Satyam Scandal Casts Shadow On Indian Outsourcing
The new members are Deepak S. Parekh, chairman of HDFC; Kiran Karnik, former president of the National Association of Software and Services Companies (NASSCOM); and C. Achuthan, director at the National Stock Exchange, former member of the Securities and Exchange Board of India, and former chairman of Securities Appellate Tribunal.
"Satyam welcomes this key development, which will ensure the company's continued operations, help maintain customer confidence and associate morale, and restore investor trust," the company said in a statement. The board is expected to meet within the next 24 hours.
"This is a vital stabilizing development for Satyam, and it marks the beginning of a new chapter in the company's history. It is the best news we've received in the past four weeks," a company spokesperson added.
Reportedly, however, the company is locally being referred to as the "Indian Enron." In an attempt to manage backlash, NASSCOM, an Indian chamber of commerce, last week asked competitors of Satyam, such as Tata Computer Services and Wipro, to not steal the outsourcer's clients. The organization has been taking steps to ensure that customer's faith in Indian outsourcing is not shaken.
Observers wonder whether Satyam's clients could see the crisis brewing. But the former CEO noted in his resignation letter of last week that the solution provider's balance sheet carried "Inflated (nonexistent) cash and bank balances ... an accrued interest ... which is nonexistent" and other irregularities -- items that could have been difficult for the typical customer to ferret out.
"Nothing could have prepared Satyam's clients for Raju's stunning revelation of years of inflated profits based on nonexistent assets. The activities of Satyam's chairman were well hidden from auditors and operations teams," said Doug Brown, co-author of The Black Book of Outsourcing. Brown noted that research he has undertaken indicates that while historically customers report very low percentages of respondents indicating lack of confidence with Indian outsourcing, the tide appears to be turning rather rapidly.
"In 2009, preview surveys [of the Black Book's annual customer experience survey] have indicated over 68.3 percent of offshore outsourcing users report mounting lack of confidence in their suppliers' governance. Even if Satyam's problems are Satyam's only, the rest of the offshore industry is about to experience greatly elevated scrutiny."