With each passing day, there is a revelation about yet another fraud that had been perpetrated by Satyam’s founder and ex-chairman Ramalinga Raju and his brother and ex-managing director, Rama Raju. In fact, the frauds so far revealed are so preposterous that the case is being compared with one of the biggest frauds in recent US corporate history such as Enron where the auditors helped the management to cover up huge fraud of money laundering, securities fraud, and conspiracy.

In brief, what Ramalinga Raju has confessed to so far includes the creation of bogus invoices, transfer of land in benami (not the real owners of the land or non-existent owners) names, fudged financial statements, and payment of remuneration to non-existent employees. All this was done to inflate income and suppress the company’s liabilities, so that the company looked financially healthy and sound. Crores of rupees had been siphoned off in the name of family members. The fraud has caused serious threat to the survival of the company and its employees whose very livelihood continues to be at stake.

Raju is also reported to have been involved in several dubious land deals. Raju was close to both the erstwhile Chief Minister Naidu during the TDP rule of the state and the current Congress Chief Minister, YSR Reddy, and has continued to be favoured in huge land deals during the past decade. It is now being reported that the Satyam promoters had been fooling the other directors, the auditors, the tax authorities, etc., for seven years.

While the bourgeoisie is portraying this whole case as an aberration and is expressing “disbelief” that such a fraud can occur, it is important to see that this hides the truth that such frauds are indeed an inherent part of this system.

Corporate governance

Promoters of companies raise finance from many resources including banks, finance companies, and from the public at large, to augment the fraction of the total capital that they bring in. The biggest financial capitalists like banks, equity and mutual funds who invest in these companies dominate and want to ensure that they maximise their returns. The management of the company is expected to run the company in the interest of all the shareholders. To this end, the bourgeoisie has created rules and regulations to ensure that each section gets its share of profits and the company is not bled dry by the management on behalf of the promoters. However, these rules have not prevented the periodic occurrence of huge financial frauds in banks, multinationals, and monopolies, the world over.

In recent times, the bourgeoisie has responded to such corporate scandals with the much talked about “corporate governance”. This is the set of rules or regulations by which businesses are to be operated so that the management is accountable to the shareholders. Rules and procedures on financial record keeping, about how auditors should check company accounts and report on any “irregularity” they may find has been under constant discussion; as also rules about “independent directors” who are meant to be unbiased professionals who will ensure that the interests of all the shareholders are safeguarded.

Indian and international societies for corporate governance have been established which discuss, ad nauseum, standards of accounting practices, ethics of corporate governance and “good business” practices through acceptance of Company Law Rules and Accounting Standards. Satyam Computer Services Ltd., was in fact awarded the Golden Peacock Global Award for Excellence in Corporate Governance for 2008 by the World Council for Corporate Governance!  This clearly shows that even ‘excellent’ corporate governance is no guarantee that a company will not cheat its own shareholders to maximise profits for its promoters.

Why do the frauds continue to occur?

The TRUTH is that there cannot be an orderly and rule-based division of spoils among the owners of capital in this monopoly stage of capitalism. That maximum exploitation of labour and robbery of peasants can be accompanied by a rule based division of the profits among the exploiters, transparent to all shareholders -- this is an illusion, an impossibility. There is dishonesty in the very claim that everyone’s interest can be taken care of in this drive to maximise returns and that setting up of standards will control this greed. In fact, flouting of rules and collusion of the very “watchdogs” like auditors and “independent” directors is the norm in this system.

Ruthless and unlimited exploitation of labour is accompanied by cut throat competition to rob rivals and anyone possible. In this highest stage of capitalism, the greed and drive of the monopolies for maximum profits cannot be limited by any system of rules of corporate governance. However the rules are framed, the leaders of capitalist corporations will find ways to flout them if that is necessary to reap maximum profits and stay ahead in the monopoly capitalist race. Among the capitalists themselves it is widely known that all of them, or almost all, flout rules to make a quick buck. Capitalism is a system based on exploitation of the many by a few. Therefore one cannot talk of a ‘fair’ capitalism.

What the system does not desire is the flouting of rules that will endanger the system itself where the very edifice of the company would be threatened, as it happened in the case of Satyam. Every time an Enron or a Satyam occurs, it only reflects that something has gone wrong beyond the limit within which such frauds can be accommodated or contained by the system. The fraud itself is not an aberration.

The Satyam episode is one more glaring instance of the rotten nature of the capitalist system. If exploitation and unequal competition are to be put to an end, then capitalism has to be put to an end. This is the aim and program of the working class.