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Wednesday, January 07, 2009

"Like Riding a Tiger"

I rarely write about business on my blog, but this one is simply too big to ignore.

Ramalinga Raju, the Chairman of Satyam Computer Services, one of India's biggest IT companies, admitted today that over 1 billion dollars of assets listed on the company's balance sheet are "non existent". To put it in proportion, the total assets are just above 1.1 billion dollars, so 94% of the company's assets were fraudulently reported. The resignation letter Mr. Raju sent to the board of directors is suprisingly frank and open. He describes the experience using these words: "It was like riding a tiger, not knowing how to get off without being eaten." Very poetic. In the letter to the employees the new interim CEO writes about "a series of extremely unfortunate events", which reminded me of the wonderful books by Lemony Snicket.

Satyam as a company is finished. It will likely be sold to a competitor (Infosys, Wipro, and the like) for a pittance, and many of the 50,000-plus employees will find themselves out on the street. The entire episode is already being labelled as "India's Enron" and the repercussions on corporate governance in India will be harsh and long-lasting.

And now for the personal angle (without going into too many details). Last year I signed a contract with Satyam, which was signed on their side by the "other Raju", Satyam's CEO, Rama Raju. I met a couple of the people mentioned in Mr. Raju's letter to the board mentioned above. But this seven-figure contract was not honoured by Satyam and we never got the money from them, so the matter is now in legal proceedings. The news today does not add to my confidence about Satyam's business practices or those of Indian companies in general.

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