jigar pobari
Jigar Pobari
NEW DELHI, Jan 9 (IPS) - India's government, its corporate sector and its people are stunned after the founder-chairman of one of the country’s largest information technology (IT) services companies admitted to years of falsified profits and an audacious financial fraud worth 1.5 billion dollars.
The founding promoter of Satyam Computer Services Limited, Ramalinga Raju, resigned as the company’s chairman on Wednesday, putting out a confessional statement admitting that roughly 1.5 billion US dollars (or the equivalent of 70 billion Indian rupees) of the firm’s past funds were "non-existent".
What has shocked analysts is that the money, that is now supposed to be fictitious, had been recorded in Satyam’s balance sheets and books of account that had been audited by the internationally reputed firm of auditors, PriceWaterhouseCoopers.
Raju, who is politically influential, disclosed details of the fraud in a resignation letter to the company’s board of directors forwarded to stock exchange authorities as well as the regulator of the country’s capital markets, the Securities and Exchange Board of India (SEBI). Of the revenue reported as of Sep.30, 2008, the letter said, almost 1.03 billion dollars, or 95 percent, never existed. SEBI’s chairman C.B. Bhave described the financial wrongdoing in Satyam as an event of "horrifying magnitude".
The scam has dominated the India media and what is ironical is that the Indian word "Satyam" translates as "truth". A most alarming aspect of the episode was that Raju acknowledged that his company’s financial records had been fudged and manipulated for the "last several years". "It was like riding a tiger, not knowing how to get off without being eaten," wrote the disgraced Raju in his letter. While there were rumours that Raju had fled India, his lawyer has said he is in Hyderabad, the capital of the southern Indian state of Andhra Pradesh, where the Satyam is headquartered.
On Wednesday, Raju’s announcement had knocked the company’s stock down a crippling 78 percent and sent the sensitive index of the stock exchange at Mumbai, India’s financial capital, plummeting by a substantial 7.3 percent. The share price came down further on Friday.
This scandal came barely a week after the government in New Delhi announced an economic stimulus package to revive the markets that have been adversely impacted by the ongoing worldwide recession.
Until recently, Satyam used to be India’s fourth-largest IT company, specialising in developing computer software and business process outsourcing.
Satyam's stock is listed on the New York Stock Exchange, it had business operations in 66 countries and counted 185 companies in the Fortune 500 list as its clients and customers.
"It’s a wake-up call for the Indian corporate sector," said Ashok Kumar Bhattacharaya, national managing editor of Business Standard newspaper in an exclusive interview to IPS. "Companies have to stick to the rule-book," he added.
Investors, along with Indian government agencies, are now demanding answers to why the value of their stock came down by more than 1.9 billion dollars in one day on account of a scandal that is being described as "India’s Enron" in reference to the U.S. energy company that filed for bankruptcy in 2001, leaving 5,000 people jobless and eliminating one billion dollars in employee retirement funds. Many of Satyam’s 53,000 employees are expecting unemployment as the dimensions of the scandal unfold, investors withdraw and it is discovered how the company’s coffers are almost empty. The 1.5 billion dollar fraud outweighs the company’s entire salary bill for the last year of a little over one billion dollars.
The downfall of Raju, a 54-year old software industry veteran, began nearly one month ago when Satyam attempted to acquire two companies controlled by his sons -- Maytas (Satyam spelled backwards) Properties and Maytas Infra -- for 1.6 billion dollars in order to compensate for the holes in his books of account. The deal was abandoned 12 hours after it was announced when investors objected, claiming it was an irresponsible misuse of funds and an instance of nepotism.
The Maytas deals acted as a red flag for international investors, with a host of companies like Unpaid Systems of Britain accusing Satyam of fraud, forgery and breach of contract. Shortly thereafter, on Dec. 23, the World Bank barred Satyam from offering its computer services for eight years citing a potential trail of corruption -- data theft and bribery -- that led to Raju. The last straw perhaps came on Tuesday when an Indian associate of Merrill Lynch terminated an agreement on grounds of "material accounting irregularities".
Satyam’s worth estimated at seven billion dollars, barely six months ago, is now worth less thatn 330 million dollars. In an IPS interview, Arun Kumar, professor of economics at New Delhi’s prestigious Jawaharlal Nehru University, said the so-called "independent" directors on the Satyam board were not truly independent and added that auditors often acted in collusion with corrupt company managers.
"I’m not at all surprised that the auditors played along with the top management of this company and allowed executives to cook books of account," said Kumar who has authored a book on India’s illegal -- or "black" -- economy. "The government is not looking to take over the companies. The corporate world must respond to this," Kamal Nath, India’s industry and commerce minister was quoted as saying. "The government should only look at the regulatory part of it," he added.
The government has stepped in to investigate all important directors and employees associated with Satyam who could be involved in the fraud. All those found guilty could face up to ten years in prison. The auditing licences of the partners of PricewaterhouseCoopers could also be revoked. \
"The system has to be strong, but individuals make the system. The rules were in place but individuals broke these rules and threatened the system,’’ says Bhattacharya.
Though Raju’s resignation letter attempts to accept personal responsibility for the misdemeanours, there is a view that many others were involved and complicit.
Kumar said it was "near-impossibile that those close to the inner workings of Satyam were completely unaware of what was going on". Whereas some argue that the Satyam scandal will not have a long-term negative impact on the working of India’s reputed information technology (IT) industry, others say it could negatively impact India’s booming IT services which chalked up overall sales worth 52 billion dollars in 2007-2008. Anand Mahindra, vice chairman and managing director of M&M, a leading commercial vehicles manufacturing company, went on record stating: "This development has resulted in incalculable and unjustifiable damage to Brand India and Brand IT in particular". He added that the "whole of Indian industry should not be tarred with the same brush".
But other corporate managers see positive fallouts to the Satyam episode. ‘’After what happened there is bound to better self-regulation among Indian IT companies,’’ said Puneet Kumar, a top manager at WIPRO, a globally respected, Bangalore-based IT company. ‘’Satyam was an aberration,’’ Puneet Kumar said. ‘’The fact is that the IT industry thrives on good reputation and every major in the business lays great emphasis on maintaining global standards of corporate governance.’’
Two days after shocking the country by admitting to Rs 7,800-crore fraud, Satyam founder Ramalinga Raju and his brother Ram Raju were arrested on Friday night as part of the crackdown by state authorities and the central government, which disbanded the tainted IT firm's board on a day of fast-paced developments.Fifty four-year-old Raju, who stepped down as Chairman after admitting to the fraud on Wednesday, and Rama Raju, who resigned as CEO and MD of the company, were arrested by the police on charges of criminal conspiracy, cheating, forgery, misappropriation of funds and criminal breach of trust. The police questioned the two brothers, Director General of Police S S P Yadav said that the company's Chief Financial Officer Valdamani Srinivasan would be arrested on Saturday.
The police action, which could lead to Raju getting imprisonment of up to 10 years, along with monetary penalties, came within hours of the Central Government disbanding the board on the eve of its scheduled meeting. He has been charged under Section 120B, 409, 420, 468, 471 of the IPC. These sections pertain to criminal conspiracy, criminal breach of trust, cheating, forgery and using forged documents as genuine. IG CID VSK Kaumudi told reporters outside the DGP's office that Ramalinga Raju would be produced before the SEBI investigators on Saturday if they make a request.
Corporate Affairs Minister Prem Chand Gupta announced that 10 directors would nominated to the new board, which would meet within a week. When contacted, Satyam spokesperson declined to comment on reports of Raju's surrender. Raju, whose whereabouts were a matter of speculation ever since he made the startling disclosure on Wednesday about the Rs 7,800 crore financial fraud, had been in hiding and was summoned to appear before the SEBI on Saturday. Earlier this evening, the government disbanded the current board of Satyam Computer and announced that it would nominate 10 directors on its board. Corporate Affairs Minister Prem Chand Gupta said in New Delhi that the names of the new members would be announced soon for the board, which would meet in the next seven days.
The existing board of the company was scheduled to meet on Saturday to discuss the crisis that has engulfed the company and its over 50,000 employees. Meanwhile, Satyam Computer Services has welcomed the government's decision to appoint 10 nominees as directors of the company to replace the current board.
Companies ride high on market perception and cooking the books can burnish that perception to breathtaking highs. Until someone cries foul.
