If I were more diligent in keeping up with commentary about the outsourcing industry, I'd have posted this last week. But alas, I was traveling and working, and this is the first chance I've had to summarize the latest big news in Indian Outsourcing.
Satyam Computer Services, formerly India's third largest IT outsourcing company (53,000 employees) is now known as "India's Enron." The company has been embroiled in scandal since the end of December, and as facts unravel, it appears that this publicly traded company, once a winner of prestigious awards for corporate governance, has been manufacturing earnings reports for some time.
So far, the founder has been arrested, the CFO has been taken in for questioning by Indian authorities, the stock has been delisted, and the company's external auditor may be under investigation for complicity.
This is interesting for a few reasons:
- It's a fair bet that Satyam won't weather this as a company, meaning their assets, contracts, and more importantly talent might be acquired by one of the remaining Indian outsourcing companies.
- This scandal calls to question practical wisdom about corporate governance. Satyam was publicly traded, and gave the appearance of being in compliance with all regulations, standards and best practices for corporate governance. Lots of companies in the US seek to partner with publicly traded companies on the potentially mistaken assumption that SOX compliance (or other similar international standards for governance) will reduce risk and prevent the kind of fraud Satyam is accused of committing. There's still more investigation required in the Satyam case, but being publicly traded is clearly no guarantee of being well governed.
- I suppose this is not news, the US doesn't have a monopoly on corruption, though US companies are probably still statistically over-represented in recent corruption cases.
More on this story in these stories from the Financial Times: