Satyam, just the tip of iceberg?

Truth is stranger than fiction. Nothing seems to reflect on this more than the Satyam fiasco, where the irony lies in the name itself.

Satyam – translated as truth – is a Rs 7,000-cr lie which was exposed when its chairman Ramalinga Raju - once the poster boy of the Indian IT - resigned after confessing that he forged and inflated the company's accounts for years.

Raju and his brother, Satyam MD Rama Raju, are now under arrest. Raju admitted he cooked the books of Satyam; inflated revenues and profits for several years, inflated cash and bank balances by Rs 5,040 crore, claimed interest of Rs 376 crore on a non-existent investment, raised Rs 1,230 crore - mostly by pledging his shares to lenders - and hence understated the liability of the company. He also overstated how much clients owed Satyam by Rs 490 crore. The fraudulent entries added up to Rs 7,136 crore

But what went into the making of corporate India’s biggest fraud? How did Ramalingam Raju pull off the con? Is he the only one or is the revelation just the tip of an iceberg?

CNN-IBN attempted to find answers on Weekend Edition with Rajdeep Sardesai with a panel comprising Member of the Infosys Board, V Mohandas Pai; FICCI President Rajeev Chandrasekhar; India Bureau Chief, BusinessWeek Manjeet Kripalani and Former President, Bombay Chartered Accountants' Society Shariq Contractor.

INDIA INC SURPRISED OR SCARED?

It was the incredulity expressed by India Inc at the Satyam fiasco that was as befuddling as the scam itself.

It was as if corporate India had never imagined a possibility of such scams when it’s well known that there are corporates and firms that subvert the law.

Mohandas Pai of Infosys, who described the episode as being straight out of Ripley’s Believe it Or Not said it was the sheer magnitude and audacity of the scam that was shocking. “Rs 7,000 crore of cash was fudged and Rs 5,000 crore was shown in a balance sheet without getting caught for many years. Yes, we do hear sometimes people do not follow law but nobody would have ever thought that such a thing could be done,” he said, almost smug.

While Pai was amazed at the scale of the scam, Chandrasekhar said where it came from was the more shocking of all elements. “Satyam was the poster boy of Indian IT sector, an icon,” he said.

The fiasco also, in a way, shattered a popular myth that the IT sector was insulated from the various dubious practices rampant in other sectors of corporate India.

Pai was amused by the argument and said there were good people and bad people and it simply reflected on the society. “We thought we (the IT sector) were a different set of people. And now because of this, all of us are very upset and angry that this could have happened,” he said.

But journalists remain skeptical. Manjeet Kripalani, who has been covering India Inc for a long time, felt corporate India was not surprised. It was simply worried for themselves as one among them had been caught out.

“Raju does not come from IT. He comes from the real economy sector – farming and real estate where people have gone exceedingly corrupt over the years. I am not surprised. This is how business is done in India. It’s a norm, not an exception. This may also send a lot of people looking into their books which may not be a bad thing after all,” she said.

Chandrasekhar did not entirely disagree with it and said he was not a part of the majority that believed it was an exception. “There’s more of this. There has to be a clear disincentive for companies doing this,” he said, adding self-regulation would not work in IT sector and that enforcement is required.

Manjeet said it was tough this would happen in the Indian scenario and everyone is in cahoots with everyone else. The question is – who will step out first.

The foreign media has been very vocal and critical in its opinion on the scam. Many of them have expressed a fear/concern that this disclosure could send the Indian outsourcing industry into a tailspin and will shatter the shining India image irreparably.

However, Pai maintained Satyam was an aberration and that India had, over the years, become safer, more transparent and developed to do business with.

Manjeet said that while the IT industry – essentially Infosys, Wipro and TCS, followed by Satyam - set standards for India Inc, it was to be noted that Satyam did not really start with IT. It started off with sectors like real estate and hence was not core IT.

WHODUNNIT: THE PLAYERS

But is possible that Ramalinga Raju orchestrated the con on his own? What about the auditors and the higher-ups in the organization. Could this have been missed by the book-keepers or did they simply choose to look the other way? Shariq Contractor said these questions were pertinent and needed answers. He also said there was a possibility of Raju having duped the audit firm Price Waterhouse Coopers (PWC). “It is tough to believe that only one or two people were committing this entire fraud. We must take swift action and must be very thorough. I cant believe that an audit firm of that repute would not have done its checks,” he said.

Infosys – that according to reports has refused to take any Satyam employee on board – was quick to, some would say, cash in on the opportunity.

Pai maintained on the show that Satyam’s was a systemic failure where tracks were covered up so elaborately that no one got the wind of it.

It is also being suggested that there’s a nexus between the political class and the business groups, especially in land-related matters. Chandrasekhar conceded it was true given the rising prices of land, adding another dimension to an argument that Satyam could well be land scam.

“If Maytas is in the land business, their political linkages will be completely unavoidable. Land and politics is intertwined in Indian business,” he said.

The evidence is all there – Chandrababu Naidu paraded Raju as India IT’s poster boy during Bill Clinton's visit, his successor Rajsekhar Reddy too hailed him and there are murmurs that Raju may be bailed out.

This establishes a new, clear connect between the CEO and the neta. Pai agreed but said the relationship between politics and business had become less tenuous and more transparent.

But Chandrasekhar said the nexus was alive and was only getting bigger and there was less media focus.

Manjeet said it was not just a new form of transparency but also a new form of greed that’s also come into play. “India has opened out and it’s there for everyone to take from. So corruption has become rampant and is also known in public. Companies have to be transparent and they are trying,” she said, adding, “Indian media has become a part of the establishment. They have forgotten about the rest of India. Media did not do their homework in Satyam’s case”.

Contractor said laws needed to be modified so that it would be easier for people to do right than do wrong. He said it was after all about ethical values and nothing else.

CNN-IBN EDITORIAL

In the aftermath of the Satyam collapse, there has been much anger and hand wringing over corporate governance. Clearly, it is a classic case of having lived in denial for much too long. That a section of corporate India has attempted to subvert the legal system and has been aided by equally corrupt politicians is hardly a secret. If the Satyam case forces stronger and more effective regulatory systems, then maybe it is a price well worth paying. Maybe also, the next sting may have to be on the CEO and not on the obvious target: the politician.

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