Enron was once billed America's most innovative company. Then a massive accounting fraud, exposed in 2001, blew up on the US energy giant. In 2009, the script has been revisited in India. Boasting Fortune 500 firms among its clients, Satyam Computers won a top award for corporate governance in 2002 and 2008. Its fall began with chairman B Ramalinga Raju's aborted buyout of two Maytas firms founded by his sons. Angry shareholders swiftly punished this brazen display of nepotism in India's fourth largest IT firm. The sequel to Maytas is more sordid. Confessing to a Rs 7,136 crore fraud, Raju said Satyam's books had been cooked for years to inflate profit and revenue figures. In September 2008, they showed a non-existent cash and bank balance of Rs 5,040 crore and hundreds of crores of fictitious accrued interest and debtors' position. Liabilities worth Rs 1,230 crore were kept hidden.
These disclosures had a punishing aftermath. The software giant's stocks crashed 91 per cent, the Sensex tumbled and the rupee fell. The New York Stock Exchange put a trading bar on the firm. Satyam's clients are exiting, shareholder wealth has been wiped out and 53,000 employees are staring down the precipice. Two class action suits have been filed in the US against the company. All of this couldn't have come at a worse time. India has been hit by global economic turmoil. The Mumbai terror strike has raised its risk profile for tourists and business. And now there's the clear and present danger of domestic and overseas investors seeing India as a place where corporate governance is suspect. The resignation of Satyam's self-confessed figure-fudger is, therefore, small consolation. The credibility of the entire Indian market is at stake. Going by global reactions, mud sticking on Satyam has tainted the corporate big league by association, at least for now. The IT-BPO sector, in particular, is under a cloud.
Admittedly, the world has had its share of corporate con-jobs. Enron apart, WorldCom, Xerox and Tyco were only some headline-grabbers. A 2007 study on fraud's impact on international business by Kroll, the world's leading risk consulting company, found that four of five global firms faced in-house malpractice and increased misuse of the very instruments deployed for overseas expansion. Kroll Global Fraud Report 2008 warned of "supply chain" shenanigans as companies globalised, outsourced and reworked business processes. But we can't relativise Satyam's criminal breach of trust by placing it in a global context. Corporate credibility is a foundational must for any emerging market economy pursuing high growth.
When fictitious cash balances get certified, it shows the need for investigators to go beyond the letter of the corporate conduct rule book. The Satyam scam isn't about one individual's machinations, though Raju deserves exemplary punishment. A fraud of this scale mandates collective responsibility. It is unlikely Satyam can redeem itself under the current management. Any probe must scan the role of the board of directors and of the Pricewaterhouse auditors who gave Satyam clean bills of financial and moral health whether through negligence or connivance. Recall that the A-grade accounting firm Arthur Andersen shared Enron's disgrace. In Satyam's case too, institutional checks and balances failed. To restore investor confidence, damage control must involve rapid-fire action against all involved.
A supporting cast enabled Raju's rise to prominence. His closeness to powerful Andhra Pradesh politicians helped him gain legitimacy in business circles and even among policymakers. Former chief minister Chandrababu Naidu paraded Raju as the poster boy of Hyderabad's IT business before visiting state heads including Bill Clinton. Naidu's successor, Y Rajasekhara Reddy, backed Raju even after Satyam's Maytas foray generated controversy. Did these leaders support Satyam for parochial reasons or is there more to it? They owe an explanation to citizens.
Financial mismanagement at Satyam reportedly began after its promoters began diverting funds from IT to real estate in Hyderabad. In July 2008, Maytas won the bid to construct the Hyderabad metro rail. The AP government backed it even after E Sreedharan of the Delhi Metro Rail Corporation (DMRC), consultant to the Hyderabad metro, described the project as a real estate deal. It threatened to sue DMRC, which then walked out of the consultancy. In light of Raju's confession, the project needs revisiting. The Satyam scam suggests a possible nexus between the political class and business groups, especially in land-related matters. Promise of high returns may have lured Satyam to shift from its core competence in IT to land deals. But it is unlikely Raju was the sole beneficiary. A detailed investigation into Maytas's activities is necessary to expose the web of deceit that Satyam promoters and their political patrons spun around unsuspecting shareholders and clients.
When the full story comes to light, the lessons drawn must be learnt by corporate India. There is a general perception that government and the public sector have a structural tendency towards rent-seeking and venality. After Satyam, it appears the private sector may be tarred with the same brush. That can have a devastating impact on India's future. India Inc needs to search its soul.
The nearly $1.5 billion scam involving the promoters of Satyam Computer Services, a Hyderabad-based software and services exporter, has come as a rude jolt for the Indian information technology (IT) sector, which has prided itself on its professionalism and transparent functioning.
The Satyam scam, dubbed as India’s Enron, unravelled after promoter and founder chairman B. Ramalinga Raju, came out with shocking details of how he managed to virtually hoodwink hundreds of professionals and experts — including finance managers, independent auditors and directors, government regulators and international investors and analysts — for years by fudging the account books.
Corporate India has not seen such an audacious operation, which has shattered the faith of millions of ordinary investors in the sanctity of audited account statements and corporate governance norms. The sheer scale of the rip-off and the ease with which Raju managed to swindle both the Indian and international investing community has come as a huge setback for the corporate sector in the country. It could also slow down the flow of international funds into the capital markets, at a time when the liquidity crisis has already taken a huge toll.
India’s IT sector, already impacted by the recession in the US and Europe, will suffer a major blow following the Satyam scam. The sector, which came of its own only in the post-reforms era, has steered clear of controversies all these years, preferring to focus on excellence in quality, targetting overseas markets and implementing international best practices.
Most ‘old economy’ players in India — the manufacturing sector and other traditional industries — took time to adjust to the new realities of the reforms era. Many were still trapped in the ‘licence Raj era’ mindset, where political connections and lobbying mattered more than performance and professionalism.
In that sense, the IT sector brought a whiff of fresh air to the Indian corporate sector, with some of the top promoter-executives like N.R. Narayana Murthy and Nandan Nilekani of Infosys Ltd and Azim Premji of Wipro, establishing high ethical standards, sound business practices and ensuring that the army of young highly-skilled workers employed by their firms also adhered to these norms.
Guilty parties to the scam
To start with the auditors – what were the auditors doing? Rs 5,000 crore of cash not in the banks and auditors have gone ahead and signed on the balance sheets saying that its there on the banks. The interest accrued – where is this interest accrued from? It has to be there. Auditors are supposed to do bank reconciliation to check whether the money has indeed come or not. They need to check bank statements and certificates.
The second are bankers of Satyam which are quite a few actually because it is a big company. You have ICICI Bank, HDFC Bank, BoB and lot of other banks which are bankers. These banks are supposed to provide bank statements on a quarterly basis and bank certificates on basis of which auditors go ahead and signed the balance sheet.
Either the bank statement and certificates are false or auditors haven’t taken cognizance of the fact that bank statements are showing some other figures and the management is depicting some other figure.
The third one – the I-bankers – now what we understand from sources is that Merrill Lynch withdrew from Satyam mandate yesterday evening. It did not inform the exchanges till today after Mr. Raju informed the stock exchanges. We want to know why Merrill Lynch after withdrawing the mandate did not inform the stock exchange or at least public in general or the shareholders before market hours.
These questions have to be answered by Merrill Lynch and that’s one of the key questions because Merrill Lynch was the outside advisors to Satyam. It withdrew from the mandate because of the kind of mess Satyam was in. So Merrill Lynch should have had informed Satyam and alerted the market that there is something very wrong which is going in Satyam and that’s the reason for their withdrawal.
The fourth is the CFO and his team. They will have to answer how they did the entire scam and how were they able to hide it for so many quarters.
Satyam scam prompts Advani to call for ethics in business
Senior Bharatiya Janata Party (BJP) leader and the partys prime ministerial candidate in the forthcoming general elections this year, L.K.Advani, on Saturday said ethics and values are inseparable elements of every business.
Ahmedabad (Gujarat), Jan.10 : Senior Bharatiya Janata Party (BJP) leader and the party's prime ministerial candidate in the forthcoming general elections this year, L.K.Advani, on Saturday said ethics and values are inseparable elements of every business.
Advani was speaking at the global summit of the Jain International Trade Organization (JITO).
