Reebok India?s decision to file a case against the MD and CEO, who were asked to resign in March for causing a R870 crore loss to the company by diverting inventory to secret warehouses, has thrown open what many consider to be India Inc?s best-kept secret. Indeed, as FE reported Thursday, several heads of the India operations of MNCs have left under mysterious circumstances over the years. Diageo India managing director quit after ?breach in the internal code of conduct? (2009), Samsung India alleged misappropriation of funds by its former IT head (2005) and Britannia?s board asked its MD to quit over alleged misuse of company funds (2003)?all suggest a corporate veil is usually drawn over such corruption. For the record, the two accused by Reebok?they have also been accused of padding up sales for incentives and collecting monies for franchisee stores that were never opened?deny all wrongdoing and have filed counter-suits. They have also been with the company through the opening of the first Reebok stores in India in 1996 to a 1,000 strong network today.
The Reebok drama, of course, got heightened because a typographical error (reportedly by a now suspended computer operator) in the FIR initially suggested the scam was worth R8,700 crore, many times Reebok India?s turnover! Even with the downsized number, comparisons to the around R14,000 crore Satyam scam will continue to be made. Once again, there are questions of trust in India?s corporate governance. Once again, the role of auditors is suspect since, if the charges are true, it does seem a bit odd that the auditor shouldn?t be able to figure out such blatant fraud. Meanwhile, the case against Ramalinga Raju drags on (while, although Bernie Madoff?s ponzi fraud surfaced about the same time as the Satyam scandal, Madoff got 150 years prison time within six months). The Institute of Chartered Accountants of India took nearly three years to find some of the individual auditors in the case guilty of professional misconduct. The new Companies Bill that is supposed to enforce regular rotation of auditors and check their Siamese linkages with clients still hasn?t become law. As the Asian Corporate Governance Association notes, judicial delays combined with an under-investment in enforcing regulations really take a toll on checking white-collar crime in India.
