RESTORING THE TRUST:FINANCIAL INTEGRITY AND “BRAND INDIA”

*DISCUSSION DRAFT*

The current global financial crisis has shown the world’s financial institutions to require substantial reform. The reputations of nations and their markets have stumbled, perhaps nowhere as much as the United States. In the midst of this, and for its own reasons, India, too, has suffered.

The recent experience of Satyam Computer Services highlighted critical weaknesses within the Indian framework, as well as for the so-called “global networks of firms.” PriceWaterhouseCoopers in India – a firm with a presence in India of over 100 years – has left a wake of questions, recriminations and litigation both civil and criminal. Standards of audit quality fell by the wayside, giving way to apparently criminal conduct. The ability of central corporate offices to monitor and address issues of enforcement and discipline was sorely challenged.

Some may say that these challenges are endemic to particular firms. PriceWaterhouseCoopers’ experience in India, for example, is echoed by that same firm’s performance in Russia, Japan, and others nations.

Others may say that the issues are peculiar to India. The Satyam experience, experience, was preceded by the Global Trust Bank collapse and the DSQ Software case, for example. Each exemplified similar failures of enforcement and discipline.

Others may assert that the audit industry itself suffers from structural flaws which transcend any one firm or nation. One need look only to other top accounting firms, in other nations, with the same problems of enforcement and discipline across their own “global network of firms,” to realize that firms continue to create substantial accounting risk for themselves, clients, and investors. Important gains have been made through the efforts of professional bodies. For all that, fresh and devastating failures seem to break into our headlines regularly, and endemic flaws threaten. Indeed, audit firms point now to an “expectations gap”. Six CEOs, for example, recently reflected that stakeholder publics held auditors to standards for the detection and prevention of fraud which were impossible for audit firms to achieve “at prices companies or investors are willing to pay.” The problems of widespread fraud and accounting manipulation are unlikely to go away any time soon.

How should any nation which seeks to restore investor confidence in its capital markets move to reestablish audited financial statements as a clear picture window on corporate activities? In particular, how might India, where the Satyam fraud flourished with the apparent connivance of its auditors, accelerate the measures needed to restore trust in its own institutions? What might India do not simply to patch things up, but to achieve for itself a reputation as operating under a new standard for integrity in corporate governance, conferring competitive advantage in the investor marketplace to Indian commerce and industry?

The proposed roundtable on Restoring the Trust: Assuring the Integrity of Indian Corporate Governance seeks to convene a 1.5 day session in October, 2009 to investigate the options for action to accelerate such transformations. To assist in this work we are assembling an experienced “cross-boundary” group of 25 senior government and industry executives and scholars.

  • In the post-Satyam environment, what is required for India to establish for itself the reputation of transparent and unassailable financial reporting?
  • What standards should it hold itself and its trading partners to, and how should those be established and certified?
  • What measures can India’s government and industry take now to establish “Brand India” as the equivalent for financial integrity as “Brand Switzerland” is, for example, for financial secrecy?
  • How might India leverage that brand for competitive advantage in the global marketplace?

In sum, our round-table dialogue will investigate the options for action, and the levers of change– who has to do what, together with the likely enablers, obstacles and workarounds to achieve the desired ends. Taken together, this will comprise a new strategy for governance to assure for India a global reputation for financial stability, security, and integrity.

AUSIB had earlier this year also promoted the Humane Capitalism Conclave in India with the Indian Confederation of NGOs which set the standard for the policy roundtable at Harvard Kennedy School that shall be held in conjunction with the Ministry of corporate affairs India and the Department of Commerce, USA. This draft is co- authored by Zachary Tumin of Harvard and Geetanjali Bhushan /Jeroninio Almeida of AUSIB.

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