The Satyam fraud is perhaps the largest corporate fraud in recent times. Its aggravating aspect is the fact that this company based in India had operations and clients all over the world. And, now, with the revelation of this gross fault in corporate governance, the reputation of entire corporate India is open to doubt.
While the Prime Minister has called it a “blot” on the image of India Inc. and said those responsible would be punished, the Minister for Commerce has added, and rightly so, that “There are a lot of shining stars in India’s corporate world who will ensure that the flag of India keeps flying high.”
Meanwhile, the investigation seems to be proceeding rather shabbily. The Founding Chairman B.R.Raju and his brother and the Chief Financial Officer Vadlamani, have been unavailable for questioning to the Securities Exchange Board of India (SEBI) and the Serious Frauds Investigation Office (SFIO) since the confession of the fraud.
The securities watchdog, SEBI had asked B.R.Raju for questioning on January 8, 2009, soon after which he surrendered to the CID division of Andhra Pradesh. Currently, the Chief Metropolitan Magistrate has refused to handover the trio to the custody of either the SEBI or the SFIO, and has sent them to judicial custody.
One can only wonder how seriously a fraud of such gravity is being investigated, when the main perpetrators have been able to evade the SEBI and the SFIO for half a month, now. It still hasn’t been ascertained whether the money in Satyam’s books was inexistent, as B.R.Raju claims, or it existed and has been siphoned away by Raju and his family.
Moving beyond the perpetrators lays the question of the future of the company, its thousands of innocent employees and shareholders. Interestingly, B.R.Raju’s family held about 36% of the company’s shares at the beginning of the year, however, within a week, their share had dwindled down to slightly less than 4% before his confession. This is a clear betrayal of the trust of the investors and shareholders by the Founding Chairman and his family; not only should B.R.Raju, but also his entire family, be brought to justice for this betrayal.
Presently, the Government has refused to bailout Satyam by any means of a financial package. Though, the Government has appointed a new board for the beleaguered company, consisting of members such as Kiran Karnik (President, NASSCOM) and Tarun Das (Director, CII). The priority for the new board is to keep the company running: provide salaries for the employees and keep the clients from running away.
The restoration of client confidence is essential at this stage. The U.S. based company; State Farm Insurance Co., has cancelled its contract with Satyam. Other major clients including General Electronics and FIFA have expressed confidence. However, the clients are believed to be demanding a contingency plan if things do not settle down soon.
On the positive side is the fact that Satyam is a company with very strong fundamentals, and minus this fraud, it has great potential. “Satyam has got enormous fixed, human resources and technology assets. It’s a very strong company,” said Tarun Das, one of the members of the Govt.-appointed board. This is also the reason that there have been offers from several domestic and multi-national companies for buying out the company and its various businesses.
Essar and L&T are the companies who have approached the new board for buying the company and especial interest has been expressed in Satyam’s BPO arm. However, the only thing that is keeping them at bay is the fact that several class-action suits have been filed in the US against Satyam, and the possibility of Satyam’s overseas assets being attached.
Irrespective of how this might end, the Satyam Saga has brought to the fore the need for stringent measures to ensure that the corporate executives are unable to dupe the clients, employees and shareholders in a similar manner.