Satyam Computer Services, the country's fourth-largest software company, had served more than a third of the Fortune 500 companies in the past. There is plenty of humiliation to go around now that Satyam Computer Services has admitted to a huge fraud.The Satyam fraud has been unraveling for some time now. First the World Bank denied to do business with the company as Satyam had stolen data and bribed bank officials. Then in December, Satyam’s investors revolted after the company proposed buying two firms with ties to Mr. Raju’s sons. Also several directors quit, and the founders suffered margin calls that forced them to sell stock.
The chairman, B. Ramalinga Raju, resigned on Wednesday (6th of January 2009) after revealing that he had systematically falsified accounts as the company expanded from a small firm to a large MNC.
Mr. Raju said that 50.4 billion rupees of the 53.6 billion rupees in cash and bank loans the company listed as assets for its second quarter were nonexistent. Revenue for the quarter was 20 percent lower than the 27 billion rupees and the company’s operating margin was a fraction of what was declared.
Mr. Raju said he sincerely apologized to shareholders and employees and asked them to stand by the company. “I am now prepared to subject myself to the laws of the land and face consequences thereof”, he said.
In the four-and-a-half page letter distributed by the Bombay stock exchange, Mr. Raju described a small discrepancy that grew beyond his control.
“What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew,” he wrote.
News of the scandal quickly sent jitters through the Indian stock market, and the benchmark Sensex index fell more than 5 percent. Shares in Satyam fell more than 70 percent.
Satyam trading in the New York Stock Exchange has been suspended indefinitely. The India Stock Exchange has also taken Satyam out of its Nifty Fifty stock index.
Satyam serves as the back office for some of the largest banks, manufacturers, health care and media companies in the world. Clients included General Electric, General Motors, Nestlé and the United States government. The revelations could cause a major shake-up in India’s enormous outsourcing industry and may force many large companies to investigate and perhaps revamp their back offices. It also spreads doubts over accounting standards in India as a whole.
The FIFA (Soccer) World Cups in South Africa in 2010 and 2014 in Brazil may need a new “official IT services provider as Satyam might not be able to meet its commitments.
The London-based World Council on Corporate Governance revoked the “Golden Peacock Global Award for Corporate Governance” it awarded the company in September.
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