Satyam Scandal Causes Skepticism in Outsourcing


Guest Blogger: Don Sears

Indian IT outsourcing company Satyam has announced that it is promoting from within for the job of CEO. A.S. Murty has been with Satyam for 15 years and was named the new CEO today.

Is that good news or bad news for its customers?

If you've been following this one, you know that the Saytam accounting scandal has been likened to be the Enron of India, and the fact that it is in IT is not easy to ignore. That is not to say that the U.S. doesn't have its share of bad-apple companies right now, but the overwhelming majority of those are not in IT (in fact, I don't know any U.S.-based IT companies with this kind of corporate looting these days; I will spare you, CA).

I'd have to say that if I was a customer I wouldn't be particularly psyched for any of the executives on this team. I'd probably want a whole new regime. Go big or go home.

The Saytam scandal was pure greed: Inflated cash numbers; attempts to syphon off money to buy other companies owned by the former CEO's family.

After reading this article from The Economist, the inner skeptic in me felt compelled enough to point it out. One isolated article is not enough due diligence, and there are plenty of companies delivering for customers via outsourcing (I'm not picking on you India). Get a load of this:

The task of rehabilitating corporate India is equally daunting. It has long basked in the reflected glory of its information-technology firms. Run by cerebral, clean-living professionals, they employ India's brightest youngsters and serve the bluest of blue-chip companies... But that reputation rests largely on the efforts of one or two companies, such as Infosys, which are impeccably run. Investors delude themselves if they think standards in most Indian technology firms, let alone the rest of its 9,000 listed companies, are close to those set by Infosys.

The illusion persists because it is not easy to gauge corporate governance objectively. ACGA's own 2007 ranking of corporate governance placed India third out of 11 Asian countries... India's financial-reporting standards are high, its principal regulator, the Securities and Exchange Board of India, is independent of the government, and its business press is enthusiastic. But enforcement is weak, loopholes large, and shareholder activism is lacklustre.

The issues brought up cut right to the heart of doing outsourced business in India: Can you trust it enough to do business there? The article goes on to point out that shareholder accountabilty is a major business issue in India, as are many of the family-owned businesses that publicly trade (also read a more in-depth article on family business entanglements).

Satyam certainly has a long way to go restore shareholder confidence, but what about its customers?

Do you have business with Satyam? How do they rate? Will you stay with a company that is involved in a scandal?