatory disclosures for appointment and payment of remuneration to executives and directors; advertising in the papers for the vacancies etc. This should act as a barrier (minor though) for employing relatives of promoters in cushy jobs at their whims and fancies.

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The Company Affairs Secretary, Mr. Vinod Dhall, has said that the officials of the Department of Company Affairs had been asked to trace the promoters of 79 vanishing companies across the country with the help of the State Governments where necessary.

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It is reported that The ICSI has drawn up a comprehensive list of rights and obligations of directors. The exercise is reportedly a part of the four-point programme comprising of Investor protection and Education, Advisory Services, Corporate Governance and Directors Responsibility.

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Richard Cavanagh, President and CEO of the Conference Board was in Mumbai recently and spoke on the Fallout of Enron. Conference Board is a widely respected global research organisation and studies management practices and economic trends. Till recently, Enron was an active member of the Conference Board. According to Mr. Cavanagh, after events like bankruptcy of Enron, governments will come up with new rules to govern everything from accounting standards, role of CEOs and independent directors to pension fund investments. He believes that Enron was mainly about the failure of the independent directors. He went on to add that companies would themselves push for these changes. Companies such as Uniliver and Walt Disney have already announced that they will not be buying consulting services from their auditors.

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Standard and Poors (S & P), a global rating agency has come out with its "Transparency & Disclosure Survey" covering 1600 companies globally. The survey is a pre-cursor to its launch of Corporate Governance Ratings in India. The 1600 companies cover over 40 markets and represent about 70 % of the world's tradable market capitalisation. The survey covers 350 of the largest Asian and Latin American companies, with the most liquid stocks.

Admitting that there is no universal benchmark for an evaluation of the levels of disclosure, S & P has based the survey on information available in annual reports. Companies are evaluated on the basis of 98 possible information attributes grouped into three sub categories:

• Ownership structure & investor relationship: 28 attributes
• Financial transparency & information disclosure: 35 attributes
• Board & management structure and processes: 35 attributes

The survey covered 43 Indian companies. On a scale of 1 to 10, the scores of Indian companies was as follows:

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President George W Bush unveiled during the first half of March 2002, a 10-point plan that would make corporations more accountable to shareholders as also to their employees. Under the heading "Making Corporate Officers Accountable", a White House position paper consists of proposals already outlined by the securities regulators in recent weeks. Some of the important action points on the agenda were as follows:

• Corporate chief executives should be made personally responsible for the financial statements that they sign off on.
• Corporate officials who indulge in wrongdoing should be barred from serving at publicly held companies for life.
• Companies should have tighter standards for reporting significant events affecting their share price and should publish quarterly statements.
• Accounting companies should be overseen by an independent board and should be pushed to adopt best practices as opposed to minimum standards.
  
  

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Warren Buffett, has blasted chief executives who claimed that they weren't responsible for the details of their company's financial reports and raised the issue of better disclosures.

"I would suggest that the CEO regard himself as the chief disclosure officer of the company," Mr. Buffett said at a Securities and Exchange Commission conference in New York. "I think the owners can discipline him. We own 100 per cent of some companies and believe me, we can discipline the CEO if he doesn't tell us what's going on", Mr. Buffett railed against the type of ignorance that executives, who presided over the collapse of energy giant, Enron Corp, had claimed, as per a Reuters report.

"I think the CEO knows when something material has happened," Mr Buffett said at a panel including the SEC Chairman, Mr. Harvey Pitt, and the New York Stock Exchange Chairman, Mr. Richard Grasso. "In the end it's the CEO, who determines the qualitative aspect of disclosure, and that's all-important," Mr. Buffett said.

Proposals to combat the opaque accounting methods epitomized by Enron were at the centre of the four-hour discussion, which also included professors, lawyers and Wall Street money managers.

The SEC is proposing faster, fuller disclosure from companies in the wake of Enron's demise. Mr. Grasso made a plea for plain language financial reports.

(Source: Reuters report)

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US-based energy major Enron's former auditing firm Arthur Anderson is considering filing for bankruptcy, as it seeks to escape law suits that are turning away potential buyers. Filing for bankruptcy would put any suits against Anderson on hold and shield it from creditors.

The firm, the smallest of the big five accounting firms - Deloitte & Touche, Ernst & Young, Pricewaterhouse Coopers and KPMG being the others - has offered US $ 750 million to resolve its civil liabilities in connection with Enron.

The death of the firm is likely to cause enormous harm to the firm's 2300 US audit clients, representing 17 per cent of all public companies. The aftermath is likely to a kick-start of an exodus of clients to Anderson's four rivals. SEC may have to allow firms more time to complete financial statements next year. It is felt that changing auditors is a long and complex process. The loss of Anderson will increase scrutiny of the remaining four firms by the regulator.

