Satyam fiasco

Thu, Jan 8, 2009

General, National, News

World in midst of an unprecedented crisis which can only be compared to the great depression of late 1920′s,economies in abysses, hue and cry over the business streets all around the globe,nobody can,for sure afford any bad news of any kind.What happens? One of the biggest IT companies of the IT giant,India, (which also happens to be an economy which has weathered the storm relatively well ) suddenly stares into its end and is getting sucked by a black hole. There could not have been a more unfortunate time for this to happen.

Mr. Ramalinga Raju, Chairman of Satyam Computers, which is/was a very respected name in Indian IT industry has in public confessed to have forged companies account to show higher profits over the years. Mr Raju has accepted that 50.4 billion rupees ($1.03 billion) of the 53.61 billion rupees of cash and bank balances the company reported on Sept. 30 were non-existent. [Source] Words of shame really,from mouth of a man who founded this company in 1987,named it Satyam (means “truth” in Sanskrit,talk of irony  now), made it the 4th largest IT company in India.

Mr. Raju has admitted that he showed more profits than there actually were. They kept on forging the companies accounts book hoping that their company has a sound base and they will be able to cover up the deficit in the next quarter/year. But that dint happen. He then tried to buy two companies of his son so that he could relate the difference in profits to purchase of those firms and fool everybody, but due to a strong negative reaction by the investors, he was forced to let go his plan. Seeing no escape, as a last resort he confessed the scam. Mr. Ramalinga Raju has now resigned.

Lets see how big Satyam is. Satyam boasts of names like ArcelorMittal, the world’s largest steelmaker, and Nissan Motor Co., Japan’s third-biggest carmaker as its customers. Satyam is a huge company,employing more than 50k people. I cant imagine what those 50k people would have felt when they heard this news. The investors who trusted in the company lost their money to the cumulative tune of thousands of crore of Rupees. Foriegn investors will now think hard before investing in an Indian firm. Volume of jobs being outsourced to India can also be affected. All this can hit India’s booming economy real hard.

From a student point of view also, this spells disaster. In this time of grave economic crisis,recuitments were already down. God forbid, if company does dissolve, 50k will go somewhere. These already well trained workers will be readily absorbed first by the other companies which could result in further decrease in recuitments. (I will be un affected as I am not related to Satyam’s field of work as I am doing Biotechnology.Though I am not sure there ever will be any recuitments of Biotech students.hehe.)

It is such a huge blow to Indian corporate world that you can safely name it “Enron of India.” You cant think of a possible reason or excuse how and why a scam of this magnitude go un noticed for so long. This shows how good our corporate governance is. How was he paying his taxes if he was just inflating his profits. How was he paying his employees? Its hard to accpet that he was alone in the plan.
Satyam has been removed from important indexes like BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).[Source] Yesterday,when Mr. Raju disclosed this scandal,Satyam Computers’s stock plunged by about nearly 80% in BSE Sensex.

Whatever steps are taken here after,this incident has all what it takes to shake Indian economy to its roots, more so because of its timing. Though, steps should be taken so that these criminal acts are not repeated in future and so that confidence of investors can be re-instated in Indian corporate world. And ideal start to this would be getting Mr. Raju behind the bars. This itself is not a tough job as influential eople in India do not find themselves in prison very often, but doing it this time will set an example for others that,who ever you are,if you break the law,you will be punished.


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21 Comments For This Post

  1. Abhinav Says:

    nicely written!!
    if i am not mistaken, the stocks actually fell by 68% from the previous day. The 80% figure is the drop from its peak position which was attained sometime in november or september. :) not that it matters now.

  2. Mayank Says:

    Thanks for pointing that out. Ill check it again and correct it if its incorrect.
    BTW why you dont have a Gravatar? You can make a nice one for yourself.

  3. Rahul Says:

    U wrote very well about its effects on indian economy, and this will lead to adverse condition in employment area..
    Can say that this company is just like sinking ship which has lost its control..But this ship needs new machinery, new control unit… some big corporates must definitely b thinking to overtake this company,n to utilize the existing experience,some policies,some of the trained staff( i.e.already a well set bank to start from as a new name) soon as this fire of satyam case cools down abit..
    What I feel is that, it was a big fraud that he did,but frauds n scams usually happens… There are many others also involved in this,In 2006, Satyam’s internal audit team was awarded the recognition of commitment(ROC) award from The Institute of Internal Auditors,U.S.A. there cant be just a single mind behind that,wrong entries or so as a part of internal audit cant just b kept secret..
    Well India is big economy,not so much dependent on a single firm,and its a very competetive world if one is falling others must definitely be there to catch up and get most benefit out of it..
    Satyam’s case will definitely create some fear in those who are practicing such frauds or scams even at smaller level…

  4. Mayank Says:

    @ Rahul
    First of all welcome!

    Well its true there is a huge competiton,specially in the IT sector but accidents like this definitely lower the confidence of investors. And if they dont,i dont know what does! Take the case of US economy for instance, when big guns like Lehman brothers, Merrill Lynch, AIG etc went down,the whole economy came down. Economies have these bigger firms as their supporting pillars. Obviously Satyam cant bring down the whole Indian economy but it can no doubt affect it real hard because its a leg of one of the strongest supporting pillars of Indian economy,the IT sector.

    It a huge company. It provides services to one third of Fortune-500 listed company!
    And if scam and frauds “usually happen”,they need to be stopped.

    Lol @ ROC award thing. A few months back Satyam also recieved Golden Peacock Award for Excellence in Corporate! lol

  5. lvs Says:

    You are right every Indian was proud of its IT companies. The repercussions of this, that you have listed out, are indeed huge. In fact I still cant believe this could have happened so easily. The magnitude of the fudging is so large, I am sure the auditors were also involved in this whole thing.

  6. Mayank Says:

    ^ You cant do such huge of a scam without involvement at many levels. Like they say…India me paise do to sab hota hai.

  7. RIKI Says:

    heya..well written covering many aspects and effects it would have.
    Raju Ramalngan confessed that he has been doing this since obviously there are other people involved. And the could they miss it..its a big question on them.
    One of the major pillars of Indian Economy surely would make a marked effect..but its pinching high at this point if time..because already we are undergoing recession..and such a new coming at this point of time would surely loose the confidence of investors.
    Satyam was famous for giving 10-20 percent discount to its clients..and this attracted alot of clients but now when any other company would provide such a discount..they’l think that it might compromise with its ethics..
    In due course of time things will get better as government is thinking for bailout packages..and appointing new auditors and CEO..
    Lets wait and watch..SATYAM is the just the first..there must be many more palying with the real accounts..its good for them to turn honest now..sooner the better..

  8. Mayank Says:

    One great example of how he attracted his clients is when he was out to get his first “biggie”, he told John Deere,a US tractor company, that if they dont like Satyam’s services,they dont need to pay! That was the confidence Mr. Raju had in himself and his company.

    A bailout can not just wash away all the black spots,a company surviving on mercy of government money which in return is collected as taxes from common man, has no value. Company survives and expands on basis of its performance,not on donations. Thats what is being opposed in US right now. Why should people pay for mistakes of the company’s mistakes? But the problem is when the name is this big, you cant just let it vaporize into thin air.

    And I fear the same,that Satyam may not be the only one. But I doubt if this is the best of times to announce any more frauds (if there are any).

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