Commenting on the financial fraud of IT major Satyam Computer Services,he said business without ethics is a sin.
"Once, Gandhiji (Mahatma Gandhi) had said that business without ethics is sin. Business needs values and ethics and, if a few business organizations indulge in unethical practices, they bring a bad name to the business community as a whole," said Advani.On Wednesday, Ramalinga Raju, the chairman of Satyam Computer Services admitted that about a billion dollars, or 94 percent of the cash and bank balances on the company's books at the end of September did not exist.
The scandal had cast a cloud over foreign investment in Asia's third-largest economy and over its once-booming outsourcing sector, which posted stunning sales growth for years and lavished investors with handsome returns.
According to a party press release, he also called Jainism the most ancient Green Movement in world history.
He pointed out that most people do not often appreciate why Jainism attached such paramount importance to ahimsa. However, two of the greatest challenges before the world today--Terrorism and Climate Change--are both manifestations of violence.
He added that "terrorism is of course the most extreme and inhuman form of violence. But there is another form of violence which the world has been much slower to recognize, and much more hesitant to take firm action against."
Referring to the violence being inflicted on the Earth by our materialistic civilization,Advani said that only "when we reflect on the challenge of Climate Change that we begin to appreciate the enormous contemporary relevance of the Jain philosophy of ahimsa and jiva daya. We realize that Bhagwan Mahavir and the other Jain Tirthankars were great environmental conservationists."
"They taught us that we human beings are merely trustees of this planet. We need to re-learn their teachings in our times." He further added that "eco-friendliness is not a mere fashionable phrase; it has to be interwoven into our development paradigm and also into our day-to-day living," he added.
Terming pollution as another face of violence, he said that pollution has catastrophic implications for human beings and other species on our planet.
"Pollution has caused a big problem in the form of global warming and climate change, and pollution itself is another form of violence, and it is as grave as militancy. It is the duty of the society as well as administration to counter both (militancy and pollution) forms of violence," said Advani.
A recent study conducted by US researchers reveals that the warming climate is likely to put affect crops and livestock and could cause serious food shortages for half the world's population.
In a way "all (of us) have to become adivasis or tribals who know how to exist in harmony with the earth," he concluded.
He promised that in the event of the BJP and the NDA forming the next government in New Delhi, appropriate steps to deal with both forms of violence-Terrorism and climate change would be given the top priority.
He also urged the government to take bold and quick steps to revive the economy out of the recessionary crisis.
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A stunned India Inc, rattled investors and the government were left to pick through the debris to salvage what is left of Satyam Computer Services after its founder and chairman admitted to committing the country’s biggest financial fraud.
Satyam, the fourth-largest software service provider, imploded on Wednesday, sending its stock crashing by 80%. In a five-page letter, detailing years of financial deception, Satyam chief Ramalinga Raju owned up responsibility and put in his papers.
The shame and scandal has shocked India Inc, and left lakhs of investors and 53,000 staffers out in the cold. Here's looking into how this Rs 7,000-crore hole in the books may impact Satyam's employees, investors, auditors, management, clients and corporate India, specifically the IT companies.
CLIENTS
Does Satyam's loss result in gain for its bigger rivals, TCS, Infosys and Wipro to be specific? Yes, say analysts. According to whom, the debacle may force the clients of beleaguered Satyam to review their contracts and look at other offshore suppliers.
"Satyam clients will naturally be concerned and many clients will be forced to review their contracts and talk to the other offshore suppliers in the account about potentially taking over work from Satyam," said a Forrester Research analyst.
According to a senior executive from a rival IT firm, Australian telecom company Telstra, which contributes $20-25 million to its revenues, had already decided to split a new contract worth $200 million among three Indian vendors. “There was intense competition among Satyam and other offshore vendors earlier but Telstra now seems to be more tilted towards Infosys and EDS-Mphasis. Satyam seems to have lost the race,” said the official, whose company was one among the bidders for the contract.
Another partner and customer of the company, Cisco Systems said that a proposed investment in Satyam subsidiary (Satyam Global Lifenet) could be in jeopardy.
However, allaying the fears of employees and clients in the Asia-Pacific, Satyam today said it is committed to its customers in the region. "Satyam as an organization remains committed to its customers in (the) Asia Pacific, a region which continues to offer promising growth," said Satyam's Senior Vice-President (Asia Pacific, Middle East, India and Africa) Virender Agarwal, based in Singapore.
The fourth largest software company's clients include General Electric, Nissan Motors and General Motors.
EMPLOYEES
It is very clearly anxious moments, sleepless nights and heartburns for the over 53,000 employees of Satyam Computers as they conjure up worst case scenarios like non-payment of salaries, project cancellations , layoffs and equally bleak prospects outside.
As the company's management tries to reassure shocked employees, jobs sites have got flooded from resumes of hundreds of Satyam employees. "Till Tuesday evening, there were about 7,800 people from Satyam who had posted their resumes on job sites. By Wednesday afternoon, it has gone up to 14,000. By the end of the day, the numbers may be much higher," said Kris Lakshmikanth, CEO of Headhunters India.
However, job consultants believe that in the current economic climate when the IT industry is already facing tough time, Satyam employees might have to settle for lower salaries outside. Also, with most IT companies already announcing a hiring freeze, it is an employers' market.
On its part, the new leadership team is sending out mailers and open letters to its employees to keep the faith. Earlier, Ram Mynampati the interim CEO, had said, "We recognise that our associates have committed a significant part of their careers to build Satyam. We will pursue all avenues to secure their future in the company." “Operations are all continuing. We do not envisage any problems in paying salaries to our employees in future,” a Satyam official told media.
In a letter to the Centre, Andhra Pradesh chief minister Rajasekhara Reddy too has expressed concern about the fate of Satyam employees.
IT INDUSTRY
The Satyam fraud couldn't have come at a worse time for the IT Inc already reeling under slowdown. The incident has put the sector in limelight, and for all the wrong reasons. Fears are being expressed that the scam may affect investors’ confidence in the sector already facing rough weather.
For years, Satyam and larger rivals such as TCS, Infosys and Wipro were feted as among the new ambassadors of Indian industry with their corporate governance practices winning accolades around the world and their strong growth rates luring investors
The shaken apex body of Indian software industry issued a statement expressing "shock" and at the same time emphasising it to be "a stand-alone case of failure of corporate governance, and not a systemic failure of corporate governance among Indian IT companies".
Besides Nasscom, Satyam rival and the second-largest IT firm and Nasscom member Infosys too issued a statement stating "(The) Satyam fraud is an aberration ... I don't think it would shake clients faith in other Indian IT companies." Suresh Senapaty, executive director and CFO, Wipro said, "Global standards of corporate India are very high and we are confident that this is an isolated case and not representative of the IT industry."
While the Satyam episode could temporarily cast a cloud over Indian IT firms, IT in India is unlikely to be as affected. Allaying the fears that India's IT image would be tainted, a Forrester analyst said,"I look at it as an isolated case and don't think Satyam developments would have any impact on India's position as an offshore location. But if similar trend of fraud continues in Indian IT vendors' space, then there is a good enough reason to be concerned."
AUDITORS
The Satyam fiasco has put the spotlight on the role of external auditors in a company. Enron & Worldcom had changed the world of auditing from ‘Big 5’ to ‘Big 4’. The brazen fraud at Satyam has the potential to shrink it to ‘Big 3’, at least in India. The falsification of accounts by Satyam for the past several years has put a question mark on the very survival of its auditor, PricewaterhouseCoopers (PwC).
Institute of Chartered Accountants of India (ICAI) has decided to issue a show cause notice to PwC. ICAI President Ved Jain said, "We have set the ball rolling. On the basis of statements made by Ramalinga Raju, ICAI has already initiated proceedings against the concerned auditor."
PwC had audited about 139 companies in India in the last fiscal. Of this, 97 are listed and 45 are part of BSE 500 Index. A few of these companies are already reviewing their relationship. For instance, Glenmark Pharma has said its board will decide on January 27 on whether to propose a change in the auditor.
Some other large companies audited by PwC include Maruti Suzuki, United Breweries, United Spirits, GMR Infra, Piramal Healthcare and Marico.
INDIA INC.
