Lilliput: Why India Inc desperately needs an Anna

The demand for corporate governance, long ignored by Indian investors, seems to be gathering pace. A report in DNA said Lilliput Kidswear had deferred its initial public offering (IPO) plans as private equity investors raised doubts over the company’s financial statements.

According to the article, private equity investors Bain Capital and TPG received crank calls alleging irregularities about the company’s accounts. After both investors decided to investigate the company’s financial statements, Lilliput had to defer its Rs 850 crore IPO plan as they refused to give their consent to the proposed public issue. In the company’s board meeting held on 28 September, the directors, by majority vote, disapproved the financial statements for 2010-11, said Economic Times.

The DNA report said there was even a possibility that the company might have inflated earnings for fiscal 2011 (April to March) by about Rs 350 crore.

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[caption id=“attachment_106862” align=“alignleft” width=“380” caption=“Lilliput Kidswear had deferred its initial public offering (IPO) plans as private equity investors raised doubts over the company’s financial statements. Epsos.de/Flickr”]  [/caption]

Over the past year, an increasing number of instances of corporate malfeasance have come to light. Last month, Everonn's managing directorP Kishore was arrested for allegedly giving a Rs 50 lakh bribe to Income Tax Commissioner Andasu Ravindra to conceal Rs 60 crore of taxable income.

Kingfisher Airlines was also in the news recently after its auditors noted in their report that the company’s net worth had been “completely eroded” and its ability to survive depended on the company’s ability to inject more cash. Nomura had also downgraded one of the group companies, United Spirits, after referring to the inappropriate manner in which cash was being transferred in and out from the group’s holding companies.

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Reliance Industries also came under the investor spotlight after concerns arose that the companywas paying for Mukesh Ambani’s private companies.

And last year, SKS Microfinance generated a lot of negative publicity after the company, which essentially deals in a non-profit activity, changed its business strategy and started reporting huge jumps in net profit.

Certainly, investors have started getting aggressive. In an unusual development, the shareholders of realty major Unitech recently rejected a management proposal for payment of dividend totalling about Rs 30 crore for the financial year ending March 2011. Why? Because shareholders believed that the money was better spent reinvested in the business, especially at a time of a squeeze on profits.

Institutional shareholders in Crompton Greaves were also up in arms last week, protesting the company’s decision to buy a new aircraft at a time when its profits are under pressure.

There’s little doubt that several dubious companies have been getting away with irresponsible business actions for too long. Perhaps its time to have an Anna Hazare-style movement for corporate India. And, no, fasting will not work here.