Opaque beacons

The fraud charges against the Hyderabad-based Satyam Computer Services – India's fourth-largest software firm – has shocked international businesses, rattled India's stock market, jolted regulators and displaced confidence in India's booming IT sector. On 7 January 2009, Satyam's founding chairman, B Ramalinga Raju, revealed that his company's accounts had been falsified to the tune of some INR 50.4 billion in non-existent cash. India's Company Affairs Minister Prem Chand Gupta claimed the Satyam case to be nothing more than an "aberration". But the fact is that, in addition to Satyam's board of directors, the auditors, analysts, investors, as well as India's financial regulators, the Securities and Exchange Board of India (SEBI), were all found to be sleeping on the job. Meanwhile, the role of Satyam's auditor, PricewaterhouseCoopers (PwC), is under serious scrutiny, to try to discern exactly how it could have flubbed so badly on its responsibilities.

In fact, the warning signs for this debacle had already been apparent. When Satyam made a move in December 2008 to buy two other companies – Maytas Infrastructure, Ltd and Maytas Properties Private, Ltd – established and controlled by Raju's sons, financial stakeholders protested, arguing that the Maytas's core business interests of infrastructure and real estate had lost a major proportion of their market value during 2008. One of India's most respected public-sector administrators, E Sreedharan – known as the 'metro man' for his successful completion of the Delhi Metro and launch of similar projects in other Indian cities – had likewise sounded a public warning against the move. According to Sreedharan, Satyam was ill-equipped to execute the project, and pointed to doubts that had been raised on a number of pertinent points – competence to bid, execution capabilities and doubts about delivering on schedule.