The incident has hurt public perception of Corporate India. Howsoever one-off incident one may term it, it is likely to hurt shareholders' confidence in India Inc. No doubt, India Inc reacted with shock and dismay to the scam. The VC and MD of Mahindra and Mahindra, Anand Mahindra in a statement said that the development had "resulted in incalculable and unjustifiable damage to Brand India and Brand It in particular."
He however, reiterated that the whole of the Indian industry, "should not be tarred with the same brush" as most companies "uphold the hightest standards of corpaorate governance and this will help us mitigate the damage done to India's image."
In a write-up in ET, Rahul Bajaj said, "It is likely to dent the public credibility about the concepts of corporate governance that the Indian industry has been so assiduously trying to cultivate for the last ten years."
INVESTORS
An accounting fraud was the last thing investors in India would have imagined as a trigger for a reversal in investor sentiment. The Satyam accounting fiasco has come at a time when the sentiment is already brittle and is likely to affect the image of Indian companies among foreign portfolio investors.
Fund managers said the revival of India’s position as a preferred investment destination would depend on the speed of regulatory action to salvage the situation. “The regulators would have to take drastic measures to regain the confidence of foreign investors in Indian companies as frauds like these will have greater implications on emerging markets than developed markets,” said a CIO with a leading private mutual fund.
National Association of Small Investors (NASI), a registered NGO, has said that it will file a complaint against scam-hit software exporter Satyam Computer Services for "cheating shareholders and investors".
"This is a financial attack on the country. We are filing a complaint against Satyam, with the Economic Offences Department (EOD), for cheating the shareholders and investors," NASI president Pradeep Bhavnani told PTI.
Law firms in the US have begun filing class-action complaints against Satyam Computer Services and its executives for securities fraud. The lawsuit has been filed on behalf of all buyers of Satyam ADS between January 6, 2004 and January 6, 2009.
On Wednesday, Satyam's ADS fell $8.42, or 90%, before opening of the New York Stock Exchange. The exchange suspended trading in the ADS after the disclosure by Satyam.
RAJU & Co.
Although Ramalinga Raju has gone out of his way to make out that none of the other board members and senior executives of Satyam were aware of the fraud, the law of the land is expected to take its course and Raju and any other director/executive found to be involved in the scam are liable to be prosecuted on charges punishable with imprisonment up to 10 years.
Some of the more serious penalties that Raju and others are likely to face under various laws are:
* Section 23 of the securities contract regulation Act 1956, that imposes a penalty of imprisonment up to 10 years and fine up to Rs 25 crore. The adjudicating officer of SEBI (Securities and Exchange Board of India) is empowered to award such punishment to directors and management executives for violating the listing agreement by making false and inaccurate disclosures in the company's quarterly and annual results. The penalty is severe because of the enormous damage that the investors are liable to suffer on account of false disclosures.
* Section 24 of the SEBI Act 1992 that imposes a penalty of imprisonment up to one year for infringement of any provisions of the law or rules and regulations, including fraudulent and unfair trade practices (FUTP).
* Section 477-A of the Indian Penal Code, that imposes a penalty of imprisonment up to seven years. The police may on their own or on the recommendation of the serious fraud investigation office (SFIO) invoke this IPC provision meant to punish those found to have falsified accounts "willfully and with intent to defraud."
* Section 211 of the Companies Act that imposes a penalty of imprisonment up to six months. The company law board is empowered to punish those who are found to have "willfully" failed to comply with the requirements of law relating to the annual financial statement.
Hopes
Satyam Computer Services is down but hoping not to be out. Ram Mynampati, its interim chief executive, said Thursday that the company plans to stay in business, a day after its former chairman admitted he'd been cooking the company's books for years.
"We’ll see the company through this crisis. We’ll fix this," asserted Mynampati, who is one of the three directors remaining on Satyam’s board. The company has been a major provider of technology consulting and outsourcing services.
Mynampati said that neither the board nor any Satyam Computer Services (nyse: SAY - news - people ) executives had a clue of the gigantic fraud perpetrated by the firm’s founder and erstwhile chairman Ramalinga Raju. "We relied on data from reputed auditors. There was no way for any of us to suspect that something was amiss," he said. (See "The Seeds Of The Satyam Scandal.")
Mynampati added that the company is extending all support to investigating and regulatory agencies. An investigative team from the Securities and Exchange Board of India visited Satyam’s offices in Hyderabad Thursday. The Registrar of Companies in Hyderabad is required to submit a report on the technology firm to the ministry of corporate affairs by Wednesday.
Mynampati confirmed that Chief Financial Officer Srinivas Vedlamani submitted his resignation Thursday, but it is yet to be accepted. He admitted Satyam’s liquidity position "wasn’t very healthy" and it is looking at ways to raise funds. Engaging an investment banker to scout for a buyer is another priority.
Satyam’s board is scheduled to meet Saturday, when new directors are likely to be appointed. Four independent directors had stepped down even before Raju’s stunning revelation, when investors cried foul last month over a $1.6 billion deal between Satyam and two firms owned by the former chairman's relatives. (See "Investors Slap Down Satyam." )
PriceWaterhouseCoopers, Satyam’s auditor, said that while it will cooperate with the regulators, Satyam’s audit was conducted "in accordance with applicable auditing standards and were supported by appropriate audit evidence."
Lessons from Satyam fraud
Former Satyam Computer Services chairman B. Ramalinga Raju’s astonishing letter admitting that he had cooked the books is unprecedented in the annals of Indian business history.
His mea culpa has already generated a firestorm of angry reactions, understandably so. This newspaper made no bones of the fact that Raju should have been removed as head of Satyam immediately after the scandalous attempt to use shareholder money to bail out two infrastructure companies owned by his family, as we wrote in a front-page Quick Edit last month, though the Wednesday revelations raise new questions about who was bailing out whom.
It is not quite clear why Raju decided to come clean eventually, but let’s for now accept it was a brave decision.
Investors have hammered the Satyam stock. There has also been collateral damage to other software companies. The natural question that will prey on investors’ minds—and perhaps clients’ as well—is whether what has happened at Satyam is an exception or closer to the rule.
The longer-term issues will be even more complicated. Our fear is that politicians will start feeding on the carcass of Satyam’s corporate reputation—and then move towards more healthy animals as well. There is no reason to believe that all Indian companies are paragons of corporate virtue. It is an open secret that too many of them massage their financials, pack the board with cronies and have sweet deals with private companies owned by family and friends. But an indiscriminate witch-hunt in an election year is a clear and present danger. The US went in for drastic reforms after the collapse of Enron Corp., an energy company that was once widely admired for its dynamism and innovation. Enron used accounting fraud, offshore secret accounts and tax avoidance to inflate its profits. The aftermath of its collapse saw tough legislation in the form of the Sarbanes-Oxley Act of 2002, to restore investor confidence in public companies and equity markets in the US.
Several initiatives to improve corporate governance in India are modelled on Sarbanes-Oxley. But new statutes are not necessarily the solution. Business lobbies such as the Confederation of Indian Industry should now start discussions with the government to ensure there are fewer episodes of fraud in the future. It is in their interest to do so, to win back investor confidence.
Corporate Governance
NEW DELHI: Close to 100 CEOs and senior company executives, including PricewaterhouseCooper -- one of the big five auditing firms under attack for its alleged role in the Satyam episode -- will be brainstorming corporate governance issues at the CII breakfast meeting here tomorrow. Corporate accountability, ethics and transparency became the biggest casualties of a multi-billion dollar Satyam fraud. Harinderjeet Singh, Partner in the PricewaterhouseCooper will be among the honchos taking lessons on corporate governance at the Confederation of Indian Industry meeting. Executive Vice-Chairman and Managing Director of Kotak Mahindra Bank Uday Kotak will be the main speaker at the meeting that has subjects like compliance, trust and fostering a culture of good governance on the agenda. As many as four of senior functionaries from KPMG, also among the world's biggest audit firms, would take part in the brainstorming which is bound to discuss the fallout of close to Rs 8,000 crore Satyam fraud on India Inc's image among investors world over. Corporate India has expressed concern over the global impact of the financial bungling, which Satyam Chairman B Ramalinga Raju has confessed yesterday. CII came down heavily on the Satyam fraud yesterday. The chamber's President K V Kamath has said that there was a "need to immediately examine the loopholes in regulation, accounting, audit and governance that allowed such lapses to occur and address them with urgency".
