By Valéry Marchive
It’s referred to as the Indian Enron : by the beginning of January 2009, the fourth biggest Indian IT services provider has been at the center a huge financial scandal, stemming from the misbehaviour 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. Now, Satyam will 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 business culture? According to Nasscom, the Indian National Association of Software and Services 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 Gilles Moutounet, Vice President, Strategy and International, Gitanjali Group, a leading Indian Jewellery group, the Satyam scam should not be seen “as a potential Indian issue.” Trying to be reassuring, 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 heritage, extracted from the Mahabharata book, often considered the largest poem ever composed. In it, a king lost his kingdom after carelessly following his sons in their misbehaviours. According to Deshpande, there are several examples of this syndrome in the modern Indian worlds of business and politics..
In mid-December, Sucheta Delal, an Indian journalist specializing in corporate finance and governance, pointed out the unfriendly behaviour of the Satyam board, towards investors. In addition, an anonymous source at head of an Indian IT company asserts that local regulations encourage looting. Last but not least, in March the Asia Development Bank stressed the fact that « the Satyam scandal in India highlights the need for sound enforcement of rigorous accounting 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 Institute of Company Secretaries of India just launched a study on international corporate governance practices and intends to compare them to the Indian ones.
Valéry Marchive is senior editor at www.lemagit.fr a leading publication on technology analysis.
