Just What We Need: Another Mega-Scandal

This time in India’s Vaunted IT Outsourcing Industry, which has contracted with much of the Fortune 500, as well as the World Bank, and in which an even greater premium is put on trust than is the case with most other industries. From the Financial Times:

Satyam lifts the lid on Indian corporate fraud

By John Elliott
Financial Times
Published: January 8 2009 10:43 | Last updated: January 8 2009 10:43

I have often mentioned to businessmen visiting India how remarkable it is that many of the appalling business practices of the country’s traditional old family-controlled companies do not seem to have spread to the booming software sector–and then add that I wonder whether there are some skeletons in unopened IT cupboards.

If I am talking very privately, I have mentioned Satyam, rated till today as India’s fourth biggest software and outsourcing company, as one whose governance has been frequently questioned.

This week’s resignation and confession of fraud–vastly inflating company results for “several years”–by Ramalinga Raju, Satyam’s founder and chairman, means the company can now be openly named for dubious business practices that have concerned (some) investors in the past. (It also means that Satyam is presumably not India’s fourth largest IT company and should not have been rated along with the other market leaders Infosys, Wipro and TCS.)

Raju has admitted inflating the figures–for example by well over $1bn in September –and has admitted that his attempt to merge the family’s Maytas construction companies into Satyam last month “was the last attempt to fill the fictitious assets with real ones”. (The Maytas attempted merger, aborted after about ten hours triggered a series of events that culminated in today’s news).

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