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Wednesday, May 23, 2012

Riding a Tiger

“It was like riding a tiger; not knowing how to get off without being eaten” This is how Raju, former chief of Satyam, described his cover up of the poor quarterly performance he started few years ago that grew to a multi-billion dollar accounting scam that finally engulfed him and his company.

I don’t claim to be privy to what happened nor do I know the complete details of the scam. But I don’t think that he is the only one who is into managing the books in some fashion to achieve or over achieve the targets. I am sure most of us would agree with me. May be he took it to the extreme; or maybe he just got caught?

See what happens when the year-end approaches. The extra effort and extra push to generate more sales is of course a great idea and desirable. But it doesn’t end there. Each industry has its own bag of tricks. Arm twist the distributer to take an extra consignment which he may not be able to sell in the coming quarter. An accommodating purchase manager could be asked to book an order which he can cancel in the next month. A conditional loan conformation from the client. Create a fictitious company to book an order that will one day be written off. This is not just a private sector phenomenon. Ask the tax-collector what tricks he has to reach the target. Anything goes for the sake of ‘numbers’; especially when the numbers lead to fat bonusus and or promotions. One of the primary reasons for the 2008 meltdown in financial markets was also this mad scramble.

The degree of accommodation may vary. Some will do a bit of arm twisting. Some will shift the next quarter sale to this quarter. (A short fall in the first quarter is understandable!) The degree of dishonesty varies from coercion to manipulation to absolute fraud. This is not just the handiwork of the sales manager. This is the culture we are inculcating and encouraging. This culture of deceit then becomes a part of the organisational DNA.Sometimes somebody gets carried away and goes all the way and occasionally a Raju gets caught. Just hard luck!

May be we should take the spirit of the “General Anti-Avoidance Rules” in taxation where admissibility of an item of expenditure is supposed to be based on whether it is a truly value adding transaction or a transaction just for the sake of tax avoidance. In the same fashion the top management could insist that only a true sale or true collection that brings revenue for the period under consideration is booked as the income. That could be the first step towards recognizing and encouraging honesty.

The problem is not just about managing the book for achieving target. It is about the culture of honesty in our business dealing or even governance. As Laurie Calhoun noted in his article The Problem of “Dirty Hands” and Corrupt Leadership “In thinking about this issue, it is important to distinguish self-serving opportunists from those who suffer corruption through their sincere efforts to govern well. Self-serving opportunists often rationalize their dubious measures to themselves through self-deceptive references to ‘the good of the whole,’ claiming that group loyalty demands moral sacrifice or that ‘the end justifies the means.’”

But we live in Kaliyuga when it is all about managing “The art and ethics of lying” (Read on Part 1 and Part 2)

The truth is never dangerous. Except when told. PHILIP MOELLER

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1 comment:

  1. true but then most know it but few speak . try to be ahead of your targets or shall we say behind your greed and rather save some numbers to kickstart the next quarter, and personally can tell you there is no parallel to that feeling ! having said that also realise that projecting these numbers becomes mandatory for these businesses once they start relying on them to upgrade their market caps and thereby the potential to raise more debt (or cheat..), and so me and you cannot be the businessmen in its literal sense as it requires two fundamental qualities to 'lie' and own up 'debt' . keep up the good work....

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