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Of Satyam fiasco and World Bank ban

January 21, 2009 15:08 IST
Last Updated: January 21, 2009 15:22 IST

Steve Hamm, author and columnist
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The Satyam fiasco: Complete coverage

January 7, 2009 will be etched in the annals of India's corporate history as it brought to light one of the biggest scams in India.

It was on this day that chairman B Ramalinga Raju of Satyam Computer Services [Get Quote], considered to be one of the torchbearers of India's new economy, confessed to a corporate fraud amounting to Rs 7,800 crore (Rs 78 billion).

While the existing board was subsequently dissolved, and Raju and his brother Rama Raju, and the company's chief financial officer Srinivas Vadlamani were remanded to judicial custody till January 23, the future of 53,000 employees remains in limbo.

Close on the heels of the Satyam fiasco, World Bank put a ban on Wipro [Get Quote], Megasoft and three other companies.

Will the Satyam issue and the ban on Wipro and others dent the image of India's IT industry?

In an e-mail interview with Assistant Managing Editor Indrani Roy Mitra, author and columnist Steve Hamm shared his thoughts on the Satyam episode and the World Bank ban on Wipro.

A graduate of Carnegie Mellon University, Hamm first joined BusinessWeek at its Silicon Valley bureau and then moved as associate editor to New York. Prior to BusinessWeek, Hamm was an editor and writer for PC Week, The San Jose Mercury News, The New Haven Register, and other publications.

In 2006, Hamm authored  Bangalore Tiger that tells the story of Wipro's transformation and its impact on the tech services industry and the rules of global competition. Excerpts:

How do you think will the Satyam fiasco affect the Indian IT industry?

The Satyam scandal and the continuing tensions between India and Pakistan will make Western and Asian corporations think twice about India.

I don't expect them to withdraw precipitously, but I think they'll look at locating more of their work in other low cost countries or even in their home countries. They have to diversity to decrease risk.

How does this affect corporate India and India as a country?

I believe that it will make Indian corporations' resolve to improve their financial controls and transparency stronger.

Those with poor quality governance will risk losing business opportunities and turning away domestic and international investors.

Is there a need to have tougher corporate governance norms?

Yes. Hopefully the Indian government and the exchanges will toughen the rules and oversight.

What about the role of auditors? How could PwC be conned for so long without becoming aware of the wrongdoings?

The magnitude of the malfeasance at Satyam suggests that many executives and the auditors must have known or guessed about it. If they didn't, they're incompetent.

What do you feel needs to be done to stop recurrence of such frauds? What can the Sebi, the government, the ministry of corporate affairs etc do?

I don't have the knowledge of Indian regulations to come up with specific recommendations.

Will the world accept that this is just an isolated case?

Every country has its business scandals, but India is still seen in the West as an emerging economy, so there will be more suspicion that this problems runs wider than just Satyam.

Is there something that the Nasscom and the IT industry can do to minimize the damage?

They should push for increased transparency regulations and prevent oversight by the Indian government.

How can India now soothe the frayed nerves of investors and clients?

The criminal investigation must be conducted to everyone's satsfaction. The government should not allow Satyam to fail.

Its customers must be served, and if Satyam can't do it, they should be moved to other service providers with the minimum disruption.

What kind of punishment do you think should be meted out for such a fraud?

No comments.

What lessons need to be learnt from this fiasco? What is the silver lining in this dark cloud of affairs?

Executives, regulators and analysts should dig deeper into the financial reporting of listed companies.

In this case, I have heard, nobody questioned the fact that Satyam reported very low interest income even though it said it had $1 billion in the bank. If something smells, it's the regulators' duty to find out the reason.

Do you feel that we need different set of values to judge corporate leaders rather than just the amount of money they have?

They should be judged by their actions. Notwithstanding Wipro's problems with the World Bank, I think the conduct of Wipro and Infosys' [Get Quote] leaders is a model for others.

It's not just the way they conduct business, though. It's the non-flashy way they live.

Do you think Satyam is a good acquisition possibility?

So much is unknown about Satyam at the moment that it would be difficult -- incredibly risky -- for another company to buy it in this condition.

World Bank has barred Wipro, Megasoft, 3 more firms. After the Satyam debacle, will this ban tarnish the image of the Indian IT further?

The World Bank actions tarnish India. Even though the directed shares programme at Wipro was not illegal, it now behooves Wipro and other Indian companies to go beyond the letter of the law and be squeaky clean.

What could be done to ease the frayed nerves of Satyam's 53,000-odd employees?

All that Satyam needs now is steady leadership and assurances from government that it will not let the company fail.

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