India

Satyam : how big is the Indian Enron ?

It’s being referred to as the Indian Enron : by the beginning of January, the fourth biggest Indian IT services provider has arised in the center a huge financial scandal, coming from misbehavior of its former CEO, Ramalinga Raju, just weeks after being banned from the World Bank in a case of “inappropriate benefits.”

Ramalinga Raju is understood to have diverted more than a billion dollars from Satyam, through hundreds of companies while artificially inflating the IT company business results in order to hide the fraud. The cancelled buyout of Maytas Infra and Maytas Properties, by mid-December, was intended to change false assets into real ones… Now, Satyam is to be bought by another Indian IT company, Tech Mahindra.

But the question remains: how isolated is the Satyam case? What kind of a light does it shed on Indian corporate governance practices, in a country well known for its family-run businesses culture? According to Nasscom, the professional association for IT and ITeS Indian companies, this is only a “sad incident as the Indian IT and BPO industry has set up very high standard rules for governance and ethics.” Nonetheless, Nasscom decided, by mid-February, to create its own governance and ethics committee.

According to Gille Moutounet, vice president, Strategy and International, Gitanjali Group, the Satyam scam should not be seen “as a potential Indian issue.” Trying to reassure, the Indian minister for commerce explained, by the beginning of January, that “all necessary actions have been taken to avoid future scams” like this one. For the Indian journalist Devidas Deshpande, working with the Pune Mirror (Times Group), the Satyam scam relates to a strong cultural inheritage, the Dhritrashtra syndrome : a king from the Mahabharata who lost his kingdom after following carelessly his sons in their misbehavior. According to Devidas, there are several examples of this syndrome in the modern business and politics Indian worlds. Sucheta Delal, an Indian journalist specialized in corporate finance and governance, was pointing out, mid-December, the unfriendly behavior of Satyam board, towards investors, something not new nor isolated : « such anti-investor actions are not new to them, but investors’ Memory, especially that of found managers, is very short ! » She later openned her website to the head of an Indian IT company, who explains, anonymously, that local regulations encourage loot. Last but not least, the Asia Development Bank stressed by the beginning of March on the fact that « the Satyam scandal in India highlights the need for sound enforcement of rigorous accountg standards. A particular area for close study is monitoring family-run businesses. » The Satyam may definitely not be as isolated as some may want to believe.

In this quite tense atmosphere, the current Indian Prime Minister, Manmohan Singh, expressed, mid-April, his “confidence” in India regulators to prevent new scams like the Satyam one. Unfortunately, governance rules placed upon listed companies are said to encourage more and more companies to delist. Thus, a new and stronger code of governance is currently mulled for unlisted companies. However, nothing should really change before 2010, at least. But the Intitute of Company Secretaries of India just launched a study on international corporate governance practices and intends to compare them to the Indian ones.

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