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Sunday, February 15, 2009

the great dot con

The Satyam scandal has shocked India. It has brought into question the levels of corporate governance in the country, and has cast an ugly shadow on the once shining image of Indian industry overseas.

Satyam shares plummeted on the news by 75%, dragging down India's main stock market by 7%. This will put the spotlight on Indian companies, and overseas investors will be wary of putting their money here without taking a good, hard look at the company's books.

Indian's main stock exchanges have announced they are removing Satyam Computers from their indices as of January 12 because of the stunning revelations. But caution alone may not be enough to convience international investors that Indians companies are serious about cleaning up their governance. Many of Satyam's customers were persuaded to get into business with the company because of Mr. Raju's suave, professional image. The Western educated MBA graduate was one of the poster boys of India's new economy.

According to Mr. Raju's statement, about $1bn of the cash on the company's books was made up---and analyst say it was the manipulation of the cash flow which could have been one reason why the deceit was undetected. Many analysts also say that the chase for huge profits and the desire to keep up with the breakneck speed of India's $50bn outsourcing industry's growth rates that may have been behind Mr. Raju's motivation in fudging the accounts at his firm.

But trying to get any answers from Mr. Raju since his confession letter is proving to be impossible---he has disappeared.

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