Satyam fraud a wake up call to Indian cos: Nandan Nilekani

Here is a verbatim transcript of the exclusive interview with Nanda Nilekani on CNBC-TV18. Also watch the accompanying video.

Q: There is a perception and we have been hearing through the day that this incidence, this aberration as some people are calling will not be seen as an aberration and it could possibly dent the image and the perception of Indian IT as a whole. Would you agree with that?

A: I do not think so at all.  This whole episode is dismaying, it's deplorable and I think it's a very sad incident in Indian corporate history. It is an isolated incident and we cannot paint everybody with the same brush. When Enron failed we didn't say that all energy companies were bad, when WorldCom failed we didn't say all telecommunication companies were bad, when the German billionaire Adolf Merckle killed himself yesterday we didn't say that all German billionaires are bad, so I think we should not extent the thing like that. This is an isolated incident, we must take quick action, we must do something about it but we should realise it is one set of individuals who are responsible for this.

Q: In terms of quick action, in terms of quick response now the point everybody is making is that the government needs to react and the government needs to show some urgency, it is the Corporate Affairs Ministry that will be the nodal agency. But what kind of quick appropriate response are you expecting whether it's from the regulator, whether it's from the government or even from private industry?

A: That's for the government and the appropriate regulatory authority. But there is a case here of massive fraud, there is admission of massive fraud. In the interest of demonstrating that India is committed to good governance and ethical behaviour, appropriate steps have to be taken quickly and whatever is the appropriate punishment needs to be meted out.

Q: Speaking of good governance and ethical behaviour; we have got a management in transition of course Ramalinga Raju in his letter absolves the 17 gentlemen, a large chunk of who are now part of this management in transition. Is that the best solution at this point in time for Satyam?

A: I think that's for the management, their shareholders to take a decision on that. I do not want to comment on that. My sympathies are with the employees of this company who for no fault of their own are going through this traumatic experience along with obviously the investors and customers. They have to take the final decision. I hope and pray they will be able to come out with a workable solution. But I think this incident is deplorable.    

Q: In terms of a response what we have been hearing from analysts is that the manner in which the quality of earnings has been looked at has been perceived is going to change dramatically. We are possibly going to see hostile analysts, hostile investors. What is the sense that you are getting in the short-term. Is that what to expect as well?

A: I think it's little premature to talk about that but certainly I think investors who have been shocked by this episode will be look obviously with a fine tooth-comb at company numbers which is a good thing. We have always stood for transparency; we believe that the more data you share with your investors the better it is. So the more transparency we have in Indian markets and Indian companies the better it is for the society.

Q: There has been a lot of buzz of merger of other companies, all sorts of names doing the round Tech Mahindra, HCL Technologies looking at Satyam at this point in time. Analysts separating the core business may make sense at this point in time. What are your thoughts on that on possibly private company coming in and taking over at this point?

A: I do not know but I think the situation is little complicated because we know that there was falsification of cash balances, there obviously would have been falsification of revenues, of margins so for anyone to make that call they must have confidence in what the core business is and that's a decision and risk appetite of investors to make that call.

Q: What we are hearing now is that there should be more stringent disclosure norms with regards to pledging of shares that currently the norms that we do have in place perhaps are not satisfactory they do to suffice. Would you go along with that as well?

A: Yes I think so because today we disclose promoter holding in companies but if the promoter holding is hypothecated for some loans then obviously that fact also has to be declared. I think anything which compromises promoter holding must be declared.

Q: What is the biggest lesson from this episode? It brought into question the role of the auditors, the audit committee, independent directors and directors on the board? What is the biggest lesson for corporate India from this episode?

A: I think it clearly shows that it's not enough to have rules and regulations. Companies, management, boards; auditors, audit committee; everybody has to be on their toes. They cannot take things for granted, they must be sceptical and they must ask searching questions. It's a wakeup call for the way we run companies in India and we believe that this hopefully will galvanise all the people in the corporate ecosystem to aspire to make sure there are no more incidents of this kind.