The Hindu Business Line : Alarm bell from Satyam

The Satyam scam, which threatens to besmirch the world-beating reputation of the Indian information technology industry, ought to make Kerala's IT honchos perk up..

Hyderabad, often gushingly labelled `Cyberabad' to denote its leading role in the Indian information technology (IT) industry, is around 1,300 km from Thiruvananthapuram. Yet, as last week's bombshell news about the the Rs 7,100-crore financial scam centred around the inflated profits cooked up by Satyam Computer Services Ltd, Hyderabad's IT numero uno, shows, in today's virtual world, physical distances matter little.

What has happened to Satyam - both internally, to its corporate structure and image, and peripherally in terms of the collateral damage inflicted on its diverse stakeholders - can have repercussions in Kerala's IT world too. Remember, one of the firms caught in the collateral damage inflicted by the Satyam inferno - Price Waterhouse - has been actively wooed by Kerala's IT honchos.

Last year Price Waterhouse was roped in as principal consultant to plan a State-sponsored company called Kerala State Information Technology Infrstructure Ltd (KSITF). And Technopark, Kerala's first IT park, set up in Thiruvananthapuram, had commissioned the firm to draw up a master plan for establishing IT infrastructure in Kerala.

As for Satyam, which has long been one of the targets of Kerala's IT suitors, the Hyderabad-based company had once announced it was toying with the idea of an understanding with the Indian Institute of Management- Kozhikode (IIM-K), to set up a summer internship programme for students on a regular basis as well as to enter into collaboration on specific research areas.

How the mighty have fallen! Consider Satyam's reputation today in the wake of the serious lapses in corporate governance the company has displayed. B. Ramalinga Raju, the Chairman and founder of Satyam, admitted he had made up profits for years. More than Rs 7,000 crore had been deceitfully booked on the company accounts.

And already the first rumblings of the Satyam effect are emanating from Kerala. Last week a little-known firm from Kerala called Today's Pick & Investment Savings, which claims to have had invested in Satyam, filed a complaint with the Police Commissioner at Hyderabad, charging Satyam's top management, independent directors and auditor with committing forgery and intent to defraud.

As for Price Waterhouse, the auditing colossus, which is Satyam's statutory auditor, the Institute of Chartered Accountants of India (ICAI) has served a showcause notice on it, seeking clarifications on its role in the financial scam. The ICAI has given Price Waterhouse 21 days to reply to the notice. As what turns out to be the biggest scam in Indian corporate history - comparable to the US accounting fraud involving energy giant Enron and the accounting firm of Arthur Andersen - plays out, corporate Kerala needs to be on its toes.

Seemingly insulated by the relatively low level of outstation investments in its corporate sector, Kerala is nevertheless not new to financial frauds.

As a globalised economy, it has been the target of various con schemes, ranging from the infamous Nigerian Internet bank deposit scam to various online investment frauds, Gulf migration hoaxes, pyramid investment scams, and finance swindles like the recent Inest and Total 4 U deposit case.

The irony is that the corporate world does not appear to learn from the mistakes of the past. Consider: global technology research firm Forrester Research Inc's warning in an advisory to its global clients before the Satyam bombshell burst: "The management's attempt to shift the company strategy from the current business model has raised a red flag for Satyam accounts and prospects. We believe there will be major management and governance changes and even a potential sale of the firm after its board meeting of January 10."

In the event, the explosion happened sooner than expected. And the long-term implications are severe. As the US Department of Justice Executive Officer for US Attorneys points out, "Cases of fraud and deception by corporate executives threaten more than the future of a few companies; they destroy workers' incomes, wipe out retirement accounts, devastate investor confidence, and cast a shadow over the integrity and reputation of business itself."

The words of disgraced Satyam Chairman to the Board now sound strangely ironic: "It was like riding a tiger, not knowing how to get off without being eaten." That admission was like a tocsin - an alarm bell that is sounded to warn of imminent danger. Corporates in Kerala would do well to learn when to mount and dismount financial tigers.

The writer can be contacted at kgkumar@gmail.com