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In Asia, CFOs recruited by family-run businesses are often on the outside looking in.
Don Durfee, CFO Magazine
March 1, 2009
Reading about the arrest in January of the CFO of Satyam Computer Services — the Indian family-owned outsourcer accused of a $1.4 billion fraud — I recalled a conversation I'd had a year earlier with a finance executive in Hong Kong.
Over lunch, the CFO explained his predicament. He'd recently left a multinational corporation to join a family-owned business. It had seemed like an excellent opportunity. The fast-growing firm was publicly listed and appeared well governed, with a split CEO/chairman role and a handful of independent directors. The company had reached a size where it needed the guidance of an experienced CFO.
Once on the job, however, the finance chief discovered that the company was far different from what he had expected. All important decisions were made in private by the founder and his family. They appeared to want an outside manager mainly for the credibility he could lend them in meetings with investors and banks. Worse, the CFO suspected that the family's web of related businesses was being used to disguise the true results of the listed entity.
Vadlamani Srinivas, Satyam's former CFO, claims to have been in a similarly luckless position, saying that he was long kept in the dark by Satyam's former chairman, B. Ramalinga Raju, and his brother, the managing director. According to prosecutors, the company had been faking financial results for years and had forged bank statements showing more than $1 billion in cash balances. The prosecutors allege the brothers were also diverting Satyam's cash to other family-owned businesses and real estate investments.
In his confession to the police, Srinivas said the chairman ordered him not to examine the firm's bank accounts and instead would present him with an audited balance sheet before each board meeting. Srinivas may yet prove to have been more deeply involved, but even if this version of events is true, he is hardly blameless. By his own admission, he stayed silent despite clear signs that the chairman and his brother were up to no good.
These two stories illustrate a growing risk for Asia's CFOs. The past decade of giddy economic expansion has turned countless small firms into big businesses, many of which recruited experienced finance executives to help manage their growing empires. In those cases where conflicts of interest and other governance failures have not been resolved, CFOs have confronted the dilemma facing my lunch companion — protest and find yourself out of a job, or stay quiet and risk getting drawn into what might one day be front-page news.
Don Durfee is editor-in-chief of CFO Asia.