Satyam's lopsided verdict: Harvard's Krishna Palepu fined Rs 2.7 cr while Raju gets off with Rs 10 lakh

Luckily for those who believe in justice for white collar crimes, Monday’s verdict in the Satyam Computer financial fraud case related not to the main trial in a CBI court trial in Hyderabad, but to six separate “chota” cases launched by the Serious Frauds Investigations Office (SFIO).The verdicts - which sentenced founders B Ramalinga Raju and B Rama Raju to a paltry six months in prison and a fine of Rs 10 lakh, among other things - related to violations of the Companies Act. Hence the penalties were limited by what the Act itself indicated as the upper limit for violations.

What this means is that in the main case involving the “fast-track” CBI court, where a verdict is due on 23 December, there could be something harsher in store for the Rajus, self-confessed authors of the biggest financial fraud in Indian corporate history to date (read Raju’s full confession here).

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But there are rays of hope even in the SFIO verdicts, especially when it comes to penalising independent directors - who ought to have been more vigilant against financial fraud.

The most significant verdict is the one against Krishna G Palepu, an independent director at Satyam when the Rajus were ruling the roost. Palepu is a much-regarded Harvard professor, and he has been asked to disgorge nearly half a million dollars in excess remuneration paid by the company. In rupees, the amount he has to return is Rs 2.66 crore - around $4,30,000.

The others, Vinod Dham, Mangalam Srinivasan, M Rammohan Rao, TR Prasad, and VS Raju were fined only Rs 20,000 each. The logic is not clear, unless they were paid far lower fees in comparison to the star independent director, Palepu.

Clearly, the message the verdict sends is that independent directors are paid to protect shareholder interests, and not just for putting in an appearance at board meetings and consuming snacks. This is especially true of the big names imported from Harvard and Ivy League institutions and top-notch US B-schools. Palepu is the Ross Graham Walker Professor of Business Administration at Harvard Business School and has been quoted often for his views on corporate governance .

Palepu’s bio at Harvard has this to say: “In the area of corporate governance, Prof Palepu’s work focuses on board engagement with strategy.Prof Palepu teaches in several HBS executive education programs aimed at members of corporate boards: ‘Making corporate boards more effective’, ‘Audit committees in a new era of governance,’ and ‘Compensation committees: New challenges, new solutions.’”

Prof Palepu’s first-hand experiences at Satyam would surely have added to his repertoire of what not to do on corporate governance.

The other message that comes from the SFIO case verdict is that punishments for gross transgressions of company law are simply inadequate. If the best the court could hand Ramalinga Raju for his crimes was six months in jail and a Rs 10 lakh fine, one wonders how this is ever going to deter the next Raju.

That a fraud on this scale happened in one of the most celebrated companies shows how little “independent” boards manage to accomplish. This suggests that in smaller companies that pass under the radar, frauds may be even more rampant, and difficult to track and bring to book. Clearly the law and the policing both need to change.

The most sobering message coming from the verdict is this: death by delay.

A financial crime that started with a voluntary confession by Raju on 7 January 2009 takes all of six years to find him guilty and send him to six months in prison and fine him some loose change. Compare this with the minority shareholder cases involving Satyam which were resolved in the US and UK in 2011 and 2012 - two years ahead of us, when all the evidence rests here.

The only thing we did really, really fast was to get the two Raju companies sold quickly to the Mahindras and IL&FS - with the former taking the IT company and the latter the infrastructure company Maytas, which was the cause of Satyam’s downfall. The reason can only be surmised: it was probably about erasing the trail that led from the Raju fraud to his political connections.

We are not quick to deliver justice, but we are super fast in erasing the trails that lead us to the culprits.