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A Federal grand jury has indicted Anderson with obstruction of justice for a month long campaign of destroying tonnes of Enron related documents. Although limited to Anderson's shredding campaign, the indictment made clear the Justice department believed the accountancy firm played a central and potentially criminal role in the collapse of Enron. The US Securities Commission tried to minimize potential disruptions the indictment might cause Anderson's 2300 auditing clients, including those clients who were in the process of severing their auditing relationship with Anderson. A statement by Harvey Pitt, SEC Chairman read "For those companies the Commission will still require adherence to existing filing deadlines. However, the Commission will accept filings that include un-audited financial statements from any issuer unable to provide timely audited financial statements because of the cessation of its auditing relationship with Anderson".

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In an address at the Stern School of Business in New York on March 26, 2002 Alan Greenspan, not for the first and hopefully not for the last time, gave the American people a clear and sensible analysis of an important and pressing problem. He was addressing the need to restore public trust in the governance of corporations in the aftermath of Enron and Global Crossing. He suggested that the basis for a reliable system of corporate governance is either, "the current CEO-dominant paradigm" or "the only credible alternative is for large- primarily institutional - shareholders to exert far more control over corporate affairs than they appear to be willing to exercise." He chooses the "benevolent despot" - "[I]t seems clear that, if the CEO chooses to govern in the interests of shareholders, he or she can, by example and through oversight, induce corporate colleagues and outside auditors to behave in ways that produce de facto governance that matches the de jure shareholder-led model."

Greenspan is in a unique position. In his seventy-seventh year, the Federal Reserve Board Chairman is seeking no favor from anyone. He is largely immune to the subtle and not so subtle influences of the corpocracy that is Washington, D.C. today. It is hard to name another leader with comparable credibility in matters financial. So it falls on him to expose the convenient lie of governance based on "independent" board members. This fiction has been convenient to everyone - the government can pretend that there is a functional system, until a crisis like Enron shrieks that the Emperor has no clothes. Individual directors are glad to be overpaid and over valued. CEOs are thrilled to be able to function as dictators while having available the myth of accountability to an "independent" board. As Chairman Greenspan puts it from an economist's perspective, the system has survived - "For the most part, despite providing limited incentives for board members to safeguard shareholder interests, this paradigm has worked well." The limited incentives have resulted in the board members functioning as creatures of the CEO, so Greenspan prefers to base the public interest on the familiar hope - the "benevolent dictator". It is ironic that Americans have overwhelmingly rejected this hope in providing a legitimate base of our political systems.

If only men were angels. How many splendid creations have been developed from this premise? But, men are not angels, nor are CEOs any exception. Greenspan appears to take the unwillingness of institutions to inform and involve themselves more in corporate affairs as a controlling premise. Why, one might ask, should trustees, of all legal owners, be permitted by simple fiat to purge themselves of tiresome responsibility? Do we allow individuals, flesh and blood owners, unilaterally to disaffirm any responsibility for the impact of their possessions on society as a whole? As Adolph Berle said in addressing this problem some sixty five years ago, "If a horse dies, does not its owner have the obligation to bury it?" Further, it is clear that this disinterest of institutions to act as owner of the companies whose shares are held in trust portfolios is largely based on their conflicts of interest. The institutional owners are preponderantly financial conglomerates whose financing interests with corporations are apparently of greater value than functioning as trustee for their pension plans. And yet the law of trusts is clear beyond dispute. Any conflict of interest must be resolved in favor of the beneficiary. Government at all levels in the UK and the US has failed to enforce this plain requirement of basic law.

The arrangements by which the majority ownership of America and Britain's publicly traded corporations is held by trust institution was not an ineluctable product of history. The government in its interests in providing retirement income and safety in investing in mutual funds created these institutions. This government characterized the institutions as trusts and, thereby, gave assurance to beneficiaries that they could be confident their assets would be protected by, among other things, freedom from trustee conflict of interests. The unintended consequences of well-intended government action have resulted in the neutering of the majority owners of America's publicly traded corporations. The "market" of ownership has, thus, been corrupted. Even the most rabid libertarian would not quarrel with the appropriateness of government acting to undo consequences created uniquely by government act. Simply, trust responsibilities must be enforced. The United Kingdom has faced up to this problem through adoption by the Labor Government of the recommendations of the Myners Report.

