Satyam Moment for India
However, the truth is that the company is fast sinking. This was the poster boy of IT boom, a company which came from nowhere, and dominated the IT / Outsourcing scenario in India in last 10 years. This is the fourth largest IT software company [or is it, as all figures reported by Satyan is now suspect], which employs, as I said, 53,000 people.
Satyam, as we all know, means truth. The absolute truth, by implication. While newspapers played on this and reported - Satyam a Lie - the day after its founder and chairman admitted the biggest corporate fraud in Indian history, this is also the moment of truth for the India: Not just for the IT companies, but for the country as a whole.
The media is taking great pains to talk about how this may lead to limited opportunity and greater scrutiny for Indian IT companies. It seems grossly unfair to pin down the blames of a massive fiasco in oversight and regulatory framework on the industry as a whole. I am not certain why anyone should start doubting Infosys, or NIIT, or XYZ software for that matter, just because the corporate governance in Satyam has failed. Especially when such fiasco seems to be induced by real-estate induced greed, it is unbelievable that some people have started suggesting that the whole IT industry boom story is rotten.
But before we get after the miserable souls in the IT industry, who already have their share of worries from other events than Satyam, there are other parties who must do some answering. The list has to start with PriceWaterhouse Coopers. Omkar Goswami in ToI comments that PwC's goose is cooked now. Like Arthur Anderson in the aftermath of Enron, PWC will now - almost certainly - face lawsuits and probes, lose clients and will possibly cease to exist soon. Shed a tear for them - a highly respected institution which operated in India for more than 100 years, and have represented the gold standard in Auditing. Well, may be not - we don't know what we will see next. However, they have surely failed to do their duty, and overlooked something so basic that every audit internee in the country will laugh at them.
It will be interesting, however, to see what action Institute of Chartered Accountants of India [ICAI] takes against PwC. Lawsuits aside, they have now brought the roles of auditors in disrepute as a whole, and the governing body of the professionals have a duty to act. Would they be courageous enough to debar PwC from signing off accounts till they have fully clarified their position and how they could let this happen.? This may be needed in restoring some confidence in Indian Corporate Governance, though this will only be an act of hindsight and more will be needed to restore confidence in the profession. [An observer even suggested that this will be the beginning of the end of the undiluted power of ICAI hold on the practise of audit in India - shall we say clout - and we shall see more openness and integration with global audit practises in the aftermath].
Mr. Raju's closeness to Chandrababu Naidu and the current Chief Minister of Andhra Pradesh raised some questions, though I would see no harm if a leader of a state tries to promote a son of the soil, and extends a helping hand, as long as the demands for propriety and fairness are met, in building the business. It is undeniable that Satyam has made a significant contribution to job creation in Hyderabad, the state's capital, and was partly responsible for promoting Hyderabad as an alternative location to Bangalore for IT services work. While politicians in India are notoriously corrupt and it will surprise no one if stories of impropriety start breaking out, the current suggestions by the media that these politicians have anything to do with Satyam's errors look far-fetched and malicious at this time.
Except in one case, which probably needs to be revisited. I recall seeing an open letter for the CEO of Delhi Metro, Mr. Sreedharan, regarding the way the Hyderabad Metro Railway project is being handled. The project, as we know, has been awarded to Maytas Infra, a sister company of Satyam and one run by the Raju family. It is an old story, and I remember seeing a rebuttal from Maytas to Mr. Sreedharan's charges in the immediate aftermath of the letter. But, with the benefit of hindsight, Mr. Sreedharan's allegations sound familiar: overvaluing of assets, overstating the financial capability. The metro railway project was awarded by YSR's government and he would certainly like this be hushed up. But, looking at Satyam's broad failure to conduct business ethically, it is important that we reinvestigate the Metro Railway project in the light of Mr. Sreedharan's allegations once again.
A part of the blame will also go to SEBI, though it is difficult to see how they would have helped if the auditor was signing the accounts so blindly. But, indeed, this indicates a systemic failure, at least from the gamble of Rajus to buy off Maytas properties at an inflated price to set the accounts right before the fraud was called. One wonders what they were thinking, and why questions were not raised, immediately, by SEBI and the Government about the propriety of the deal; instead, the great corporate steal was left to be stopped by the wisdom of individual and institutional investors.
I also heard someone make a private comment that they will not touch the Satyam employees as they are tainted too. I must express my outrage - because Satyam employees are more wronged than wrongdoing. The investors may have lost money, and some commentators lost face [It feels tragically amusing to read Rajeev Srinivasan's spirited In Defence of Satyam, published on 2nd January, where he was saying the attempts to acquire Maytas was 'unwise, but not necessarily wicked'] - but the employees lost their secure careers, money, their endless hours of work, value of their commitment, esteem from their neighbours, in-laws and family. It is sad to see the sufferings of so many for the wickedness of a few; it is outrageous to hear someone broad-brushing them with their crooked bosses.
Coming back to the impact on Indian IT industry, I would wonder why the question is being raised at all. The fall of Enron did not raise questions about the vulnerability of other US Energy companies in doing businesses abroad. Keep in mind that the energy companies, even the US ones, have a particularly tainted record of ethics [and by implication, of corporate governance] than Indian IT. I would have accepted if this was being talked about in the wake of allegations of data theft against Satyam, which World Bank levelled recently. But to talk about this in the context of this fraud is not just irrelevant, it is plain wrong, as it questions the honesty and integrity of other corporate leaders who have made their millions through innovation and hard work.
Indeed, the Satyam fiasco may impact FDI in India, and put Indian companies under greater scrutiny while attempting to list on Foreign bourses. It will most certainly raise questions about Indian governance standards, and challenge the practises of ICAI, SEBI and other regulatory institutions. We haven't yet heard who did Satyam bank with [I mean, which bank would have certified Satyam for its non-existent billions] and this could be another crisis in the offing, if one of our major banks get caught. So far, there is no proof that Mr. Raju and his cronies have stolen any money. He says he didn't, but his estimate that Satyam was operating at a 3% margin seems questionable. However, if he did, and if he disappears now, it will be a huge problem with the government.
However, this fiasco is an opportunity - as every disaster always is, in a roundabout way. This is the moment of truth for India, when we should start demanding more transparency, and a much higher level of ethics, in corporate conduct than ever before. I am thinking hopefully - whether this will be yet another blow to take the liberalization forward, by challenging the corruption in boards and regulators, leaving inept and corrupt auditors vulnerable, by shaking up otherwise complacent business people as a whole. Would this be our equivalent to the various scandals that rocked the American economy from time to time, but helped, in a way, to build a robust system which is envied by the world?
For the sake of Satyam's employees and countless others, which, we know, we must.