By | January 7, 2009

The shocking news for the day was Ramalinga Raju of Satyam Computers finally tendering in his resignation. But more shocking than his resignation were the revelations he made about the balance sheet. If we thought that the Maytas imbroglio was one big scam, then the revelations made in the balance sheet shocked everyone into a stunned silence. Never ever in the history of India Inc have we witnessed a scam of this magnitude. And what makes it all the more baffling is that Raju has been misleading the stock exchanges, the authorities, the shareholders and the entire country.

This is not one crooked stockbroker but the promoter of one of the biggest IT Company of India. And Raju has stated categorically in his confession that the other members of the Board were unaware of the balance sheet frauds and the cooking up of the entire numbers. Is that also really possible? So what exactly is the purpose of the independent director? Surely, merely Raju stating that they were unaware does not shift the pointer of suspicion from the Directors. So did Vinod Dham have a whiff of this, which is why he resigned earlier? Clearly, what Raju has done is take the entire blame on himself and thus facilitated the criminal prosecution process. Raju’s parting kind deed? Satyam is listed on the Nasdaq too and hence Raju will have to send his confession letter to SEC in USA and then await prosecution there too.

Yet what about the auditors? That is the first thing, which comes to mind – how did the auditors allow this to happen? What is the faith on these auditors? The balance sheet as on 31st March 2008 shows a Fixed Deposit of Rs.4,502 crore. So the question which arises is how come Raju has stated in his confession that Rs.1,230 crore was arranged to Satyam, which is not reflected in its books, to keep Satyam’s operations running? So this means that Raju has clubbed his personal accounts with the books of Satyam. What could have happened is that Raju would have borrowed cash on his personal basis, from his known sources based on his reputation. And this he has shown as cash balance in the company. How come the auditors did not provide details of this and did they really check the veracity of this when they signed having earned in business the dotted line and approved the accounts of March 2008?

Time and again, over the last one-year, the ilk’s of rating agencies, auditors have proved that they too are no better than the scam brokers. So if we are talking about criminal prosecution on Raju with 10 years imprisonment, the auditors are also a part of this scam and they too need to bring to the books. Auditors of Satyam have to be punished or else the already battered trust of the investors will further get trampled. Do the auditors just sign on the dotted line and do not really conduct an investigation? If the auditors were clueless while the promoters were cooking up books, what exactly is this job? A fraud of this magnitude could not have happened without the knowledge of the auditors, for quarter after quarter, there is just no way that the auditors would just not have been able to detect the fraud. You can fool everyone once but not everyone every time.

This is going to have major ramifications on the entire Indian corporate world, more so for the IT companies. If the top most IT company can resort to fraud, what can one even say about those in the mid and small rung? This will also in the immediate future cast a scanner of doubt over all the IT companies. But this is sure to have an impact on the FIIs and FDI coming to India. A scam in USA is still considered workable but if it happens in an emerging economy like India, it is just not taken. There is always the doubt that whether those responsible would ever be held responsible. We being Indians, our own faith has been shaken, then surely for the FII sitting in New York, this could be a huge hit on faith. So, whatever the Govt’s monetary and fiscal package tried to do has been nullified by Raju. Confidence in the market is shaken and that is the truth, which we will have to live with for some time.

And what about the 53,000, employees of Satyam? There was no way they could have ever imagined in their wildest dreams that the man, who was touted to be the leader with vision and felt a sense of pride in working with Satyam. But all this has changed overnight. Compared to this fraud, the earlier issue of corporate governance seems like petty crime, it is like comparing a pocket picker to a dacoit. The fate of the 53,000 employees clearly hangs on fire right now and given the first opportunity to exit, they will just scoot. Once the new management comes into the picture, then maybe, it can reassure the employees. But how, is a big question mark.

Huge remedial measures need to be put in place. The Govt has to step in immediately and send a message to the FIIs and FDI investors that this was a one-off occurrence and try to re-instil the faith, back into the system. Also Nasscom, needs to reassure that all companies are not Satyam and there are no series of scams waiting to burst out. Tough task but surely needs to be done. Breaking faith happens in a second but rebuilding it may happen, if it happens, only over a long period of time.

Satyam Computers was the most active stock traded on the bourses today. It has tanked over 80% since the news came in, with investors scrambling to get out of the stock as soon as possible. With no real basis for a valuation of the stock now, one does not know how much low, Satyam would go.

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