INSIGHTS

Produced below are summaries of some of our revelations that were highly appreciated by clients –

When we commenced inquiries into this unlisted logistics company, we sensed that their financial reporting was not quite adding up. There seemed to be a real book and a dressed-up book to bait investors. This is not uncommon in South Asia. Here was a 25-year-old company that employed more than 2500 people but there was apparently a core (and loyal) team of about a dozen people who were privy to the real numbers. As we ploughed deeper, we discovered that the statutory auditor was not co located in Gurugram (where the target company was registered). The address tagged to the auditor was, in fact, a residential building in a major eastern city which is the hub of “name lending” auditors.

Further on the ground probes led us to a 92-year-old Chartered Accountant who had been bed bound for more than a dozen years. It was so obvious that this gentleman was merely lending his rubber stamp for a price. That was the final nail in the coffin for the PE investment that the company was seeking.

A frequent corporate donor to NGOs sought us out to probe the credentials of a charitable trust that was running a private girl’s school on the outskirts of Pune.

They had a rather compelling website and claimed that they were being anchor funded by the less than charitable trusts of one of the largest business houses of India. The Chairman of the business group was also featured as the Chairman of the Leadership Institute. The person managing the institute was employed earlier by this conglomerate and still earlier by a major global bank.

They also claimed to have a former Managing Director of a leading consumer company and the founder of one of India’s largest pharmaceutical companies as their advisors.

Discreet enquiries with the brother of the former Managing Director of the consumer company revealed that she had never even heard about the organization. She spoke with her friend (the founder of the pharmaceutical company) and she had also never heard about the institute.

However, they both knew the institute head socially and when they confronted her she denied all knowledge about the website. However, in less five minutes of their conversation the website was taken down. We pointed the client to these developments following which they black listed the institute.

A very ambitious specialised manufacturing plant that had a minority but significant foreign investor had been hobbled by control issues due to the multiplicity of stakeholders who were often at cross purposes .

The company was also the target of subtle sabotage by a very dominant player who had instigated the labour union to foment trouble in addition to blocking supplies of key raw material. Troubled by these developments, the foreign investor wanted out at the same price as they had bought the shares.

The management countered them with a much lower offer that the investor found unacceptable. They impressed upon an independent valuation of the asset. Since they were not well advised in India, the incumbent management had the valuation done by an unknown valuer who quoted a rather low price.

The investor sensed something was amiss and sought our intervention in mapping the background and reputation of the valuer. Our subtle inquiries with ex CXOs of the chemical company revealed that the valuer was indeed hired without any formal screening. On deploying a foot soldier, we discovered that the valuer was a one-man army operating out of his tiny residential flat. The investor was able to join the dots and proceed with more effective remedial action.

Globally admired companies have more or less embedded background screening of candidates in their selection process. But they seem to be lax when it comes to vendor screening. Onboarding criminally inclined vendors can cause far more financial and reputational damage to a company than a rogue manager.

Two monster technology companies were doing business through a faceless vendor in India for one of their verticals. This unusual method should have alerted the risk managers in both the companies but for some reason, it did not. Only when a US based whistle blower in the client company revealed that the intermediary was only a commission capturing company that the Compliance function sat up.

We were mandated to probe into the antecedents of the vendor. Through a combination of pointed inquiries and calibrated site visits, we exposed the vendor entity as a shell entity that was set up by a senior manager of the selling company along with a friend whose family members fronted for both of them. Much of the funds received through this route was being splurged on key executives of the buyer including hospitality passes for F1 races and equally expensive events. A series of collusive executives in both the companies were fired soon after and the “arrangement” through the vendor was terminated.