India Rethinking Business Standards
Loose Governance Facilitated Fraud

By Rama Lakshmi
Washington Post Foreign Service
Saturday, January 10, 2009

NEW DELHI, Jan. 9 -- The revelation this week that India's technology outsourcing giant committed massive financial fraud has triggered a debate about instituting ethical corporate practices at Indian companies.

Since Satyam Computers, India's fourth-largest technology company, plunged into crisis when its chairman, B. Ramalinga Raju, admitted to inflating profits by as much as $1.5 billion and creating fictitious assets for years, Indian industry leaders have begun talking openly about several vexing issues that had been ignored.

Many say the scale of the Satyam fraud is an aberration. But they concede that cleanup is long overdue and that the global image of "corporate India," which fuels a trillion-dollar economy, is at stake.

The software services company, which is registered on the New York Stock Exchange, employs about 53,000 people in 66 countries and services almost one-third of the global Fortune 500 companies. The company offers a wide range of services, including application development, engineering design and back-office customer services.

The scandal has raised fears that there could be other skeletons lurking in Indian corporate practices and comes as the global financial crisis has renewed discussion among business leaders about moving to international financial reporting standards by 2011.

A report released Friday by the Confederation of Indian Industry, a major Indian business organization, lays out a detailed road map for a switch to a globally accepted accounting framework that more than 100 countries have adopted. Leaders expect that a changeover would bring benefits to Indian companies that hope to borrow from global markets and be listed on international stock exchanges.

"The Satyam crisis is not only a wake-up call that has shocked us all, but it is also a great opportunity for everybody to look at the quality of corporate governance more seriously," said Richard Rekhy, chief operating officer of the global consultancy firm KPMG in New Delhi. For a long time, "many found the subject boring, but that has changed now. We were busy pursuing a high-growth economy and neglected important things like instituting an ethical corporate governance mechanism."

These discussions include such topics as better auditing and reporting practices as well as greater transparency in the selection of board members.

At a meeting Friday about ethical corporate governance organized by the industry confederation, Rekhy presented preliminary findings of an ongoing survey of companies from various industries. It said a majority of respondents indicated that "integrity and ethical values are not given enough attention" in Indian companies.

"What we are seeing today in the context of Satyam is collective failure," said Uday Kotak, chairman of the organization's council on corporate governance. "The investor community rewards companies that are just managing the accounts rather than rewarding governance. This is also going to create a debate about the role of auditors."

The auditing firm for the beleaguered company was the Indian arm of PricewaterhouseCoopers.

Meanwhile, Raju, 54, surrendered late Friday to police in Hyderabad. He faces charges of criminal conspiracy, breach of trust, cheating and forgery. His attorney, S. Bharat Kumar, said Raju will appear before a team of market regulators Saturday.

The Indian Ministry of Corporate Affairs removed the entire board of the company.