27 December 2008

Satyam - resignation and poor advice

I thought the resignation of Mrs. Mangalam Srinivasan (or at least the one reported in the news) was very mature. It demonstrated contrition, it was humble and it talked the walk by resigning. She stated she had concerns at the meeting but admitted she was to blame for them not being recorded as dissent. At last, someone deserving of at least some degree of respect out of the Board.

There is an opinion piece by Mr. Omkar Goswami on the Satyam deal and one part of his piece simply shocked me because he is advocating an illegal act by way of suggesting what Satyam ought to have done. Here is what he said:

“It was a massive related-party transaction. Irrespective of law, good corporate governance demanded that such a proposal be rejected by the board or, at best, be first sounded out to the FIIs and FIs, who together owned almost 61 per cent of the stock. It wasn’t. The denouement: Embarrassment, poor denials and tragic-comic about-turns.”

Sounds innocuous? Well, it’s illegal both under Indian laws and US laws to disclose information selectively to “FIIs and FIs”. In other words, if disclosure is made by insiders, it must be made to everyone at the same time or to no one. This kind of selective disclosure directly violates insider trading regulations of India and Regulation FD (or Fair Disclosure) of the US SEC. This is one advice Satyam can do without.

See the full post on my main blog.

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