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immediate-jail for the founders of Satyam, and the from Satyam in the long term, but for now, the entire swift appointment of an interim board of more reputa software services industry is under considerable Scru: ble businessmen as the country scrambles to restore its tiny, as is India's control over its corporations that have reputation and reassure investors and customers alike risen to global prominence in less than two decades. Discussion Questions 1. Does Ramalinga Raju's assertion that this fraud only "started as a marginal gap," change the ethical question here? Would the situation be different if there was evidence that there had been a deliberate intent to deceive investors from the beginning? 2. The analogy of riding a tiger suggests that the situation got out of control for the Raju brothers, but the ban by the World Bank implies that there were other questionable business practices at Satyam. What do you think about the company? Is it fair to call it "India's Enron"? 3. Why do you think Satyam's board of directors refused to support the proposed purchase of the construction companies? 4. Outline the similarities between the Enron scandal and Satyam Computer Services' situation. 5. Do you think Pricewaterhouse Coopers will suffer the same fate as Arthur Andersen did after the Enron scandal? Why or why not? 6. America responded to Enron with the Sarbanes-Oxley Act. Do you think the Indian Government will have a similar response? Explain. pdf INDIAS ENRON In December 2008, one of the largest players in the World Bank had banned the company from pursu- India's outsourcing and information technology secing any service contracts after evidence was uncov- tors, Satyam Computer Services, fell from grace with ered that Satyam employees had offered "improper such force and speed that the reverberations are being benefits to bank staff" and "failed to account for all felt around the globe. Ironically, the name 'Satyam fees charged" to the World Bank. WiPro Technologies means "truth" in Sanskrit, but the company, founded had also been banned by the World Bank in 2007 for by brothers Ramalinga and Ramu Raju, now has a "offering shares of its 2000 initial public offering to new nickname: India's Enron. World Bank employees," so Satyam appeared to have Founded in 1987, Satyam was positioned to take full some company in the arena of questionable business advantage of the capabilities of satellite-based broad practices in the software solutions sector. band communications, allowing them to serve clients However, the situation escalated in December across the globe from its offices in Hyderabad. The 2008 after Satyam's board voted against a proposed rising demand for computer programmers to fix code deal for Satyam to buy two construction compa- in software programs in advance of Y2K fueled an nies for $1.6 billion. The Raju brothers held owner- aggressive growth plan for the company. It was listed ship stakes in both companies, and they were run on the Bombay Stock Exchange in 1991, and achieved by Ramalinga Raju's sons. Four directors resigned a listing on the New York Stock Exchange in May in response to the proposed deal, and Satyam stock 2001. By 2006, Satyam had about 23,000 employ- was punished by investors, forcing the brothers to sell ees and was reporting annual revenues of $1 billion. their own stock as the falling share price sparked mar- Growth continued as the company served expanding gin calls on their investment accounts. Apparently the needs for outsourced services from American com dire financial situation prompted Ramalinga Raju to panies looking to control and preferably reduce oper- confess in a four-and-a-half-page letter to the board ating costs. By 2008, Satyam was reporting over $2 of Satyam Computer Services that the company had billion in revenue with 53,000 employees in 63 coun. been overstating profits for several years and that $1.6 tries worldwide. This made the company the fourth- billion in assets simply did not exist. It did not take largest software services provider alongside such long for investors to piece the information together competitors as WiPro Technologies, Infosys, and that the proposed $1.6 billion purchase of the con HCL. It was serving almost 700 clients, including 185struction companies would have, conveniently, filled Fortune 500 companies, generating more than half the $1.6 billion hole in Satyam's accounts. of its revenue from the United States. Satyam's cli- In his confession, Raju attempted to address accu- ont roster included such names as General Electric, sations of a premeditated fraud by stating that "What of its revenue from the United States. Satyarns con II IIS LUITIESSIVII, naju allemeu lu auuless allu- ent roster included such names as General Electric, sations of a premeditated fraud by stating that "What Cisco, Ford Motor Company, Nestl, and the United started as a marginal gap between actual operating States Government. profit and the one reflected in the books of accounts Prominence in the software services sector brought continued to grow over the years. It has attained with it increased attention and a growing reputation. unmanageable proportions as the size of the company In 2007, Ramalinga Raju was the recipient of Ernst operations grew," he wrote. It was like riding a tiger, & Young's "Entrepreneur of the Year" award. In Sep. not knowing how to get off without being eaten." tember 2008 the company received the Golden Pea- The analogy of being eaten by a tiger certainly cock Award for Corporate Governance from the World seems appropriate. The scandal has had repercus- Council for Corporate Governance, which endorsed sions for the software services sector as a whole, Satyam as a leader in ethical management practices. casting shadows on Satyam's competitors, and also Signs that there were problems at Satyam first on India's corporate governance framework. As with appeared in October 2008 when it was revealed that Enron's collapse, attention has immediately turned THE ROLE OF GOVERNMENT 155 Scanned with CamScanner to the role of the accounting company responsible that Satyam was a regrettable exception rather than a for auditing Satyam's accounts and, allegedly , failing common, example of unethical business practices in Much remains to be uncovered. How have Satyan's Enron it was Arthur Andersen, and the accounting firm did not survive. For Satyam it is Pricewaterhouse clients been affected by this? Cisco is already on record Coopers, which appears to have certified that Satyam as stating that it did not expect any "material impact." For Satyam's competitors, the future is a little less had $2 billion in cash in its accounts, when the com- cock Award for Corporate Governance from the repercus- Council for Corporate Governance, which endorsed sions for the software services sector as a whole, Satyam as a leader in ethical management practices. casting shadows on Satyam's competitors, and also Signs that there were problems at Satyam first on India's corporate governance framework. As with appeared in October 2008 when it was revealed that Enron's collapse, attention has immediately turned THE ROLE OF GOVERNMENT 155 Scanned with CGMScanner a