The last few years has seen more scandals than ever before. From global meltdown at Lehman Brothers and AIG to the current phone hacking scandal in the UK which brought down the News of the World today and possibly fatally damaged Murdoch’s empire.
I believe that we are about to witness a new global scandal – this time centred around corporate governance at Chinese and Indian companies. We have already had the Satyam scandal (see our January 2009 post) and, last month, we saw Longtop’s shares suspended. Longtop Financial is a provider of financial software and was, at one time, valued at c$2b. Its shares were widely held by US funds. Last month their auditors Deloitte’s and CFO resigned after finding that the bank statements/balances they had been provided were false. It now looks as if their whole accounts were false and were backed up by falsified sales revenues. Longtop shares were suspended and obviously a lot of shareholders are carrying huge losses. A class action is planned.
Longtop is not the only Chinese company under suspicion. I don’t want to name them but a simple Google search on the subject will show that the corporate governance and accounts of many Chinese companies – including some other large tech and telecomms companies -are now under suspicion. The same suspicions apply to some Indian companies too.
It’s not just investors that take flight. It is customers too. International companies really hate doing business with any companies with dodgy credentials.
I am positive that we will return many times to this theme. You have been warned.