Satyam Fraud and Corporate Governance In India

The massive fraud at Satyam, one of India's largest IT & BPO services companies, is now being called India's Enron. Details are still coming out, but it appears the chairman, B. Ramaligna Raju, has been cooking the books for years and had generated fictitious assets of over $1 billion on its balance sheet.

Standards of corporate governance vary across India and have evolved over time. Historically, the government was very involved in the Indian economy which is commonly correlated with higher levels of corruption. Over the recent decade or two, many of the larger firms have take on Western standards of corporate governance to help access international customers and investors. However, it is not uncommon for smaller firms to keep multiple sets of books for income taxes, sales taxes and investors.

Overall, India ranks in the middle of the pack by Transparency International. Their recent report on corruption perceptions scored India at 3.5 on a 10 point scale. India ranked 72nd across 179 countries, tied with China.

Undoubtedly this debacle is a black eye for India and more specifically, the IT and BPO Industries. However, what does this mean for the average US or European firm considering India as an offshoring location? Our expectation is that over long-term this will be a positive for selecting India over other countries. First, corruption and a lack of transparency is not new. This event simply shines a spotlight on an existing problem. Our hope is it will trigger Enron style reforms (without the overreach that happened in the US) that will improve transparency and reduce corruption.