The Satyam Computer Services LTD fraud scandal is growing in scale, with media in India calling it that country’s Enron. There definitely seem to be a lot of parallels between the huge Indian outsourcing company and the former energy trading giant. The confession by B. Ramalinga Raju, chairman of Satyam has left many Indian commentators flabbergasted by such a bold-faced accounting lie.
Unfortunately for investors worldwide, such fraud has become commonplace. All told, it looks like Raju manipulated the books by almost one billion dollars. Raju is a graduate of the MBA program at Ohio University, and he’s been hailed as a hero in India for founding Satyam. He was hailed as the Entrepreneur of the Year in 1999, by Ernst and Young. Now his reputation is taking a great hit by recent revelations.
At a time when financial fraud is sucking the life out of equity markets, investors are forced to take a good hard look at the oversight that happened in India involving Satyam. Some are calling for an investigation into PriceWaterhouse, who is the third party auditor for the company. As “Hindu Business Online” notes, the company is already hiding behind client confidentiality instead of openly addressing the scandal.
“We have learnt of the disclosure made by the Chairman of Satyam Computer Services and are currently examining the contents of the statement. We are not commenting further on this subject due to issues of client confidentiality,” the company said in a statement.
It looks like business as usual for a giant fraudulent accounting scandal. First come the revelations. Next, the shock and disbelief of the investors. After this stage, comes anger and demands for accountability. Lastly, acceptance of the situation and punishment for the perpetrators. These cases almost always involve a central figure who was once considered heroic for their rags to riches stories.
One thing’s for certain: in this current economy, a massive accounting fraud of this magnitude cannot be good for Indian business. Investors are already shell shocked from the seemingly endless cases of corruption happening in the world’s market. An emerging market like India needs to be clean in order to keep attracting direct foreign investment.
“The whole affair—already being dubbed India’s Enron—throws India’s corporate governance into sharp relief. That Mr. Raju thought it appropriate to spend $1.6 billion on two firms so unrelated to Satyam’s business and in which he had a financial interest, without seeking shareholder approval, speaks volumes about his sense of what his shareholders would tolerate,” said the Wall Street Journal.
With people already pulling funds from emerging markets, this could signal a stampede. Investors are suffering from stress on all fronts from all corners of the world now and are desperate to find relief in the form of sane accounting rules, ethical corporate governance, and helpful governmental oversight. Since these business leaders (in every nation), have rarely proven the ability to oversee their own affairs ethically, the time has dawned where strict new regulations on accounting, along with oversight with a bite, is needed to restore order to the world’s market.
The story of Ramalinga Raju, although damaging to India’s business economy, is nothing unique to that country. We can expect more and more of these stories in coming months from every sector of the world as the recession exposes the weakness in the remaining bubble markets. As cash flow has dried up and the financial waters have become much more rough in the past year, the rats on the ships have begun feasting at the Captain’s table.
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