Prof C.K. Prahalad

Vinay Kamath
R. Ravikumar
T. Murrali

Chennai, Jan. 11 Prof C.K. Prahalad thinks a comparison between two cities, New York and Hyderabad, may be apt in the context of the fraud unearthed at Satyam Computer Services.

Celebrated author, management guru and professor of corporate strategy, Prof Prahalad, in an interview to Business Line, said the Satyam saga was a rude shock that something as pervasive was going on for so long without being detected by multiple groups: investors, SEBI, the Company Law Board, internal and external auditors, chief financial officer, chief operating officer, business unit heads.

“This is somewhat unrealistic. That this could happen in a company which was well respected comes as a shock. I like to think of it as a tale of two cities — New York and Hyderabad. If I look at Lehman Brothers, Bear Sterns, Washington Mutual, Wachovia, Countrywide, Merrill, (and closer home, Satyam) they were all venerable institutions,” he said.

Prof Prahalad said it was time to ask some tough questions: Is the market system failing or is it the personal failure of individuals or is it the failure of managerial incentives. Incentives totally based on quarter after quarter profit growth irrespective of market conditions, can create a culture of growth at any cost, he elaborated.

“So, I think part of it is systemic pressures, part of it is quality of personal ethics and compliance, part of it is poor regulatory oversight or bad auditing. It is a combination of all those. Only when the investigations are complete we will know how the pieces fit in; at this stage one can say this is a rude shock to all who want India to succeed.

“It is going to have a significant impact on how India and Indian companies are looked at. So, it is more than Satyam from that point of view,” he explained.

The only hope, he said, is that all investigations are done expeditiously and in a transparent way so that restore the confidence in the system is restored.

In the short-term, he said, there would be an impact on India but these things are not for all time. “Six months from now people would have forgotten and moved on. And I think the key is India has to get its act together. Do it fast, do it fairly. Both are important.”

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