Satyam Chairman: It’s Like Riding a Tiger …

by Sachin Balagopalan on January 7, 2009 · 1 comment

“Unbelievable” is the only word that came to mind when I read this story in the NYT and WSJ this afternoon. The chairman of the fourth largest Indian outsourcer Satyam Computer Services Ltd. on Wednesday resigned after admitting to fraud by misrepresenting the balance sheet. In his resignation letter submitted to the board of directors he said the company’s balance sheet carries:

  • Inflated bank and cash balances that are non-exixtent
  • Non-Existent accrued interest,
  • Understated liabilities
  • Overstated credit amounts owed to the company.

Couple of observations ….

Unlike other high profile cases involving fraud - like Enron and WorldCom - this didn’t start from the bottom and bubble up the food chain. No whistle blowers or investigations by the federal authorities and no parading of company officers into court everyday with wall to wall press coverage. In this case the guy at the top came clean and clearly articulated to the board and other authorities that he committed fraud. He ended his letter by stating “I am now prepared to subject myself to the laws of the land and face the consequences thereof” clearly accepting responsibility and the consequences.

The most telling and poignant part of his statement IMO was when he referred to the “gap” in the balance sheet - i.e the non-existent positions/profits that he apparently cooked up to mask the poor performance of the company - and he said the following …

… 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 the company operations grew significantly. The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations – thereby significantly increasing the costs.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was the poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

As they say one lie leads to another and eventually snowballs and the proverbial shit his the proverbial fan. This is a good lesson about honesty and straightforwardness, whatever the context may be. It’s hard to get off the tiger as he eloquently put it!

UPDATE (1/18/09):

The picture emerging from the investigation of Satyam, one of India’s largest technology outsourcing companies, is vastly different from the one painted by Mr. Raju in a confession that stunned corporate India earlier this month….

Continue reading at NYT

{ 1 comment… read it below or add one }

fraud scam 06.26.09 at 12:18 pm

It seems that satyam fraud is bigger then authorities.
Just my opinion.

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