25x earnings are much better than 1x stealing

– Ashish Dhawan

You would have heard of stories in past about stocks falling 60-99% in a month after governance issues were uncovered in many large and reputed companies. Many frauds are unearthed when debts can’t be rolled over and credit crisis often does that.

There is a fine line between ambition and foolishness. Capitalism is brutal and business failures common. However under influence of greed and ego many cross the fine line and resort to lying and theft. Sooner or later the misdeed is called out and punishment is severe – imprisonment, impoverishment, fleeing, or in rare cases self-harm. Given the extent of loss of wealth, credibility, and good night’s sleep, it bears asking whether all that is really worth it. 

Tolerance towards corporate malfeasance is at its lowest today and that is a good milestone for Indian stock markets. SEBI’s whistle blower framework has made it more difficult for promoters to keep their misdeeds under wraps. The difficulty and cost of misdeed has risen. At the same time, thankfully, markets are ready to reward corporate governance with premium multiples. It is clearly visible that it pays to be honest.

We hope that promoters take a leaf out of these cases of wealth and reputation destruction and understand that it is their selfish interest to respect minority shareholders and behave responsibly.