Daily Lesson from Life 07 January 2009

"Satyam hit by US$1b scam
Founder and chairman quit after admitting falsifying account. -Wed, Jan 07, 2009 AFP

MUMBAI, INDIA - The head of one of India's biggest outsourcing firms, Satyam Computer, resigned on Wednesday amid a scandal over a billion dollar fraud that sent company stocks into freefall.

Company founder and chairman B. Ramalinga Raju admitted the Hyderabad-based software services firm had falsified accounts and assets and inflated its profits over several years.


The company overstated its cash and bank balances of 50.4 billion rupees (S$1.5 billion) in its September-end balance sheet, 'purely on account of inflated profit over a period of several years,' Mr Raju said in a statement.
Satyam shares plummeted 82.75 per cent, or 148.2 rupees, to 30.9 rupees on the Mumbai Stock Exchange late afternoon on Wednesday, as investors dumped the company.

Analysts and the stock market regulator have reacted with shock at the fraud, calling for stringent action.
'This is an event of horrifying magnitude and it's first of its kind,' C B Bhave, chairman of market regulator Sebi, told the Press Trust of India on Wednesday.


'This is alarming and disturbing... like a punch which catches you unawares. The fraud will have an impact over the short-term,' Bharat Iyer, India strategist with J P Morgan, told AFP.

The Satyam chief apologised 'to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation.' 'I am now prepared to subject myself to the laws of the land and face consequences thereof,' Mr Raju added.

Satyam Computer Services is a leading software consultancy, system integration and outsourcing firm with clients across 65 countries."


Satyam, a brand name that is respected and touted as one of the jewels of India software industry alongside Infosys, Tata, and Wipro dominated the world of information system outsourcing! This could not have happened in the worst of time!

Raju won the Ernst & Young Entrepreneur of the Year award in 2007. And Satyam in September 2008 was awarded the Golden Peacock Global Award for Excellence in Corporate Governance by the London-based World Council for Corporate Governance.

“This company had a five-star independent board and it had a leading auditor and still it managed the con,” said Tarun Sisodia, a Mumbai-based analyst with Anand Rathi Securities Ltd. “So the question is why only Satyam, why not every other company.”

Lessons for me are:

1. leaders MUST NOT get intoxicated with the earlier successes and the fame that come with them. It is good to be acknowledged for a great performance. BUT when things are not what they used to be, DO NOT waver, DO NOT hesitate, JUST reveal the TRUTH. That things were not what they used to be. That there are poor performances. That the stock prices will get hit, that reputation will be tarnished. BUT never tarnished like the way Satyam's pack of lies unravelled!;

2. it shows that this WEAKNESS is universal! The recent infamous and huge USD50B Ponzi Scheme run by the New York 'financier' Bernard Madoff comes to mind easily. The Live Door Company in Japan a few years ago with billions of falsified financial accounts. So, the methods to guard against falling to that depth apply to everyone who care to take note.

i.e. do not fall in love with yourself, do not believe too much of what the popular press waxing lyrically about how good you are, surround yourself with people who are willing to tell you 'things are not what they used to be'!, be grounded on ethics and be smart enough to know that 'you can fool someone some time but you cannot fool everybody all the time!';

3. Mr Raju did the right thing. At least he is prepared to face the music and the consequence. Many investors will lose big time. Hopefully none will go the way of 2 multi-millionaire who committed suicide due to losses in the stock market - 1 through fraud while 1 a simple case of betting the wrong way! When leaders make mistakes the negative impact is magnified! Leaders just have to realize their heavy responsibilities!

It is only the 7th day of the new year 2009. We will see more such cases as the gentleman above commented about Satyam still managed to commit the fraud for several years despite having a 5-star board and a world class auditor. Who else out there are in the same league? (The witch hunt on the board and auditor is another saga to unfold!)

Notes: I know I sounded like a broken recorder BUT guessed what? To treat the common ill, we only need to work on the fundamental! Ethical behaviors!!