Satyam Outsourcing Fraud Rocks India, Lessons Learned

B. Ramalinga Raju, founder and chairman of Satyam Computer Services Ltd. -- "satyam" means truth in Sanskrit -- said in a letter of resignation that he overstated profits for the past several years, overstated the amount of debt owed to the company and understated its liabilities.

The front page of today's Wall Street Journal online carries the breaking story of The chairman of one of India's largest information technology companies and his admission that he concocted key financial results including a fictitious cash balance of more than $1 billion, a revelation that sent shock waves across corporate India and is likely to prompt investors to question the validity of corporate results as the once-hot Indian economy slows.

The news prompted concerns about corporate governance and accounting standards across Indian industry, especially since Satyam was audited by PricewaterhouseCoopers and had high-profile independent directors, including a Harvard Business School professor, on its board until recently.

Investors are also mulling the impact of any move to keep jobs at home by the Democratic administration of President-elect Barack Obama, and the terrorist attacks on India's financial capital, Mumbai. Satyam's decline comes at a tough time for India's flagship technology companies, which have come to symbolize the nation's own aspirations as a commercial superpower and a major force in global outsourcing and data management.

The industry, while only directly employing about two million of India's 1.1 billion population, helped build a thriving services sector in buzzing metropolises such as Bangalore, Mumbai, Delhi and Hyderabad.

More broadly, bankers and analysts said the economic slowdown in India may prompt further unwelcome revelations from Indian companies, some of which have grown from small, family-operated enterprises to major international corporations in just a few years and may not have developed the corporate governance and transparency standards that international investors expect.

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