Aftermaths of Satyam Jhootham

The meaning of Satyam is ‘Truth’ in Hindu mythology and Sanskrit Language and so was the the status of Satyam in Global business scenario. The company was once one of the most respected in the industry. Touted as one of the spearheads of Indian IT industry, Satyam was able to challenge global biggies at many fronts. It’s founder Ramalingam Raju was projected as next to founder of Infosys Mr. Narayanmurthy.
However the hopes of everyone was shattered earlier by poor report of corporate governance and then a sensational revealation by Mr. Ramalingam Raju. It’s followed by a series of frauds withing Satyam like accounting fraud, shiphoning of cash, employee number inflation, etc and lot more is expected to follow the suit. Satyam is now projected as Enron of India. Indian IT market and subsequenty sensex went into blues leaving millions of others in blues as well. The complexity of this web of frauds would be known once the investigation gets completed. The revealations have put the Indian regulatory bodies in a surprise mode. They would have to put a introspection on their existing methodology. There is hues and cries across the corner that Indian growth story wouldn’t be affected however the damage to Indian corporate world’s image has been done.
These sad stories have badly affected the confidence of Investers and clients into growth story of India which is already reeling under the ongoing recession. The other Indian IT companies too are expected to bear the brunt of this Jhootham. A recently implemented ban on Wipro by World Bank is said to be a beginning of series and lot more are expected to come soon.
The confidence of investors is normally reflected by the share prices of the company which’s already touching new lows everyday. The majority stake in the company is held by institutional stakeholders which makes it prone to hostile takeovers. Looking at all time low price of it’s share and the quantum of business the company owns, it’s really a nice buy for new institutional investors. However new investors are still apprehensive about putting their money into the company as more revealation of frauds post investigation would further floor the share prices. The existing investors are also trying to exit from the company, we’ve seen a couple of them during past few days. One of the recent progress has been Larson and Toubro trying to increase it’s stake to a controlling one. However this is more seen as a step to diversify it’s existing portfolio and recovering the money it has already lost into the market.
As far as clients are concerned, they too are apprehensive about their projects meeting the deadlines or the quality standards. As Satyam gives services to 185 of Fortune 500 companies who insist on very high standards, it’s a tough task ahead for the new management to meet the expectation. The clients too are finding their future very uncertain. Not meeting the expectations would lead to more litigations against Satyam and more loss of already lost reputation. The high profile clients are reported to have approached other IT companies for new deals. Satyam executives are flying across the world for assuring the existing clients and retaining them failing which the clients could easily be poached by other IT majors.
The fate of 52000 plus employees(actual figure is yet to come) on rolls is also in doldrum with news of possible layoffs and Satyam not having enough cash to pay current month salary which is in excess of 550 crores of Rupees. With the company loosing investment value and confidence from the lenders, it would further add to the worry. Relying of the regular income, a number of employees had taken large sums of housing, vehicle and other loans. The ever mounting EMIs would further frustrate already heartbroken employees. Fraud by few persons have really taken a toll on lakhs of people indirectly getting their livelihood from these employees. We’ve already seen job portals inundated with resumes of existing Satyam employees however looking at the recession in present Indian job market, it would be very difficult for them to find a suitable alternatives. They along with their families would be left with options of either waiting for their destiny or looking for low paying jobs. However with government trying to pitch in and assuring the employees, they can get little sigh of relief.
Price Water Coopers, one of the top 4 auditing agencies in world has seen it’s reputation touching new low across the world. It would be clear after the investigation if PWC has any active role in this manipulation business or is made just a scapegoat. It’s already lost confidence across the world and could face legal bans if found guilty. In addition to that fooling a number of reputed banks puts a question mark on their credit rating policies.
The government regulatory agencies are also under scanner for not able to control such frauds. They would have to find new measures to prevent such incidents in future. “We are asking the government to give us regulatory power after which we will put in more money and resources to analyse annual financial statements of all companies after they are reported to exchanges or the Registrar of Companies,” says Ved Jain, president of the Institute of Chartered Accountants of India (ICAI), the auditing profession’s self-regulatory body. Apart from this, there is a a voice against the flexibility given to companies for using their own accounting practices.
This incident has indeed a very detrimental overall effect on Indian society and Indian growth story. With government stepping into the picture and batting for the company, we can expect some confidence reinstatement in the company. The recently appoined directors of the company are well known in the industry for their acumen. We can expect them and the newcoming management to put in their candid efforts to bring back the company on right track.