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What we can learn from the Satyam case
 

What we can learn from the Satyam case

TestFunda ,  14-Jan-09

Background:

·         The astounding confessions of B. Ramalinga Raju, ex-Chairman of Satyam Computers, has not only hit investors and employees badly, it has also tarnished the reputation of India’s IT sector.

·         Amidst fears that clients would do a rethink on business commitments, the bigwigs of India Inc are desperately trying to paint the Satyam case as an exception.

·         While Indian corporations really need to do everything possible to salvage the situation, they also must pay heed to some lessons to be learnt from the scandal.

Key points:

·         Satyam was indiscreet in its actions, but it will be unfair to view the rest of India Inc in the same light.

·         It would be equally unwise, however, to think of the fraud as an isolated case. The IT sector must understand that there might be other Satyams out there, waiting to be discovered.

·         A serious investigation needs to be carried out into business ethics, or, more specifically, the lack of it.

Why would Satyam have been tempted to break the law?

·         Post 1990, in what is known as the liberalization period, the corporate sector has played a major role in the Indian economy.

·         There must have been times when the increasing competition forced big corporations to seek unethical ways of conducting their business.

·         Ramalinga Raju might have been tempted to spice up Satyam’s account to show the company’s performance in good light. Infosys, Satyam’s competitor, has been recording tremendous growth over the years. Even after the Satyam scandal became public news, Infosys’ performance remained largely unaffected.

·         It could also have started off as an attempt to cover up the bad performance in one quarter.  As Raju admits in his letter, what was initially a small gap between the actual and reported operating profit, became unmanageable as the company expanded.

·         Overconfidence in his ability to turn things around before they got out of hand could have been another compelling reason.

·         Raju could have sincerely believed that the minor adjustment was in the general interest of everybody concerned, as it would retain investors’ confidence in the company.

·         Experts refuse to believe that the operating profit of Satyam could be as low as 3%. This leads to speculation that some of the money could have been siphoned off.

The way ahead

·         Regulatory measures that demand accountability need to be imposed on the corporations.

·         All companies need to come to a consensus to practice ethical behavior.  The top-rung companies need to take an initiative in this and set an example for the smaller players.

·         The corporate sector is the beneficiary of a huge amount of public funds and state-sponsored bailouts in times of economic crises. Therefore, it becomes the right and duty of the state to subject the sector to rigorous public oversight processes and systems.

·         Auditing firms, like Pricewaterhouse Coopers also need to be brought under the regulatory umbrella. Without monitoring, it will be difficult to tell if the auditor and the company are working together to tamper with the accounts.

·         Law enforcers must ensure that the people who devise dubious ways to siphon of funds must be punished.

More Links:

·         The Satyam Scandal

·         Satyam fraud scandal: Timeline

GD Topic

Should Satyam be saved at all costs?

Yes:

·         Satyam is a flagship of the Indian IT sector. Its downfall will be an indelible mark on the reputation of the entire industry.

·         The government needs to rally around and pull the company out of its present state. Only this will reestablish the confidence of clients and investors in the IT industry.

·         The jobs of nearly 53,000 employees are at stake. If you add to this the number of people who have bought Satyam shares, you end up with a significantly huge number of people whose lives could be badly affected by the fall of this giant.

No:

·         Satyam must pay for its actions. The government must not set a precedent by bailing it out. They will have to do the same in all cases where a company finds itself in a similar situation.

·         This is a clear case of market justice meting itself out. You tamper with the rules, you face the consequences. Satyam should be an example to all other players in the arena not to indulge in nefarious tactics.

·         Satyam does not represent the entire Indian IT industry. Its fall won’t be the death knell of the sector. This needs to be made clear to clients and investors.

·         If a tainted organization like Satyam is allowed to continue, the IT sector stands to lose a lot more than it hopes to gain.

·         Any possibility of a loss of projects on the account of the fall of Satyam is unfounded. There is a fairly high probability of the se projects being redistributed among Satyam’s competitors in India.

·         The same applies to the employees of Satyam. Trained professionals like them are bound to be lapped up by other companies to handle the redistributed projects.

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