'Problem in India is fear of the establishment'

     Print Edition: Dec 9, 2012

Michael Palmer, President of the Toronto-based Veritas Investment, explains what makes his company's research different, in an e-mail interview with Suman Layak and G. Seetharaman.

Q. What prompted you to start Veritas?
Veritas was founded in 2000, at the height of the dotcom bubble, in response to what I believed were egregious accounting abuses employed by many Canadian companies. One of the more notable was Nortel, once Canada's largest company, now a bankrupt firm whose former officers have been charged with fraud.

Q. How and why did you start tracking Indian companies?
Looking at the global interest in BRIC countries, and given Neeraj Monga's exceptional track record in North America, we decided to pursue our India research initiative under his leadership. He believed, and still does, that Veritas can contribute constructively to improving corporate governance in India, and we are succeeding in our endeavour. We also believe that, in the absence of critical scrutiny, aggressive accounting practices and cronyism at some Indian companies could put their shareholders at risk.

Q. Do you think independent research model is sustainable in the long run?
Yes, if it's accurate and of the highest possible quality. Given that we are a subscription service, and are not marketing agents for anyone, our emphasis is on writing differentiated and actionable research that first and foremost focuses on capital preservation. I believe the problem in India is the fear of the establishment, as evidenced by the current prosecution against us.

We are seeking legal opinion (to find out) whether Indiabulls and its so called "sympathizers" have engaged in fraud through the redaction of our private e-mail, criminal breach of trust, criminal harassment, malicious prosecution and criminal defamation in relation to the FIR and in its various press statements and filings with the stock exchanges. Anyone interested in knowing the truth is free to access high court filings, if permitted under the rules.

Q. Which are the independent research firms that inspired or inspire you?
Veritas is a unique business model. Hopefully, we will inspire others. We have already seen many other Indian research houses follow our footsteps.

Q. What is your view on corporate governance standards in India compared to those in other emerging markets?

Amongst the emerging markets, we only cover India and, therefore, I am unable to comment on other countries. It is interesting to note, however, that the only other country that I know of where a company has tried to have the state put an analyst in jail is China. Unfortunately, they succeeded. However, given that India is the world's largest democracy, we believe that our endeavour to highlight corporate governance infractions, will be looked upon favorably and, therefore, such arm twisting will be thwarted in the Indian courts. We sincerely hope that the investigative agencies will see through the charade employed by Indiabulls, and will apprise the courts of the malicious character of the allegations against us.

Q. Do you have many Indian clients?

We do not have any clients in India. Our marketing efforts are focused on global money managers based outside of India.

Q. There is a lot of criticism about Veritas in India, for its sensational language and its policy of releasing an executive summary of its reports a few days after it sends its full reports to its clients.

Our reports are fact-based. All information is sourced from publicly filed documents with regulatory agencies such as the Ministry of Corporate Affairs, Registrar of Companies, and other statutory bodies.

The executive summary is only released on the Bloomberg terminal worldwide for sophisticated institutional investors, who are our prospective subscribers. It is meant to showcase the depth and differentiated character of our research. It is not meant for the general public and, after the official launch of our India product on January 1, 2012, our research has never been released to the general public.

Q. Have you ever been sued by companies that you released research reports on?

We have never been sued because, in Canada, truth is an absolute defence and we always ensure that our work is accurate.

Q. Do you always take such a tough stand as we have seen in case of Indian companies?

Our reports are always forthright. Our calls on Kingfisher Airlines, Timminco Ltd, Yellow Media, Royal Group Technologies, SNC-Lavalin, Nortel Networks, etc, have all been controversial. Nonetheless, our opinion in all these instances was differentiated, well-argued and, ultimately, our stance has been vindicated in the marketplace.

Q. Do you believe your reports are based on the best and most reliable data, considering people have alleged that some of the numbers are incorrect?

We have checked and double-checked our figures and can find no errors. We have also had the Indiabulls report reviewed by senior, independent corporate counsel in India who affirmed that it was of the highest quality.

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