He said corporate India must "reflect on ways to demonstrate its quality of governance and enhance the confidence of stakeholders".
The founding promoter of Satyam Computer Services Limited, Ramalinga Raju, resigned as the company’s chairman on Wednesday, putting out a confessional statement admitting that roughly 1.5 billion US dollars (or the equivalent of 70 billion Indian rupees) of the firm’s past funds were "non-existent".
What has shocked analysts is that the money, that is now supposed to be fictitious, had been recorded in Satyam’s balance sheets and books of account that had been audited by the internationally reputed firm of auditors, PriceWaterhouseCoopers.
Raju, who is politically influential, disclosed details of the fraud in a resignation letter to the company’s board of directors forwarded to stock exchange authorities as well as the regulator of the country’s capital markets, the Securities and Exchange Board of India (SEBI). Of the revenue reported as of Sep.30, 2008, the letter said, almost 1.03 billion dollars, or 95 percent, never existed. SEBI’s chairman C.B. Bhave described the financial wrongdoing in Satyam as an event of "horrifying magnitude".
The scam has dominated the India media and what is ironical is that the Indian word "Satyam" translates as "truth". A most alarming aspect of the episode was that Raju acknowledged that his company’s financial records had been fudged and manipulated for the "last several years". "It was like riding a tiger, not knowing how to get off without being eaten," wrote the disgraced Raju in his letter. While there were rumours that Raju had fled India, his lawyer has said he is in Hyderabad, the capital of the southern Indian state of Andhra Pradesh, where the Satyam is headquartered.
On Wednesday, Raju’s announcement had knocked the company’s stock down a crippling 78 percent and sent the sensitive index of the stock exchange at Mumbai, India’s financial capital, plummeting by a substantial 7.3 percent. The share price came down further on Friday.
This scandal came barely a week after the government in New Delhi announced an economic stimulus package to revive the markets that have been adversely impacted by the ongoing worldwide recession.
Until recently, Satyam used to be India’s fourth-largest IT company, specialising in developing computer software and business process outsourcing.
Satyam's stock is listed on the New York Stock Exchange, it had business operations in 66 countries and counted 185 companies in the Fortune 500 list as its clients and customers.
"It’s a wake-up call for the Indian corporate sector," said Ashok Kumar Bhattacharaya, national managing editor of Business Standard newspaper in an exclusive interview to IPS. "Companies have to stick to the rule-book," he added.
Investors, along with Indian government agencies, are now demanding answers to why the value of their stock came down by more than 1.9 billion dollars in one day on account of a scandal that is being described as "India’s Enron" in reference to the U.S. energy company that filed for bankruptcy in 2001, leaving 5,000 people jobless and eliminating one billion dollars in employee retirement funds. Many of Satyam’s 53,000 employees are expecting unemployment as the dimensions of the scandal unfold, investors withdraw and it is discovered how the company’s coffers are almost empty. The 1.5 billion dollar fraud outweighs the company’s entire salary bill for the last year of a little over one billion dollars.
The downfall of Raju, a 54-year old software industry veteran, began nearly one month ago when Satyam attempted to acquire two companies controlled by his sons -- Maytas (Satyam spelled backwards) Properties and Maytas Infra -- for 1.6 billion dollars in order to compensate for the holes in his books of account. The deal was abandoned 12 hours after it was announced when investors objected, claiming it was an irresponsible misuse of funds and an instance of nepotism.
The Maytas deals acted as a red flag for international investors, with a host of companies like Unpaid Systems of Britain accusing Satyam of fraud, forgery and breach of contract. Shortly thereafter, on Dec. 23, the World Bank barred Satyam from offering its computer services for eight years citing a potential trail of corruption -- data theft and bribery -- that led to Raju. The last straw perhaps came on Tuesday when an Indian associate of Merrill Lynch terminated an agreement on grounds of "material accounting irregularities".
Satyam’s worth estimated at seven billion dollars, barely six months ago, is now worth less thatn 330 million dollars. In an IPS interview, Arun Kumar, professor of economics at New Delhi’s prestigious Jawaharlal Nehru University, said the so-called "independent" directors on the Satyam board were not truly independent and added that auditors often acted in collusion with corrupt company managers.
"I’m not at all surprised that the auditors played along with the top management of this company and allowed executives to cook books of account," said Kumar who has authored a book on India’s illegal -- or "black" -- economy. "The government is not looking to take over the companies. The corporate world must respond to this," Kamal Nath, India’s industry and commerce minister was quoted as saying. "The government should only look at the regulatory part of it," he added.
The government has stepped in to investigate all important directors and employees associated with Satyam who could be involved in the fraud. All those found guilty could face up to ten years in prison. The auditing licences of the partners of PricewaterhouseCoopers could also be revoked. \
"The system has to be strong, but individuals make the system. The rules were in place but individuals broke these rules and threatened the system,’’ says Bhattacharya.
Though Raju’s resignation letter attempts to accept personal responsibility for the misdemeanours, there is a view that many others were involved and complicit.
Kumar said it was "near-impossibile that those close to the inner workings of Satyam were completely unaware of what was going on". Whereas some argue that the Satyam scandal will not have a long-term negative impact on the working of India’s reputed information technology (IT) industry, others say it could negatively impact India’s booming IT services which chalked up overall sales worth 52 billion dollars in 2007-2008. Anand Mahindra, vice chairman and managing director of M&M, a leading commercial vehicles manufacturing company, went on record stating: "This development has resulted in incalculable and unjustifiable damage to Brand India and Brand IT in particular". He added that the "whole of Indian industry should not be tarred with the same brush".
But other corporate managers see positive fallouts to the Satyam episode. ‘’After what happened there is bound to better self-regulation among Indian IT companies,’’ said Puneet Kumar, a top manager at WIPRO, a globally respected, Bangalore-based IT company. ‘’Satyam was an aberration,’’ Puneet Kumar said. ‘’The fact is that the IT industry thrives on good reputation and every major in the business lays great emphasis on maintaining global standards of corporate governance.’’
Two days after shocking the country by admitting to Rs 7,800-crore fraud, Satyam founder Ramalinga Raju and his brother Ram Raju were arrested on Friday night as part of the crackdown by state authorities and the central government, which disbanded the tainted IT firm's board on a day of fast-paced developments.Fifty four-year-old Raju, who stepped down as Chairman after admitting to the fraud on Wednesday, and Rama Raju, who resigned as CEO and MD of the company, were arrested by the police on charges of criminal conspiracy, cheating, forgery, misappropriation of funds and criminal breach of trust. The police questioned the two brothers, Director General of Police S S P Yadav said that the company's Chief Financial Officer Valdamani Srinivasan would be arrested on Saturday.
The police action, which could lead to Raju getting imprisonment of up to 10 years, along with monetary penalties, came within hours of the Central Government disbanding the board on the eve of its scheduled meeting. He has been charged under Section 120B, 409, 420, 468, 471 of the IPC. These sections pertain to criminal conspiracy, criminal breach of trust, cheating, forgery and using forged documents as genuine. IG CID VSK Kaumudi told reporters outside the DGP's office that Ramalinga Raju would be produced before the SEBI investigators on Saturday if they make a request.
Corporate Affairs Minister Prem Chand Gupta announced that 10 directors would nominated to the new board, which would meet within a week. When contacted, Satyam spokesperson declined to comment on reports of Raju's surrender. Raju, whose whereabouts were a matter of speculation ever since he made the startling disclosure on Wednesday about the Rs 7,800 crore financial fraud, had been in hiding and was summoned to appear before the SEBI on Saturday. Earlier this evening, the government disbanded the current board of Satyam Computer and announced that it would nominate 10 directors on its board. Corporate Affairs Minister Prem Chand Gupta said in New Delhi that the names of the new members would be announced soon for the board, which would meet in the next seven days.
The existing board of the company was scheduled to meet on Saturday to discuss the crisis that has engulfed the company and its over 50,000 employees. Meanwhile, Satyam Computer Services has welcomed the government's decision to appoint 10 nominees as directors of the company to replace the current board.
Companies ride high on market perception and cooking the books can burnish that perception to breathtaking highs. Until someone cries foul.