Happily, Chairman Greenspan's remarks were delivered only days following publication of SEC Chairman Harvey Pitt's assurance that from his perspective the law would henceforth be enforced. ". [T]he head of the Securities and Exchange Commission has asserted that money managers should view their corporate proxy votes as a fiduciary duty."[1] In as much as the Department of Labor has long since opined (1985 or 1994, from speech to formal ruling) that Employee Benefit Plan Trustees have an identical obligation, we now have formal government assurance that the institutional reluctance so far as it obtains to pension plans and mutual funds to which Chairman Greenspan pays such deference will no longer be tolerated.

The importance and value of shareholder involvement has been demonstrated dramatically in recent times in the cases of Solomon Brothers and Waste Management. In the first case, "owner" Warren Buffett took direct personal control of the enterprise, successfully negotiated with the government the continued 'parole" of the company, and ultimately realized substantial profits for all shareholders. In the latter case, "owner" Ralph Whitworth of Relational Investors took on the Chairmanship in order to direct the recovery from the massive accounting frauds that have resulted in huge tort recoveries from Arthur Anderson and SEC initiated criminal proceedings against the principal officers. The continuing shareholders of WMX have profited. Contrast the situation characterized by governance based in "active owners" with the total losses for outsiders in Enron and Global Crossing.

Chairman Greenspan has identified the real alternatives. He has politely but firmly repudiated the conventional governance wisdom of the past twenty years. He has given us much to think about.

[1] Lublin, Joann S., Proxy Voting is a Fiduciary Duty, SEC Chief Says in Letter to Group, Wall Street Journal, March 21, 2002

(Robert Monks, Email: ragmonks@ragm.com/Web Site: http://www.ragm.com)

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Every time you turn a stone, another worm creeps out. That seems to be the story of the Enron debacle. Not a day goes by without a new expose of wrong doing in the company that one begins to wonder if there is anything in our systems and structure of an enterprise that can prevent such a catastrophe.

A lot of attention in this regard has been placed on the accounting and auditing issues. The auditors, Arthur Andersen, on whom the general public relied on for accurate information clearly failed in their job. There has begun debate on the need to revise rules and regulations so that the auditors are held more accountable.

Another group that has let the public down is the analysts who work for stock brokerage houses. Even when the problems of Enron were beginning to be highlighted by newspapers, out of 17 analysts who follow Enron, 16 had 'strong but' or 'buy' recommendations and one had 'hold'. These are so-called experts who are knowledgeable about the firm and the industry and they failed in their duty.

Both auditors and analysts are external to the company. One group internal to the company on whom sufficient attention has not been focused is the Board of Directors. Management theory tell us that the board performs three roles: Control (overseeing the functioning of the corporation and its management), service (being a link between the corporation and its external stakeholders), and strategy (providing a direction for the enterprise into the future). Of these three roles, control is the most basic and traditional role that provides the raison deter for a board.

The widely dispersed nature of the ownership (stockholders) of a joint stock enterprise requires the owners to repose their authority on the Board to oversee the corporation and ensure that the owners interests are protected. This is where the Board failed.

In a feeble effort at damage control, the board constituted a Special Investigation Committee (SIC) of three directors that released its report on 1 February. The first mea culpa has emerged in their report where they say, 'Oversight of the related - party transactions by Enron's Board of Directors and management failed for many reasons'.

As compensation, each company director receives an annual fee of $50,000 (Rs. 24 lakh). Apart from that, they also receive annual awards of stock and stock options. In 2000, this package for each director was worth $836.517 (Rs.4 crore). Perhaps as an act of contrition for a job badly done, six of the directors have announced their intention to resign.

Governance Failures

Getting down to the details of governance, we can focus on five issues.

Chairman and CEO: It is considered good practice to separate the roles of the Chairman of the Board and that of the CEO. The Chairman is head of the Board and the CEO heads the management. If the same individual occupies both the positions, there is too much concentration of power, and the possibility of the board supervising the management gets diluted.

In Enron, Mr. Kenneth Lay was both the Chairman and CEO. For a brief while the two positions were separated when Mr. Jeff. Skilling functioned as CEO, and when he resigned in August 2001. Mr. Lay again took on both roles. His recent claim that he did not know too much of the details of the accounting falsification that was going on is, at best, disingenuous.

Audit Committee: Boards work through sub-committees and the audit committee is one of the most important. It not only overseas the work of the auditors but is also expected to independently inquire into the workings of the organisation and bring lapses to the attention of the full board. The Enron audit committee failed in this regard.

In the words of the Special Investigating Committee: "The Board assigned the Audit and Compliance Committee an expanded duty to review the transactions, but the Committee carried out the reviews only in a cursory way". The Chair of the Audit Committee since 1985 was Mr. Robert Jaedicke, a former accounting professor and Dean of Stanford University Business School. (Normally, it is good for this position to rotate every three or four years). He was there because audit committee's are required to have as its members, persons who are financially literate.

