Warren Buffet is famously quoted as having said, “You only find out who is swimming naked when the tide goes out.” Satyam’s Chairman Raju has been caught with his pants down after a failed attempt to acquire his son’s realty company! He announced his resignation in a letter to the board admitting fudging the company’s balance sheet in one of India’s biggest and most damaging corporate scandals in what is being dubbed as India’s Enron. It is a mind-boggling turn of events that is threatening the overall health of the India Inc brand.
More Questions Than Answers
Raju’s confession in the letter throws up more questions than answers. One aspect is the motivation. What was he trying to achieve in overstating the profits? How in the world did he think that he would get away with this? Other angle is the failure of checks and balances. What happened to the frequent independent audits that certified the financial results? What did the Board of Directors bring to the table other than their Ivy League reputations? After all, they were supposed to be the torch bearers for the corporate governance.
Maytas Situation Forced His Hand
Eventhough, Raju cited conscience as the reason for coming clean, there obviously were other factors at play. The plan to acquire Maytas Infra to bridge the gap in the balance sheet spectacularly failed. I’m sure Raju knew it would be a difficult sell but probably couldn’t have anticipated the kind of shareholder ire that was seen in the light of the event. Having been battered in the market, he would have known that he would have to open up his books, hence the “confession”.
More Key Players?
While Raju claimed that it was a small gap that grew beyond unmanageable levels and no one else in the company or the board were aware of this fraud, it is hardly credible. A cover-up of this proportion wouldn’t have gone on without other executives’ complicity. If they didn’t know about this, they are not worth the money they are paid.
Satyam – R.I.P?
Whats in store for the company’s future is anybody’s guess. With the avalanche of lawsuits and sullied name, I’d be surprised if any company wants to take over Satyam as is. In my opinion, only a fire-sale seems to be the most possible outcome.
This scam is going to have far-reaching impact in Indian industry in general. Having gone through the first set of reforms, India was getting into a position of becoming a trusted brand. Over a decade of good work by Indian IT companies is also at risk with one selfish act. The economy is already undergoing a slow down and this is going to only pile on to the misery. While most of the IT firms may be clean, they will come under increasing under scrutiny. Foreign investments are going to be hit – not just in the IT sector but in India in general.
In the time of a crisis, the best thing to do is acknowledge the crisis and fix the problem at hand immediately. The loopholes have to be closed and checks & balances need to be restored. Indian companies, even if they are squeaky clean, would do well to reach out to clients to provide additional assurances. All the better if they can be proactive in sharing more information than usual.
The next part of it is accountability. If there was a time for quick and decisvive legal action, this is it – before the damage is done permanently. It is a known fact that Raju is politically-connected.
However, I hope justice prevails swiftly.