Five years on: What India Inc has learnt from Satyam scam

Five years ago on this day (January 7, 2009), B. Ramalinga Raju, then chairman of Satyam Computer Services sent out his now memorable letter to his board members admitting the books of the company had been cooked. Today, he and nine others are still undertrials in a corporate scam which rocked the country.

Not only was India Inc shaken, but the event also, arguably for the first time, turned the spotlight on the roles and duties of chartered accountants and auditors.

A couple of days after he sent the letter, Raju was arrested by the Andhra Pradesh Criminal Investigation Department. The Central Bureau of Investigation (CBI) took up the matter in February and has so far filed three chargesheets against the 10 accused. All of them served about 18 months in prison as undertrials.

So far in the court hearings, the examination of the accused, charged under Section 313 of the Criminal Procedure Code, and the witnesses - 225 of them - have been completed. The prosecution arguments are also over while the arguments of the defence are underway. Thereafter will come the judgment.

The case involved voluminous records and depositions running into thousands of pages.

"We can never forget January 7th because for many of our employees it was the day when reality hit them. They were all shattered," says C.P. Gurnani, Managing Director and CEO of Tech Mahindra.

Three months after that letter from Raju, the Mahindra Group acquired Satyam Computer and gave it a new identity: Mahindra Satyam, which in turn merged with Tech Mahindra on June 25 last year. The combined $ 2.7 billion entity is now called Tech Mahindra.

In just two weeks after acquiring Satyam, Mahindra Group Chairman Anand Mahindra had dispelled any doubts about its future. In April 2009, he declared:  "I don't believe this is a sinking ship. No longer. This may not be a racing craft yet, but it is our task to make it one."

Today, employees see it as a transformed company. The number of old timers - those who have been with the company from the Satyam days - is also down to around 10 per cent of the total staff strength of 84,000. In 2009, Satyam had around 51,000 employees.

Satyam was no means the last of corporate frauds.

Last year, saw the spotlight on irregularities at the National Spot Exchange as also the Saradha chit fund scam in West Bengal as well as the Reebok scam to name the best known ones.

Minister for Corporate Affairs Sachin Pilot told the Lok Sabha on December 12 last year that his ministry had ordered investigations in five such cases in 2010/11, 12 the following year, 46 in 2012/13 and 76 in 2013/14, up to December.

That makes 139 cases in the last three years. They involve siphoning off/ diversion of funds belonging to companies by the promoter/ directors, manipulation of books of accounts and other records and frauds, and misuse of collective investment schemes.

There is, however, one caveat: the increase in numbers could also be because of an increase in the number of companies within a group involved in frauds. But there is no doubt that the problem has been growing and is a matter of concern. The Kroll Global Fraud Report for 2013/14 which tracks frauds globally, says its survey in India showed 71 per cent of companies reported increased exposure to fraud in 2012/13 as against 67 per cent in 2011/12.

Kiran Karnik, the former president of Nasscom, who was nominated by the government to be on the board of Satyam to stabilise the company just after the crisis, says there are a couple of positive takeaways from the Satyam saga.

First, the way the government and the private sector worked together to quickly put the company back on its feet was commendable. Second, the growth trajectory that the company has taken after coming into the Mahindra fold, is also admirable.

There are, however, areas of concern for India Inc post Satyam, says Karnik. While there is a new Companies Act with some positive features, companies need to get a lot more proactive on good corporate governance.

"I would have imagined that post Satyam, companies would come forward and set benchmarks in better governance and move beyond what the law requires, be it through measures aimed at bringing greater transparency or having greater diversity (both of gender and competencies) on the board or better internal controls," he adds.