Mr. Jaedicke, in addition to not using his expertise to perform his role as Chair of the committee, seconded the motion in the board to suspend the 'Code of Ethics' of the company in order to allow an employee to set up a special partnership. (Audit committees normally oversee compliance of such a code). Setting up that entity amounted to a conflict of interest and was specially prohibited by the company code.

Mr. JackWelch, the legendary former Chairman of GE, commented recently in a television programme that suspension of code of ethics is unheard of. I would go a step further and say that it is the corporate equivalent of the 'instantly defense' that we see in criminal cases. Apart from Mr. Jaedicke, the audit committee comprised of five persons, three of who reside outside the country.

An audit committee is almost a 'working' committee and needs to meet more frequently than a full board. Having non-residents on the committee hampered its functioning. One of the members, Mr. Ronnie Chan, missed 75 per cent of the meetings in 2001.

Independence and conflicts of interest: Good Governance requires that outside directors maintain their independence and do not benefit from their board membership other than remuneration. Otherwise, it can create conflicts of interest. By having a majority of outside directors on its Board. Enron followed a good practice. But in the way they behaved, they compromised their independence. Six of the 14 outside directors suffered from serious conflicts of interest:

(a) Mr. Robert A. Belfer, Chairman of Belfer Management, bought a stake in an energy company from an Enron partnership, thereby providing funds to start another

(b) Ms.Wendy Gramm (spouse of a Republican Senator) was formerly Chairman of the Commodities Futures Trading Commission of the federal government. Enron's trading in energy derivatives was exempt from regulation by the CFTC. Shortly after that decision, she quit the commission and joined Enron's board. She is presently Director of Regulatory Studies Program at George Mason University. Enron has donated $50,000 (Rs. 24 lakh) to that centre

(c) Mr. John Mendelsohn is the President of the MD Cancer Centre at the University of Texas. Enron and related entities have donated $1.5 million (Rs.7.2 crore) to the Centre since 1985.

(d) Mr. William Powers, who also headed the Special Investigation Committee is the Dean of the University of Texas Law School. Enron has given $3 million (Rs. 14.4 crore) to the University since he became Dean. The law firm that works for Enron, Vinson and Elkins, has endowed a chair at the Law School.

(e) Lord John Wakeham, a former Minister for Energy in the UK was paid $72,000 (Rs.34.5 lakh) for services as a consultant to Enron's European unit. When he was minister, he gave consent to Enron for building the country's largest power plant at Teeside.

(f) Mr. Herbet. S. Winokur is also a Director of the Natco Group which is a supplier to Enron and its subsidiaries. He is also Chairman of the Board's Finance Committee, which recommended that the board suspend the company's ethics code. The involvement of these Directors resulting in other benefits compromised their independence making one wonder whether they acted in the best interest of Enron.

Flow of information: A board needs to be provided with important information in a timely manner to enable it to perform its roles. A governance guideline of General Motors, for instance, specifically allows directors to contact individuals in the management if they feel the need to know more about operations than what they are being told.

In the Enron situation, the directors are pleading ignorance of the murky deals as a way of excusing themselves of the liability.

The Special Investigating Committee report says: "The board was denied important information that might have led it to action, but the Board also did not fully appreciate the significance of some of the specific information that came before it'. Here is another mea culpa. Moreover, if they did not have sufficient information, they should have gone seeking it. Reports suggest that Enron operated about 3,500 Special Purpose Entities, that is, partnerships that shifted debt and losses off Enron's balance sheet. If the directors did not understand what was being reported to them, it was their job to educate themselves more about by asking the right questions and getting more information. This they failed to do.

Too many directorships: Being a director of a company takes time and effort. Although a board might meet only four or five times a year, the director needs to have the time to read and reflect over all the material provided and make informed decisions. Good governance, therefore, suggests that an individual sitting on to0 many boards looks upon it only as a sinecure for he or she will not have the time to do a good job. Mr. Raymond Troubh, one of the directors, is a Director of 11 public companies.

Many successful companies suffer from one or more of the faults described above. When the company performance is satisfactory, we tend to overlook these drawbacks. In Enron's case too many of their faults came together at the same time to cause the company to implode.

The corporate governance model being followed was too weak to prevent the problems from escalating. And this should be lesson for all of us. Next time we receive a proxy statement from a company in which we hold shares, we must read it carefully.

If we are unhappy with the directors being proposed for election, we must voice our complaint to the company and vote against the slate being offered. If we are suspicious of the company's governance structure, we should report to the stock exchange where the company's shares are traded. As a final resort, we can exit the situation by disposing the stock.

("This article previously appeared in 'The Business Line(www.thehindubusinessline.com)' dated 4 March 2002. Reproduced with permission.")

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