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Raju's Confession - biggest corporate scandal
By siliconindia
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Tuesday, 17 February 2009, 01:40 IST |
39 Comments
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5040 crore.
All the incidents had taken a critical turn in a length of 24 hours. Satyam's board of directors might not have thought of a boomerang effect on a war time basis when they decided to acquire Maytas Properties and take up 51 percent stake in Maytas Infra in a deal valued at $1.6 billion on 16th of December. The very next day, a severe backlash left the U.S.-listed company deprived off more than 55 percent on the American bourses.
The company director's board had failed to answer two questions regarding the deal. One was about a potential conflict of interest because Satyam founder and Chairman B Ramalinga Raju and other insiders hold 36 percent in Maytas Infra and 35 percent in Maytas Properties. Secondly, about the commonsense of Satyam entering the depressed construction industry at a time when technology outsourcing companies are preserving cash to help weather the global economic slowdown.
While still simmering in the heat of this issue, the World Bank barred Satyam from doing any business with it for the next eight years 'due to alleged malpractice's including bribery,' dealing another blow to it.
The current scam comes at a time when the whole world is trying every trick in economic policy by announcing stimulus packages to stimulate the global economy.
Scandals and scams are not new to Indian equity markets the biggest of them was unleashed by Harshad Mehta in the early 1990s followed by Ketan Parekh and IPO scams. However, this incident not only put credibility of Satyam at stake, but also raised questions on corporate governance in India. "This is outrageous and very frustrating. This clearly raises questions about what kind of corporate governance you have in other Indian companies. That could hurt foreign investment," Jefferies & Co Analyst Sachin Jain has said. This suspicion rose by him three weeks ago is now justified as Ramalinga Raju, after putting in his papers, said, "It was like riding a tiger, not knowing how to get off without being eaten." After the incident, Satyam's stock has tanked over 80 percent.
NASSCOM, the apex body of the IT-BPO industry in India expressed its shock at the disclosures made by Raju today. While the law will take its course, this incident is particularly unfortunate as the Indian IT-BPO industry had set very high standards of ethics and corporate governance. This is a stand-alone case of failure of corporate governance and it is critical that it be viewed in this light.