Six years ago, the biggest question facing the Indian industry was whether the Satyam corporate accounting fraud will slow down offshoring to home-bred IT companies. Many thought that the fraud perpetrated by B Ramalinga Raju and team would be seen by overseas clients as a systemic problem within the IT industry.

However, leading IT companies managed to win over the confidence of their global clients by strengthening their corporate governance standards, industry watchers said.

“We believe that the corporate governance system in India has improved post the Satyam fiasco and Indian outsourcing giants and other corporates have been more cautious owing to the decline in confidence of global clients and investors in Indian companies. Service providers had to go out of the way to ensure that their existing clients and stakeholders are not vary of their investments,” said Sanchit Vir Gogia, Chief Analyst and Group CEO, Greyhound Research.

The $146-billion IT industry has always been ahead of the curve when it comes to adoption of best-in-class governance norms, thanks to the stringent norms that large Fortune 500 companies lay down for their vendors. “Satyam (under the previous management) was a blacksheep of the Indian IT family. The episode helped in coming up with more stringent guidelines for companies in this space,” said KK Natarajan, CEO and MD of Mindtree.

In February 2009, industry body Nasscom formed a corporate governance and ethics committee to prevent Satyam-like incidents in future. A year later, the committee announced a set of recommendations aimed at further strengthening corporate governance practices in the Indian IT-BPO industry.

For instance, companies now ensure that no service is rendered for a client without a purchase order. Companies have started disclosing the full extent of their cash position with banks.

Hanuman Tripathi, Group Managing Director of Infrasoft Technologies, said “Today, independent board members are truly independent. They want to go into threadbare details especially when it comes to revenue recognition, internal audit processes and executive compensation.” Moreover, founders have started distancing themselves from day-to-day cash management, leaving that part to finance professionals.

Rajesh Narain Gupta, Managing Partner, SNG & Partners, said, “Satyam is an exemplary case where the Government of India through department of company affairs intervened and ensured that the company did not fail and become bankrupt due to the fraud perpetuated by the promoters.”

Related Topics
comment COMMENT NOW