Ghotala.in

In India, Crisis Pairs With Satyam Fraud

B. Ramalinga Raju, chairman of Satyam, last January. He confessed this week to falsifying the company’s books for years. By By joe nocera

“It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice.”

Thus begins, in calm but painful fashion, one of the most extraordinary corporate confessions ever written, a letter sent Wednesday from B. Ramalinga Raju, the founder and chairman of Satyam Computer Services, to the company’s board. Among the startling facts Mr. Raju proceeds to disclose is that most of the cash on the company’s balance sheet does not exist, that Satyam’s revenue has been overstated for years, and that its real profit for the quarter that ended Sept. 30 was only $12.5 million — rather than the $136 million the company had reported to investors. Mr. Raju, in other words, had been cooking the books.

Satyam is a company I had been reading a lot about in the business papers during my recent trip to India. Mr. Raju, 54, founded the company 21 years ago, and turned it into what appeared to be one of India’s glittering technology success stories, a consulting and outsourcing powerhouse that rivaled the likes of Infosys and WiPro, with 53,000 employees, and 185 Fortune 500 companies among its roster of clients. Mr. Raju himself was a much-admired chief executive who won awards for entrepreneurship and established philanthropies to help Indians who lived in rural poverty.

When I was in India, however, Mr. Raju was grabbing headlines for a less exalted reason. He had tried to push through a deal to buy two companies in which he held ownership interests — Maytas Infra and Maytas Properties, which were run by his sons. (Maytas is Satyam spelled backward.) Satyam’s directors had rubber-stamped the deal — but to the surprise of the Indian business community, accustomed to seeing such inside deals go through, Satyam’s shareholders revolted.

Institutional investors denounced Mr. Raju for seeking to buy infrastructure and real estate companies that were far afield from technology outsourcing. Indian mutual fund managers complained anonymously in the business pages that Mr. Raju was using shareholders’ money to give himself and his sons a rich and undeserved payday. The board was raked over the coals in the press for approving the deal. The stock was pummeled.

Read more at NYtimes

Image Courtesy / Credit