Enron was once billed America's most innovative company. Then a massive accounting fraud, exposed in 2001, blew up on the US energy giant. In 2009, the script has been revisited in India. Boasting Fortune 500 firms among its clients, Satyam Computers won a top award for corporate governance in 2002 and 2008. Its fall began with chairman B Ramalinga Raju's aborted buyout of two Maytas firms founded by his sons. Angry shareholders swiftly punished this brazen display of nepotism in India's fourth largest IT firm. The sequel to Maytas is more sordid. Confessing to a Rs 7,136 crore fraud, Raju said Satyam's books had been cooked for years to inflate profit and revenue figures. In September 2008, they showed a non-existent cash and bank balance of Rs 5,040 crore and hundreds of crores of fictitious accrued interest and debtors' position. Liabilities worth Rs 1,230 crore were kept hidden.
These disclosures had a punishing aftermath. The software giant's stocks crashed 91 per cent, the Sensex tumbled and the rupee fell. The New York Stock Exchange put a trading bar on the firm. Satyam's clients are exiting, shareholder wealth has been wiped out and 53,000 employees are staring down the precipice. Two class action suits have been filed in the US against the company. All of this couldn't have come at a worse time. India has been hit by global economic turmoil. The Mumbai terror strike has raised its risk profile for tourists and business. And now there's the clear and present danger of domestic and overseas investors seeing India as a place where corporate governance is suspect. The resignation of Satyam's self-confessed figure-fudger is, therefore, small consolation. The credibility of the entire Indian market is at stake. Going by global reactions, mud sticking on Satyam has tainted the corporate big league by association, at least for now. The IT-BPO sector, in particular, is under a cloud.
Admittedly, the world has had its share of corporate con-jobs. Enron apart, WorldCom, Xerox and Tyco were only some headline-grabbers. A 2007 study on fraud's impact on international business by Kroll, the world's leading risk consulting company, found that four of five global firms faced in-house malpractice and increased misuse of the very instruments deployed for overseas expansion. Kroll Global Fraud Report 2008 warned of "supply chain" shenanigans as companies globalised, outsourced and reworked business processes. But we can't relativise Satyam's criminal breach of trust by placing it in a global context. Corporate credibility is a foundational must for any emerging market economy pursuing high growth.
When fictitious cash balances get certified, it shows the need for investigators to go beyond the letter of the corporate conduct rule book. The Satyam scam isn't about one individual's machinations, though Raju deserves exemplary punishment. A fraud of this scale mandates collective responsibility. It is unlikely Satyam can redeem itself under the current management. Any probe must scan the role of the board of directors and of the Pricewaterhouse auditors who gave Satyam clean bills of financial and moral health whether through negligence or connivance. Recall that the A-grade accounting firm Arthur Andersen shared Enron's disgrace. In Satyam's case too, institutional checks and balances failed. To restore investor confidence, damage control must involve rapid-fire action against all involved.
A supporting cast enabled Raju's rise to prominence. His closeness to powerful Andhra Pradesh politicians helped him gain legitimacy in business circles and even among policymakers. Former chief minister Chandrababu Naidu paraded Raju as the poster boy of Hyderabad's IT business before visiting state heads including Bill Clinton. Naidu's successor, Y Rajasekhara Reddy, backed Raju even after Satyam's Maytas foray generated controversy. Did these leaders support Satyam for parochial reasons or is there more to it? They owe an explanation to citizens.
Financial mismanagement at Satyam reportedly began after its promoters began diverting funds from IT to real estate in Hyderabad. In July 2008, Maytas won the bid to construct the Hyderabad metro rail. The AP government backed it even after E Sreedharan of the Delhi Metro Rail Corporation (DMRC), consultant to the Hyderabad metro, described the project as a real estate deal. It threatened to sue DMRC, which then walked out of the consultancy. In light of Raju's confession, the project needs revisiting. The Satyam scam suggests a possible nexus between the political class and business groups, especially in land-related matters. Promise of high returns may have lured Satyam to shift from its core competence in IT to land deals. But it is unlikely Raju was the sole beneficiary. A detailed investigation into Maytas's activities is necessary to expose the web of deceit that Satyam promoters and their political patrons spun around unsuspecting shareholders and clients.
When the full story comes to light, the lessons drawn must be learnt by corporate India. There is a general perception that government and the public sector have a structural tendency towards rent-seeking and venality. After Satyam, it appears the private sector may be tarred with the same brush. That can have a devastating impact on India's future. India Inc needs to search its soul.
The nearly $1.5 billion scam involving the promoters of Satyam Computer Services, a Hyderabad-based software and services exporter, has come as a rude jolt for the Indian information technology (IT) sector, which has prided itself on its professionalism and transparent functioning.
The Satyam scam, dubbed as India’s Enron, unravelled after promoter and founder chairman B. Ramalinga Raju, came out with shocking details of how he managed to virtually hoodwink hundreds of professionals and experts — including finance managers, independent auditors and directors, government regulators and international investors and analysts — for years by fudging the account books.
Corporate India has not seen such an audacious operation, which has shattered the faith of millions of ordinary investors in the sanctity of audited account statements and corporate governance norms. The sheer scale of the rip-off and the ease with which Raju managed to swindle both the Indian and international investing community has come as a huge setback for the corporate sector in the country. It could also slow down the flow of international funds into the capital markets, at a time when the liquidity crisis has already taken a huge toll.
India’s IT sector, already impacted by the recession in the US and Europe, will suffer a major blow following the Satyam scam. The sector, which came of its own only in the post-reforms era, has steered clear of controversies all these years, preferring to focus on excellence in quality, targetting overseas markets and implementing international best practices.
Most ‘old economy’ players in India — the manufacturing sector and other traditional industries — took time to adjust to the new realities of the reforms era. Many were still trapped in the ‘licence Raj era’ mindset, where political connections and lobbying mattered more than performance and professionalism.
In that sense, the IT sector brought a whiff of fresh air to the Indian corporate sector, with some of the top promoter-executives like N.R. Narayana Murthy and Nandan Nilekani of Infosys Ltd and Azim Premji of Wipro, establishing high ethical standards, sound business practices and ensuring that the army of young highly-skilled workers employed by their firms also adhered to these norms.
Guilty parties to the scam
To start with the auditors – what were the auditors doing? Rs 5,000 crore of cash not in the banks and auditors have gone ahead and signed on the balance sheets saying that its there on the banks. The interest accrued – where is this interest accrued from? It has to be there. Auditors are supposed to do bank reconciliation to check whether the money has indeed come or not. They need to check bank statements and certificates.
The second are bankers of Satyam which are quite a few actually because it is a big company. You have ICICI Bank, HDFC Bank, BoB and lot of other banks which are bankers. These banks are supposed to provide bank statements on a quarterly basis and bank certificates on basis of which auditors go ahead and signed the balance sheet.
Either the bank statement and certificates are false or auditors haven’t taken cognizance of the fact that bank statements are showing some other figures and the management is depicting some other figure.
The third one – the I-bankers – now what we understand from sources is that Merrill Lynch withdrew from Satyam mandate yesterday evening. It did not inform the exchanges till today after Mr. Raju informed the stock exchanges. We want to know why Merrill Lynch after withdrawing the mandate did not inform the stock exchange or at least public in general or the shareholders before market hours.
These questions have to be answered by Merrill Lynch and that’s one of the key questions because Merrill Lynch was the outside advisors to Satyam. It withdrew from the mandate because of the kind of mess Satyam was in. So Merrill Lynch should have had informed Satyam and alerted the market that there is something very wrong which is going in Satyam and that’s the reason for their withdrawal.
The fourth is the CFO and his team. They will have to answer how they did the entire scam and how were they able to hide it for so many quarters.
Satyam scam prompts Advani to call for ethics in business
Senior Bharatiya Janata Party (BJP) leader and the partys prime ministerial candidate in the forthcoming general elections this year, L.K.Advani, on Saturday said ethics and values are inseparable elements of every business.
Ahmedabad (Gujarat), Jan.10 : Senior Bharatiya Janata Party (BJP) leader and the party's prime ministerial candidate in the forthcoming general elections this year, L.K.Advani, on Saturday said ethics and values are inseparable elements of every business.
Advani was speaking at the global summit of the Jain International Trade Organization (JITO).
Commenting on the financial fraud of IT major Satyam Computer Services,he said business without ethics is a sin.
