There is such an eerie similarity in the numbers, not totally though, but atleast in the manner it rhymes while saying it. The memories and the macabre pictures of that terrible tragedy of September 11th 2001 are far too vivid to be forgotten in a hurry. The death and destruction to innumerable families, and more critically, the realization of vulnerability, to a nation that for a moment stood stunned in silence, virtually sent shivers down the spine of public consciousness all over. The crumbling of the Two World Trade Towers overnight was as much symbolic of dangers that lurked around for the strongest of civilizations, as it was a paralyzing moment of truth, for those who lost their near and dear, all in a jiffy.
The month of September 2008 has brought about another similar disaster this time on the global financial sector. The seven eleven represents the financial disasters in USA that has caused a financial tsunami leading to a global meltdown - the filing bankruptcy applications by financial giants under Chapter Seven and Eleven of US Bankruptcy laws.
The Nine-Eleven tragedy was on account of fundamental extremism this time it is fundamentally due to financial extremism. Both the tragedies happened in an economy that had supreme confidence in systems that was replete with jargons and acronyms! It is classic case of supreme confidence to the sub-prime to the submerged!
The collateral damage that these events have brought on the system the world-over is enormous. Typical of the nine eleven tragedy – though it was the Twin Towers that fell, other edifices symbolizing the psychology of confidence of people in the U S also fell. It was also followed by a traumatic period of insecurity for the entire world. Likewise, the bankruptcy of a couple of major entities in the U S would carry far-reaching implications to the entire monetary apparatus of the world, leaving behind it ,a long trail of terrible doubt and insecurity in the international financial arena.
For such of those are not upto speed on the USA bankruptcy laws, here is what it means - When a troubled business is badly in debt and unable to service that debt or pay its creditors, it may file (or be forced by its creditors to file) for bankruptcy in a federal court under Chapter 7. A Chapter 7 filing means that the business ceases operations unless continued by the Chapter 7 Trustee. A Chapter 7 Trustee is appointed almost immediately. The Trustee generally sells all the assets and distributes the proceeds to the creditors. This may or may not mean that all employees will lose their jobs. When a very large company enters Chapter 7 bankruptcy, entire divisions of the company may be sold intact to other companies during the liquidation. Fully-secured creditors have a legally-enforceable right to the collateral securing their loans or to the equivalent value, which right cannot be defeated by bankruptcy. A creditor is fully secured if the value of the collateral for its loan to the debtor equals or exceeds the amount of the debt. For this reason, however, fully-secured creditors are not entitled to participate in any distribution of liquidated assets which the bankruptcy trustee might make. On the other hand in the case of chapter 11 filing is usually an attempt to stay in business while a bankruptcy court supervises the "reorganization" of the company's contractual and debt obligations. The court can grant complete or partial relief from most of the company's debts and its contracts, so that the company can make a fresh start. Sometimes, if the business's debts exceed its assets, then at the completion of bankruptcy the company's owners all end up without anything; all their rights and interests are ended and the company's creditors are left with ownership of the newly reorganized company. Either way as far as the company is concerned it is a closed chapter!
It is time that the industry and regulators understood that it is not enough that there is an act in place but the discipline has to come through the implementation of sound processes. We are familiar with B2B – starting with the Boom to Bust of .com companies, then onto realignment of business practices on Business to Business channels but now it is time for Back to Basics!
To begin with we might as go back to what the Americans so passionately refer to as “KISS” – “Keep it Simple Stupid”. The next, it is not enough if you have SOX but it more important to have BOOTS – Build Operate Operationally Transparent Systems. In an endeavour to create technology savvy organisation we have created technology monsters! Go to any organisation and don’t be surprised if they claim that they have expert systems... As a wag once put it, an expert is someone who knows more and more about less and less until, eventually, he knows everything about nothing. The modularisation of business processes based on highly complex technology applications has meant that invariably very few people are aware of the process in its entirety. The unscrupulous are bound to exploit the information vacuum that is created in the bargain. By no stretch of imagination is one suggesting that technology does not provide controls on the contrary, sometimes, it has so many that transaction is never understood in its totality and relative implications less understood!
Though the current situation represents the collective and cumulative failure of all concerned the law makers, regulators, corporate boards, independent professionals but as the same time we need to recognise that business organisations cannot be run on based on audits, external ratings and regulatory policing but sound internal systems. The Reserve Bank of India has rightly expressed concern over excessive dependence on external credit rating agencies by lenders. The banking regulator has recently expressed apprehensions that it may not be prudent to rely only on these agencies, given the current context in the global economy. These views were expressed as recently as July 2008 and how true it has come! Take the recent cases of AIG in America where a couple of rating agencies down graded the commercial papers a couple of days before the company was taken over. It literally was the proverbial bolting of doors after the horses had bolted! To think of it, even there it was only downgraded to an A –ve which still represented an investment grade when the company was literally in the doorsteps of a run and bankruptcy. The credit rating mechanism has been truly and surely exposed as a shallow exercise in the current context. These rating organisations have got to go back to the drawing boards and reexamine their whole rating process and mechanism.
Time has come for all organisations to have critical relook at their corporate practices. It is time that organisations are run based on strong trust based value systems addressing all facets of governance, risk and compliance. One does not necessarily have to ape the west for everything, we could learn from their mistakes. Let it not represent a situation where you ape someone and get monkeys. Let us not go overboard in the name of independence. Independence is not a qualification it is a state of mind. India has a had its own share of corporate and financial scams where the quantum of monies spent on investigations and committees have in some cases far exceeded the value of the purported scam without even having identified what the problem was.
It is time to ponder, analyse, take actions, and above all create a sense of values in business dealings. It is not just the recent shocks in the financial systems, but even the not so distant happenings around the Enrons and the Andersons, that bear strong evidence to confidence going overboard, and basic discipline in systems and time tested business principles, taking a serious knock. History, they say, repeats itself, because people repeat their mistakes. Can this big price we have now paid, be an investment for a stable tomorrow? Some serious points for introspection.
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