Sucheta Dalal :Ernst & Young Award? (15 June 2003)
Sucheta Dalal

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Ernst & Young Award? (15 June 2003)  

It was certainly a proud moment for India when chief mentor of Infosys, N.R. Narayana Murthy, became the first Indian to bag a prestigious World Entrepreneur of the Year Award. But that the award has been instituted by Ernst & Young (E&Y), seems to tarnish its sheen somewhat.

In the last year or more, E&Y has been making news for a variety of activities that are the very opposite of Infosys’ corporate culture. For instance, the same week that Murthy collected his award, the Securities Exchange Commission (SEC) barred E&Y from taking on any new clients for six months to punish the firm for failing to maintain its independence from the companies that it audits.

Specifically, E&Y was charged with having an ‘improper’ business relationship with PeopleSoft, a company it was auditing. It had developed and sold a software product together with PeopleSoft. The Wall Street Journal (WSJ) quotes SEC’s court documents as saying that E&Y’s internal controls were ‘woefully inadequate, internally inconsistent, and under-publicised within the firm.’’

Then there are E&Y’s ‘pristine audits’ for the disgraced HealthSouth, which the WSJ said, were nothing but checking toilets at HealthSouth clinics for stains. It collected a cool $2.4 million for its toilet inspection. E&Y is under Congressional Scrutiny for its role in the HealthSouth accounting scandal.

Among its clients who are either being investigated or have entered fat settlements with regulators are— Lehman Brothers, PNC, AOL-Time Warner and Williams Energy. In addition, the Federal Deposit Insurance Corporation (FDIC) is suing Ernst & Young for $2 billion for fraud in the audit of Superior Bank FSB of Chicago, which allegedly cost it $750 million when Superior Bank failed. Maybe some prestigious awards urgently need a new sponsor to retain their credibility.

Sebi investigates

THE regulator has kicked off a fairly detailed fact finding exercise to check who has been buying and selling the shares of Indian Oil Corporation (IOC) and nationalised banks such as Punjab National Bank, Oriental Bank of Commerce, Canara Bank, Bank of Baroda, Bank of India, IDBI and IFCI in the April 1 to June 6 period. Brokers, mutual funds and institutions have been asked to report all transactions of 20,000 shares and above, with the name, address and contact numbers of investors and scheme-wise details with regard to funds.

It has also asked mutual funds to report all subscriptions of Rs 10 lakh or more to their mutual fund scheme between March 1 and June 6. With the Finance Minister extremely displeased about the rampant manipulation of bank stocks, Sebi is obviously moving very fast on this investigation and wants the information to be submitted urgently. It is one thing to ask for details, but will Sebi surprise us by actually nailing the culprits this time?

Risk factors

NOW that the massive subscription to Maruti Udyog’s issue seems set to kick-start the primary issue market, it is time for some corrective action. Maruti was one of the only recent IPOs with a budget for television advertising. But its advertisements accelerated into high gear and turned into a blur when it came to the mandatory display of risk factors at the end of each spot. An indignant reader says, ‘‘Wouldn’t it be far less ridiculous if SEBI did away with this gimmicky display of risk factors that nobody can read and instead introduce a sensible one sentence disclaimer? Something that would fit on a text slide and say, ‘‘All market investments carry some risk. Please read the prospectus for risk factors on this offer before investing’’.

No thanks, say women

STARTING with the lady Joint Secretary at the Department of Companies Affairs (DCA), women in corporate India seem unanimously opposed to the DCA’s generous reservation for them on company boards. Women in business are clear that they want to make it to board of directors only on merit.

In fact, the reservation is a double-edged sword. On the one hand, it devalues competent women by making them seem like quota-nominees, and on the other hand, it legitimises the presence of wives, sisters and mothers of industrialists who ‘decorate’ many boards and stack the numbers in favour of incumbent management.

We have an idea

IT is probably an indication of how risk averse the banking system has become. The slogan of our newest private bank goes, ‘‘You have the money, we have the ideas. It is only common sense.’’ Shouldn’t it be the other way around? With entrepreneurs providing the projects and the ideas, and bankers the money? But maybe Kotak Mahindra Bank is only being upfront about what every other bank does in practice.

-- Sucheta Dalal