MUMBAI, INDIA: Just three months ago, India's fourth-largest software services exporter, Satyam Computer Services received a Golden Peacock award from a group of Indian directors for excellence in corporate governance.

Now its board is in turmoil and its shares have plunged after a botched attempt to buy two infrastructure firms in which management held stakes, sparking concerns about conflicts of interest and a lack of transparency.

Analysts say the saga exposes serious shortfalls in corporate India that must be addressed to ensure its credibility in an increasingly globalised and competitive world.

Four independent directors have resigned from the board of Satyam since the scandal erupted. But that does not fix the problem, said Premchand Palety, director of the Centre for Forecasting and Research in Delhi.

"Independent directors are supposed to be the watchdogs, the ones responsible for safeguarding the interests of minority shareholders. They clearly failed in their duty," he said.

Satyam says it adhered to corporate governance rules, appointing the requisite number of independent directors with excellent credentials, including the dean of a top business school in its hometown of Hyderabad and a professor at Harvard business school.

But there are concerns that some directors may be too close to Satyam's chairman to be considered truly independent, and all of them failed to ask tough questions about the now controversial infrastructure deals, Palety said.

"If Satyam's board was convinced about the merits of acquiring (the two firms), then good corporate governance demanded that it should have taken into confidence at least the major institutional shareholders," he said.

Even though the company aborted the plan, the damage was done: New York-listed Satyam's shares have plunged by a third since it first announced plans to acquire two sister firms for $1.6 billion and then abandoned the deal two weeks ago.

Satyam's board will meet on Jan 10 to consider more options to improve shareholder value and corporate governance.

Deep Introspection

Change has come slowly for Indian family-owned businesses that have long battled issues such as nepotism, mismanagement, weak boards and a lack of transparency and professionalism.

About half the companies in the benchmark 30-share index are family-controlled.

With the opening of the economy in the early 1990s, bringing with it tighter regulations and greater foreign investor interest, Indian businesses have been forced to clean up their act.

But problems remain, with long-drawn out leadership succession battles such as the months-long standoff between the wealthy Ambani brotherrs highlighting the stranglehold by founders as well as the failure of regulatory authorities.

Not all matters of corporate governance are big.

"In some cases, it could be as small a matter as keeping minutes of meetings, or spending too much time on routine matters," said Raman Uberoi, a senior director at ratings agency CRISIL, which also has a corporate governance ratings service.

Some analysts say the market watchdog, the Securities and Exchange Board of India, lacks the teeth for ensuring compliance on governance, while others say the rules don't go far enough.

In the case of independent directors, for example, the SEBI mandates they must make up one-third of a board where the chairman is a non-executive director, and half the board where the chairman is an executive director.

With a limited pool of qualified and experienced managers from which to pick independent directors, company founders typically tap a network of associates, and it is not unusual to see the same familiar names on several boards.

And even independent directors may be hamstrung by a cultural distaste for dissent, said Anjali Bansal, director of consultancy Spencer Stuart in India.

"The vast majority of independent directors are intimidated or unsure of how their criticism will be taken," Bansal said.It also boils down to the ethics of the top management and deep-rooted issues of education and corporate government awareness, Palety said.

"If the basic culture is not ethical, then what good will rules do? It is time for deep introspection at our companies, at our business schools, and at our financial media," he said.

The economic slowdown may be a trigger for better governance.

When funding is tight, better corporate governance makes companies more attractive in the eyes of investors, Bansal said.

"Also, with the bull run, companies were getting good valuations anyway. Now, perhaps they will pay closer attention to corporate governance for better valuations," said Uberoi.