Indian sSoftware giant admits financial wrongdoing
One of India’s largest technology outsourcing companies, Satyam Computer Services Ltd., on Wednesday admitted cooking its books and committing other financial wrongdoing to inflate profit over several years.
The revelation shook India’s stock market and sent shock waves across the country’s booming software industry. Television commentators quickly dubbed Satyam “India’s Enron.”
India’s fourth-largest information technology firm, with more than 53,000 employees, serves several Fortune 500 companies, including General Motors Corp., General Electric Co. and IBM Corp. Satyam’s services include application software development, engineering design solutions and back-office customer services.
Investment firm DSP Merrill Lynch immediately informed the Indian stock exchange that it had terminated its relationship with the $2-billion software giant, which is also registered on the New York Stock Exchange.
Founder and Chairman B. Ramalinga Raju took responsibility for the fraud and resigned in a letter he submitted to Satyam’s board. The letter said the company lied about profit and revenue for several years, inflating revenue by 33% and profit more than tenfold between July and September of last year.
Raju apologized to the company’s shareholders and said that none of the other board members had any knowledge of the financial fraud.
The beleaguered Raju, who had been in the news recently over an acquisition fiasco, said that every attempt to eliminate gaps in the balance sheet and fill the “fictitious assets with real ones” and “nonexistent cash” failed.
“It was like riding a tiger, not knowing how to get off without being eaten,” he wrote in the letter. “ . . . I am now prepared to subject myself to the laws of the land and face consequences thereof.”
Financial observers expressed fear that there might be skeletons hiding in the books of other Indian technology companies, casting doubt about the celebrated Indian outsourcing industry and oversight of its companies. Observers worried that the scandal could erode the confidence of overseas clients.
The National Assn. of Software and Service Cos. in New Delhi issued a statement calling Satyam “a stand-alone case of failure of corporate governance” that is not a “reflection on the industry or corporate India.”
Raju had received the “entrepreneur of the year” award in 2007 from consulting firm Ernst & Young. The Council of the Institute of Directors said it would rescind the Golden Peacock Global Award for best corporate governance that it gave Satyam in 2008.
