Satyam's shame

The Satyam scandal continues to unravel, with the arrest of the Raju brothers and now the CFO being questioned by police, and the rumour mill of the Indian press going into overdrive with speculation on the role of the auditors, the whereabouts of various directors, a suicide attempt, unpaid staff and inflated headcount

Tags: CrimeFraudIndiaSatyam Computer Services
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Satyam's shame (Getty Images)
By  Mark Sutton Published  January 11, 2009

The Satyam scandal continues to unravel, with the arrest of the Raju brothers and now the CFO being questioned by police, and the rumour mill of the Indian press going into overdrive with speculation on the role of the auditors, the whereabouts of various directors, a suicide attempt, unpaid staff and inflated headcount.

To describe the situation as India's Enron seems to be pretty accurate - while it will take time for the details to come out in full, it appears that the company's problems stem from the highest level. Ramalinga Raju's resignation letter to the board, which claimed that it was only him and his brother involved, and that they did not profit from the situation may have initially looked like a noble effort to take the blame for the mess he'd made, but now seems to be less than truthful, with two directors selling large parcels of shares in September.

The future certainly doesn't look bright for Satyam, and there will be repercussions on the whole of India's outsourcing industry. Satyam was the standard bearer for the sector, counting US and European giants like Ford and GE in its customer base. In the Middle East, Satyam has recently been making big inroads with Oracle and SAP deployments, a development centre in Egypt that was to provide 300 jobs and another centre planned for Qatar where the company already has 100 personnel. Business in the UAE alone was reportedly up 41% in the first financial quarter of this year. What will happen to this business now is anyone's guess, but it doesn't look promising.

The analysts are spelling doom for the company - Gartner points out the likely distraction that the investigation and subsequent compliance actitivites will cause, greater attrition of staff, reduced spend on R&D, staff development, and most fundamentally of all, loss of trust.

Outsourcing and services simply doesn't work without trust. While corporate America and Europe are certainly not spotless when it comes to corporate crime, multinationals won't deal with a company that is in this much trouble, and are also likely to question the status of other Indian services companies. If auditors and regulators were unable to uncover Satyam's irregularities, then what might be happening in other services companies? It is probably already too late for the Indian services sector to escape without any damage from the Satyam scandal, so Indian authorities need to act fast to restore confidence and prove that the they are able to effectively regulate companies, and the companies themselves need to reassure customers and would be customers that they are trustworthy and credible business partners.

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