"Once, Gandhiji (Mahatma Gandhi) had said that business without ethics is sin. Business needs values and ethics and, if a few business organizations indulge in unethical practices, they bring a bad name to the business community as a whole," said Advani.On Wednesday, Ramalinga Raju, the chairman of Satyam Computer Services admitted that about a billion dollars, or 94 percent of the cash and bank balances on the company's books at the end of September did not exist.
The scandal had cast a cloud over foreign investment in Asia's third-largest economy and over its once-booming outsourcing sector, which posted stunning sales growth for years and lavished investors with handsome returns.
According to a party press release, he also called Jainism the most ancient Green Movement in world history.
He pointed out that most people do not often appreciate why Jainism attached such paramount importance to ahimsa. However, two of the greatest challenges before the world today--Terrorism and Climate Change--are both manifestations of violence.
He added that "terrorism is of course the most extreme and inhuman form of violence. But there is another form of violence which the world has been much slower to recognize, and much more hesitant to take firm action against."
Referring to the violence being inflicted on the Earth by our materialistic civilization,Advani said that only "when we reflect on the challenge of Climate Change that we begin to appreciate the enormous contemporary relevance of the Jain philosophy of ahimsa and jiva daya. We realize that Bhagwan Mahavir and the other Jain Tirthankars were great environmental conservationists."
"They taught us that we human beings are merely trustees of this planet. We need to re-learn their teachings in our times." He further added that "eco-friendliness is not a mere fashionable phrase; it has to be interwoven into our development paradigm and also into our day-to-day living," he added.
Terming pollution as another face of violence, he said that pollution has catastrophic implications for human beings and other species on our planet.
"Pollution has caused a big problem in the form of global warming and climate change, and pollution itself is another form of violence, and it is as grave as militancy. It is the duty of the society as well as administration to counter both (militancy and pollution) forms of violence," said Advani.
A recent study conducted by US researchers reveals that the warming climate is likely to put affect crops and livestock and could cause serious food shortages for half the world's population.
In a way "all (of us) have to become adivasis or tribals who know how to exist in harmony with the earth," he concluded.
He promised that in the event of the BJP and the NDA forming the next government in New Delhi, appropriate steps to deal with both forms of violence-Terrorism and climate change would be given the top priority.
He also urged the government to take bold and quick steps to revive the economy out of the recessionary crisis.
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A stunned India Inc, rattled investors and the government were left to pick through the debris to salvage what is left of Satyam Computer Services after its founder and chairman admitted to committing the country’s biggest financial fraud.
Satyam, the fourth-largest software service provider, imploded on Wednesday, sending its stock crashing by 80%. In a five-page letter, detailing years of financial deception, Satyam chief Ramalinga Raju owned up responsibility and put in his papers.
The shame and scandal has shocked India Inc, and left lakhs of investors and 53,000 staffers out in the cold. Here's looking into how this Rs 7,000-crore hole in the books may impact Satyam's employees, investors, auditors, management, clients and corporate India, specifically the IT companies.
CLIENTS
Does Satyam's loss result in gain for its bigger rivals, TCS, Infosys and Wipro to be specific? Yes, say analysts. According to whom, the debacle may force the clients of beleaguered Satyam to review their contracts and look at other offshore suppliers.
"Satyam clients will naturally be concerned and many clients will be forced to review their contracts and talk to the other offshore suppliers in the account about potentially taking over work from Satyam," said a Forrester Research analyst.
According to a senior executive from a rival IT firm, Australian telecom company Telstra, which contributes $20-25 million to its revenues, had already decided to split a new contract worth $200 million among three Indian vendors. “There was intense competition among Satyam and other offshore vendors earlier but Telstra now seems to be more tilted towards Infosys and EDS-Mphasis. Satyam seems to have lost the race,” said the official, whose company was one among the bidders for the contract.
Another partner and customer of the company, Cisco Systems said that a proposed investment in Satyam subsidiary (Satyam Global Lifenet) could be in jeopardy.
However, allaying the fears of employees and clients in the Asia-Pacific, Satyam today said it is committed to its customers in the region. "Satyam as an organization remains committed to its customers in (the) Asia Pacific, a region which continues to offer promising growth," said Satyam's Senior Vice-President (Asia Pacific, Middle East, India and Africa) Virender Agarwal, based in Singapore.
The fourth largest software company's clients include General Electric, Nissan Motors and General Motors.
EMPLOYEES
It is very clearly anxious moments, sleepless nights and heartburns for the over 53,000 employees of Satyam Computers as they conjure up worst case scenarios like non-payment of salaries, project cancellations , layoffs and equally bleak prospects outside.
As the company's management tries to reassure shocked employees, jobs sites have got flooded from resumes of hundreds of Satyam employees. "Till Tuesday evening, there were about 7,800 people from Satyam who had posted their resumes on job sites. By Wednesday afternoon, it has gone up to 14,000. By the end of the day, the numbers may be much higher," said Kris Lakshmikanth, CEO of Headhunters India.
However, job consultants believe that in the current economic climate when the IT industry is already facing tough time, Satyam employees might have to settle for lower salaries outside. Also, with most IT companies already announcing a hiring freeze, it is an employers' market.
On its part, the new leadership team is sending out mailers and open letters to its employees to keep the faith. Earlier, Ram Mynampati the interim CEO, had said, "We recognise that our associates have committed a significant part of their careers to build Satyam. We will pursue all avenues to secure their future in the company." “Operations are all continuing. We do not envisage any problems in paying salaries to our employees in future,” a Satyam official told media.
In a letter to the Centre, Andhra Pradesh chief minister Rajasekhara Reddy too has expressed concern about the fate of Satyam employees.
IT INDUSTRY
The Satyam fraud couldn't have come at a worse time for the IT Inc already reeling under slowdown. The incident has put the sector in limelight, and for all the wrong reasons. Fears are being expressed that the scam may affect investors’ confidence in the sector already facing rough weather.
For years, Satyam and larger rivals such as TCS, Infosys and Wipro were feted as among the new ambassadors of Indian industry with their corporate governance practices winning accolades around the world and their strong growth rates luring investors
The shaken apex body of Indian software industry issued a statement expressing "shock" and at the same time emphasising it to be "a stand-alone case of failure of corporate governance, and not a systemic failure of corporate governance among Indian IT companies".
Besides Nasscom, Satyam rival and the second-largest IT firm and Nasscom member Infosys too issued a statement stating "(The) Satyam fraud is an aberration ... I don't think it would shake clients faith in other Indian IT companies." Suresh Senapaty, executive director and CFO, Wipro said, "Global standards of corporate India are very high and we are confident that this is an isolated case and not representative of the IT industry."
While the Satyam episode could temporarily cast a cloud over Indian IT firms, IT in India is unlikely to be as affected. Allaying the fears that India's IT image would be tainted, a Forrester analyst said,"I look at it as an isolated case and don't think Satyam developments would have any impact on India's position as an offshore location. But if similar trend of fraud continues in Indian IT vendors' space, then there is a good enough reason to be concerned."
AUDITORS
The Satyam fiasco has put the spotlight on the role of external auditors in a company. Enron & Worldcom had changed the world of auditing from ‘Big 5’ to ‘Big 4’. The brazen fraud at Satyam has the potential to shrink it to ‘Big 3’, at least in India. The falsification of accounts by Satyam for the past several years has put a question mark on the very survival of its auditor, PricewaterhouseCoopers (PwC).
Institute of Chartered Accountants of India (ICAI) has decided to issue a show cause notice to PwC. ICAI President Ved Jain said, "We have set the ball rolling. On the basis of statements made by Ramalinga Raju, ICAI has already initiated proceedings against the concerned auditor."
PwC had audited about 139 companies in India in the last fiscal. Of this, 97 are listed and 45 are part of BSE 500 Index. A few of these companies are already reviewing their relationship. For instance, Glenmark Pharma has said its board will decide on January 27 on whether to propose a change in the auditor.
Some other large companies audited by PwC include Maruti Suzuki, United Breweries, United Spirits, GMR Infra, Piramal Healthcare and Marico.
INDIA INC.
The incident has hurt public perception of Corporate India. Howsoever one-off incident one may term it, it is likely to hurt shareholders' confidence in India Inc. No doubt, India Inc reacted with shock and dismay to the scam. The VC and MD of Mahindra and Mahindra, Anand Mahindra in a statement said that the development had "resulted in incalculable and unjustifiable damage to Brand India and Brand It in particular."
