February 2nd, 2009 
Aman 
Do you remember one name? Agha Hassan Abedi. Yes I m talking about early 1980s. There you go. He founded the Bank of Credit and Commerce International (BCCI). All of us know that in those days it was the fastest growing financial institution. It dint take to figure out that this success was based on deceit and fraud. Abedi fell into ignominy as quickly as he rose to the fortune he was commanding. The next name I would like to remind you is that of Ken Lay. Now we are in 1990s. He made Enron rise from $4.6 billion Company in 1990 to a company of $ 101 billion in 2000. In the next year the company was bankrupt. Lay was the most sought after man in the corporate community when the company was rising. He was awarded with huge rewards and recognitions and if anyone asked any question about the performance of company he was dismissed. We can see the same in Ramalinga Raju. He is the man behind Satyam being fourth largest IT Company. He was also conferred with the Golden Peacock Award for corporate governance last year. Out of many these are just three names who were once colossus and then collapsed leaving behind nothing but shame. Question: why do men of such stature are compelled to defraud?
There is only one answer on Psychological bases. Hype. The impact of public accolades and media hype. They were once the centre of attention of shareholders, peers, financial journalists and industry federations. Every initiative of theirs was covered extensively. This made overconfidence step in. they started believing in the hype. They got so carried away with the exaggeration of third party analysts and media that they started focusing on expended disproportionate effort on sustaining the stories of their success where as they were required to look into managing cash flows.
Next question: how can the directors especially the independent directors allow such a situation to come to pass and what were the auditors doing? Answer: the auditors were sleeping. The independent directors are equally responsible for this situation as they are expected to have the knowhow to help the company meet its objective of profitability growth and social responsibility. They should also ensure adherence to legal and financial propriety.
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