The fraud scandal at one of India's largest software outsourcers,Satyam Computer Services, has again placed the spotlight on corporategovernance in Asia. Experts saythe region has made some progress, but more needs to be done.
SatyamComputer Services had been one of India's most admired companies. Lastyear, it received an award for corporate governance.
But many are asking, was it a mirage?
Thearrest for fraud of the Raju brothers who ran the company is seen as asetback for Asia's efforts to shake off perceptions of poor corporategovernance. The collapse of some Asian family-run conglomerates duringthe region's financial crisis 10 years ago exposed some bad businesspractices - such as lack of transparency and shady financialtransactions between family members.
"Theproblem has been there all this time," said Lee Kha Loon, who heads the CFA Institute's Center on Financial Markets Integrity in Hong Kong. "Some [family-runbusinesses] bought into the concept of these regulations and changesthat needed to be done. We do see some good corporate governance, butit is very hard to measure the level of success."
Since theAsian financial crisis, governments have instituted new laws on howbusinesses should behave, including adopting Western accountingstandards, appointing independent directors on company boards andprotecting minority shareholders' rights. India was among thosegovernments.
Asian Corporate Governance Association researchdirector Sharmila Gopinath says there is what she calls a "mystique" ofgood governance in India largely because of the presence of a handfulof exemplary companies.
"There are 9,000 listed companies in thecountry," said Gopinath. "If you look at the vast majority of them youare not going to find corporate governance standards of any greatdepth."
The problem, experts say, is in implementation. JosephFan, a corporate governance expert at the City University of Hong Kong,says new laws and regulations are not enough because some companies areable to skirt the law.
"The quality of public governance, the quality of bureaucrats, the quality of government play a very important role," said Fan.
Indian regulators have been quick to start investigations into Satyam's business practices.
Troubleat Satyam began to emerge last month when its chairman wanted thecompany to buy two companies owned by his family. Shareholdersobjected and independent directors resigned. Earlier this month, thechairman admitted to fabricating about $1 billion in cash and thecompany's profits.
Lee says Satyam's case serves as a reminderof the need for continued improvements in corporate governance, despitethe reforms over the past decade.
"Where is the fear of family-owned companies to change? One is, regulators would come after them.Second is, investors would react like in the Satyam case," he said.
Asanother crisis hits Asia and companies face financial difficulties,experts say regulators need to be vigilant for irregularities.