He however, reiterated that the whole of the Indian industry, "should not be tarred with the same brush" as most companies "uphold the hightest standards of corpaorate governance and this will help us mitigate the damage done to India's image."
In a write-up in ET, Rahul Bajaj said, "It is likely to dent the public credibility about the concepts of corporate governance that the Indian industry has been so assiduously trying to cultivate for the last ten years."
INVESTORS
An accounting fraud was the last thing investors in India would have imagined as a trigger for a reversal in investor sentiment. The Satyam accounting fiasco has come at a time when the sentiment is already brittle and is likely to affect the image of Indian companies among foreign portfolio investors.
Fund managers said the revival of India’s position as a preferred investment destination would depend on the speed of regulatory action to salvage the situation. “The regulators would have to take drastic measures to regain the confidence of foreign investors in Indian companies as frauds like these will have greater implications on emerging markets than developed markets,” said a CIO with a leading private mutual fund.
National Association of Small Investors (NASI), a registered NGO, has said that it will file a complaint against scam-hit software exporter Satyam Computer Services for "cheating shareholders and investors".
"This is a financial attack on the country. We are filing a complaint against Satyam, with the Economic Offences Department (EOD), for cheating the shareholders and investors," NASI president Pradeep Bhavnani told PTI.
Law firms in the US have begun filing class-action complaints against Satyam Computer Services and its executives for securities fraud. The lawsuit has been filed on behalf of all buyers of Satyam ADS between January 6, 2004 and January 6, 2009.
On Wednesday, Satyam's ADS fell $8.42, or 90%, before opening of the New York Stock Exchange. The exchange suspended trading in the ADS after the disclosure by Satyam.
RAJU & Co.
Although Ramalinga Raju has gone out of his way to make out that none of the other board members and senior executives of Satyam were aware of the fraud, the law of the land is expected to take its course and Raju and any other director/executive found to be involved in the scam are liable to be prosecuted on charges punishable with imprisonment up to 10 years.
Some of the more serious penalties that Raju and others are likely to face under various laws are:
* Section 23 of the securities contract regulation Act 1956, that imposes a penalty of imprisonment up to 10 years and fine up to Rs 25 crore. The adjudicating officer of SEBI (Securities and Exchange Board of India) is empowered to award such punishment to directors and management executives for violating the listing agreement by making false and inaccurate disclosures in the company's quarterly and annual results. The penalty is severe because of the enormous damage that the investors are liable to suffer on account of false disclosures.
* Section 24 of the SEBI Act 1992 that imposes a penalty of imprisonment up to one year for infringement of any provisions of the law or rules and regulations, including fraudulent and unfair trade practices (FUTP).
* Section 477-A of the Indian Penal Code, that imposes a penalty of imprisonment up to seven years. The police may on their own or on the recommendation of the serious fraud investigation office (SFIO) invoke this IPC provision meant to punish those found to have falsified accounts "willfully and with intent to defraud."
* Section 211 of the Companies Act that imposes a penalty of imprisonment up to six months. The company law board is empowered to punish those who are found to have "willfully" failed to comply with the requirements of law relating to the annual financial statement.
Hopes
Satyam Computer Services is down but hoping not to be out. Ram Mynampati, its interim chief executive, said Thursday that the company plans to stay in business, a day after its former chairman admitted he'd been cooking the company's books for years.
"We’ll see the company through this crisis. We’ll fix this," asserted Mynampati, who is one of the three directors remaining on Satyam’s board. The company has been a major provider of technology consulting and outsourcing services.
Mynampati said that neither the board nor any Satyam Computer Services (nyse: SAY - news - people ) executives had a clue of the gigantic fraud perpetrated by the firm’s founder and erstwhile chairman Ramalinga Raju. "We relied on data from reputed auditors. There was no way for any of us to suspect that something was amiss," he said. (See "The Seeds Of The Satyam Scandal.")
Mynampati added that the company is extending all support to investigating and regulatory agencies. An investigative team from the Securities and Exchange Board of India visited Satyam’s offices in Hyderabad Thursday. The Registrar of Companies in Hyderabad is required to submit a report on the technology firm to the ministry of corporate affairs by Wednesday.
Mynampati confirmed that Chief Financial Officer Srinivas Vedlamani submitted his resignation Thursday, but it is yet to be accepted. He admitted Satyam’s liquidity position "wasn’t very healthy" and it is looking at ways to raise funds. Engaging an investment banker to scout for a buyer is another priority.
Satyam’s board is scheduled to meet Saturday, when new directors are likely to be appointed. Four independent directors had stepped down even before Raju’s stunning revelation, when investors cried foul last month over a $1.6 billion deal between Satyam and two firms owned by the former chairman's relatives. (See "Investors Slap Down Satyam." )
PriceWaterhouseCoopers, Satyam’s auditor, said that while it will cooperate with the regulators, Satyam’s audit was conducted "in accordance with applicable auditing standards and were supported by appropriate audit evidence."
Lessons from Satyam fraud
Former Satyam Computer Services chairman B. Ramalinga Raju’s astonishing letter admitting that he had cooked the books is unprecedented in the annals of Indian business history.
His mea culpa has already generated a firestorm of angry reactions, understandably so. This newspaper made no bones of the fact that Raju should have been removed as head of Satyam immediately after the scandalous attempt to use shareholder money to bail out two infrastructure companies owned by his family, as we wrote in a front-page Quick Edit last month, though the Wednesday revelations raise new questions about who was bailing out whom.
It is not quite clear why Raju decided to come clean eventually, but let’s for now accept it was a brave decision.
Investors have hammered the Satyam stock. There has also been collateral damage to other software companies. The natural question that will prey on investors’ minds—and perhaps clients’ as well—is whether what has happened at Satyam is an exception or closer to the rule.
The longer-term issues will be even more complicated. Our fear is that politicians will start feeding on the carcass of Satyam’s corporate reputation—and then move towards more healthy animals as well. There is no reason to believe that all Indian companies are paragons of corporate virtue. It is an open secret that too many of them massage their financials, pack the board with cronies and have sweet deals with private companies owned by family and friends. But an indiscriminate witch-hunt in an election year is a clear and present danger. The US went in for drastic reforms after the collapse of Enron Corp., an energy company that was once widely admired for its dynamism and innovation. Enron used accounting fraud, offshore secret accounts and tax avoidance to inflate its profits. The aftermath of its collapse saw tough legislation in the form of the Sarbanes-Oxley Act of 2002, to restore investor confidence in public companies and equity markets in the US.
Several initiatives to improve corporate governance in India are modelled on Sarbanes-Oxley. But new statutes are not necessarily the solution. Business lobbies such as the Confederation of Indian Industry should now start discussions with the government to ensure there are fewer episodes of fraud in the future. It is in their interest to do so, to win back investor confidence.
Corporate Governance
NEW DELHI: Close to 100 CEOs and senior company executives, including PricewaterhouseCooper -- one of the big five auditing firms under attack for its alleged role in the Satyam episode -- will be brainstorming corporate governance issues at the CII breakfast meeting here tomorrow. Corporate accountability, ethics and transparency became the biggest casualties of a multi-billion dollar Satyam fraud. Harinderjeet Singh, Partner in the PricewaterhouseCooper will be among the honchos taking lessons on corporate governance at the Confederation of Indian Industry meeting. Executive Vice-Chairman and Managing Director of Kotak Mahindra Bank Uday Kotak will be the main speaker at the meeting that has subjects like compliance, trust and fostering a culture of good governance on the agenda. As many as four of senior functionaries from KPMG, also among the world's biggest audit firms, would take part in the brainstorming which is bound to discuss the fallout of close to Rs 8,000 crore Satyam fraud on India Inc's image among investors world over. Corporate India has expressed concern over the global impact of the financial bungling, which Satyam Chairman B Ramalinga Raju has confessed yesterday. CII came down heavily on the Satyam fraud yesterday. The chamber's President K V Kamath has said that there was a "need to immediately examine the loopholes in regulation, accounting, audit and governance that allowed such lapses to occur and address them with urgency".
He said corporate India must "reflect on ways to demonstrate its quality of governance and enhance the confidence of stakeholders".
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