The Indian School of Business is one of the most prestigious business schools in the world and was established to rival IIM. The business school has renowned and industry leaders on the board of directors, however, some of its executive board members were charged with fraud and forgery.

Recently, Billionaire Galleon Group founder Raj Rajaratnam and five others, were charged by US investigators with an insider-trading case, generating profits of more than $20 million over several years. Among those charged, Anil Kumar, a director at consulting firm McKinsey & Co., is on the executive board of the Indian School of Business (ISB), a premier management institute which was placed second among Asia’s business schools this year. Kumar has sought leave from the board of the Indian School of Business “until he sorts this out,” Dean Ajit Rangnekar said.

Located in the technology hub of Hyderabad, the school’s governing board reads like a mini-Who’s Who of global business, drawing on leaders from LVMH and Dell to Citigroup and Goldman Sachs. The school has academic alliances with the Kellogg School, The Wharton School, the London Business School with an aim to bring in the best of global management practices.

However, ISB was dealt a blow in its image in January after Satyam’s founder Ramalinga Raju later confessed the attempt to acquire the firms was made to cover up gaps in the company’s balance sheet that had been inflated for many years. ISB’s dean Rammohan Rao had resigned following widespread protests over his role as a board member of fraud-tainted Satyam Computer.

SEBI has been examining the various donations and funding that Satyam has made to the business school over time. Satyam Chairman B Ramalinga Raju was on the ISB’s executive board while the ISB’s dean Rammohan Rao was an independent director on the board of Satyam, until he resigned after the Satyam-Maytas fiasco. In fact, Rao also chaired the infamous Maytas meeting. Vinod Dham, director, and G Krishan Palepu, non-executive director, also resigned from Satyam Computer Services board of directors.

Whether there is material evidence of wrongdoing, the market regulator’s probe will enlighten but there has been clear violation of corporate governance norms, “in spirit” with the members on the governance board of ISB with questionable antecedents.
Currently the 30-member executive ISB board has illustrious names such as Anil Ambani ADA Group Chairman & CEO and headed by Mr. Rajat Gupta, who is a Senior Partner, McKinsey & Company.

Anil Ambani has substantial corporate governance issues pending against him. Earlier, government appointed auditor is understood to have found inflation of revenues by Rs 2,915 crores by Anil Ambani group firm Reliance Communications in 2007-08, besides evasion of Rs 315 crore in licence fee - findings termed as “biased” by t he company.

This is not the only tryst of Anil Ambani Group with corporate governance issues with the group is implicated in FEMA violations with several irregularities being noticed in the utilisation of ECB proceeds by three ADAG group companies.

The companies are involved are Reliance Infrastructure Limited (formerly Reliance Energy Limited) which misused ECB proceeds worth $300 million (equivalent to Rs 1,266 crore), Reliance Natural Resources (misused foreign currency convertible bonds (FCCB) of Rs 1,275 crores by investing them in banks deposits and short terms investments instead of capital expenditure, Reliance Communication Limited for not using FCCN proceeds of Rs 5,142 crore) for specific purpose for which it was raised. These are not stray incidents with ISB since its inception being marred is a ‘can-of-worms’. The land allotment of 260 acres of land to ISB was a contentious issue while the Founder Chairman, Rajat Gupta, barely kept himself out of the Enron scam is well known.

Shortly after Enron Corp tumbled into bankruptcy last December 2001, McKinsey & Co. Managing Partner Rajat Gupta was worried whether McKinsey had crossed a legal line that would drag it into the unfolding morass? In a stunning exercise, Gupta had posted his Chief Legal counsel to McKinsey’s offices in Houston to review the firm’s work at Enron. The mission was to find any evidence linking McKinsey to the massive fraud behind Enron’s business model.

What was the truth, we might never know but incidents like these make it amply clear that corporate and other institutions should go for better screening processes when selecting board members instead of just focusing on an individual’s industry profile.

In all the above cases, there has been a pattern. There have been not one, but several groups of people who were widely respected and revered in their fields who were used as ‘blinds’. Their formidable knowledge and impeccable standing in society led them to be selected as heads of key committees.

If it was former Dean Robert Jeadicke of Stanford who was chosen as the chairperson of the audit committee at Enron, it was former Dean Ram Mohan Rao of Indian School of Business and Professor Krishna Palepu of Harvard who were independent directors on the Satyam Board. When people of such high standing head key committees, there is seldom any question asked about the reliability and authenticity of the information they endorse.

While the current mechanism of having independent audits, regulation and standards are constructive, they are not sufficient by any measure. Much more needs to be done—a foolproof system needs to be put in place.

It might be just more than coincidence that ISB notoriously shares a common thread with issues of corporate governances but it has certainly raised eyes brows.

Perhaps its just matter of time when Mr. Anil Ambani seeks leave of absence from the board of ISB, thus setting example in ethical leadership.