Poor corporate governance

At the private equity fund where I last worked, in about half the investments where we lost money, the culprit was fraud by the promoters (i.e., company owners).

In some cases, the promoters blatantly stole more than a hundred crores, but shockingly, not one guy went to jail or faced prosecution.

There is zero stigma attached to such behavior. These looters continue to move around in the cream of society and live a life of luxury. And instead of using the term ‘fraud’ or ‘theft’, we use a polite phrase to describe their behavior – ‘poor corporate governance.’

If you are investing in the US, you only have to worry about how good the company’s business is. In India, the first question is always, “Is the promoter a crook?” And in many sectors (especially in the old non-tech economy), it is openly accepted that only crooks can operate.

All this comes at a huge social cost. When people are suspicious, they hesitate to invest. Companies can’t raise capital as easily, and wealth creation slows down, making everyone poorer.

At an individual level, what is most interesting is that these fraudsters are often already immensely rich. Compare that with an auto driver in Hyderabad, who yesterday returned a bag of gold jewelry that some passengers left behind by mistake. I wonder what some of these fraudsters would have done in his place.

Hypothetically, if this business fraud went down one day, our economy would roar. Alas, it will remain a hypothetical scenario. This is one of the things holding the country back.

At the very least, let us call out this behavior when we see it. It might be a start.


– Rajan

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