How Crisis Brings change

Large scale Crisis in  IT sector -India

Frauds are always driven  by abnormal and excessive greed from  individuals in power and that do

not seem to be confined to financial industry controlled by  the rich  in larger economies but seem to 

happen wherever there is opportunity through legal  gap in the system and scope for making easy 

money. 

The Satyam scam in IT services sector in India had many parallels to the Enron fraud of the USA. 

Satyam fraud was entirely orchestrated by one greedy person with the power as founder and CEO in 

collusion with CFO and even the external Audit firm who collaborated in certifying falsified  

accounts year after year.  The corrupt government officials were eager as always to fuel the growth 

of the company with large value government contracts in exchange for the favors for  own personal 

gains. Employees and investors get easily fooled when there are exponential growth  and the stock 

prices keep going up .The game plan exactly was the same in Satyam, Enron, Lehman when one


man could abuse  a legally established listed public company, a growing market condition, and 

eager and helpful administration.

Satyam was given the coveted Golden Peacock Award for excellence in Corporate Governance. The 

CEO was recipient of  Ernst & Young Entrepreneur of the Year for Services in 1999, Dataquest IT 

Man of the Year in 2000, CNBC's Asian Business Leader - Corporate Citizen of the Year award in 

2002 and E&Y Entrepreneur of the Year Award in 2007.It is not uncommon in India for award 

committees to run after corporate CEOs to confer titles and awards for reciprocal business favors. 

Such organizations have rules but have no ethics or values or morals standards for guiding their 

action . Even the central nodal agency for IT organizations in India like NASSCOM- 

(National Association of Software Services Companies) may also be guilty of this type of 

unprincipled act . The industry and media helped in creating a monster after projecting the Satyam 

CEO  as one of the pioneers of the Information Technology business in India. His bio- data

claimed MBA from Ohio University, USA and boasted of a stint at Harvard too where he attended 

the Owner President Training course. If one man in power had dishonest intentions most of the time 

the system and the bureaucracy equally  are  to be blamed for aiding  the black deeds.

Business  life began for the founder with  founding a spinning and weaving mill named as Sri

Satyam and thereafter by starting a construction company called The Satyam Constructions. This 

real-estate business perhaps gave the courage and motivation to attempt the bigger frauds by 

buying land at throw away prices from  illiterate villagers using strong arm tactics. Satyam 

Computer Services was established in 1987 as private company floated public equity issues, merely 

5 years into incorporation, timing it perfectly with the IT boom and craze for IT shares by investors. 

The launch projected Satyam as one of the most promising global IT companies to enter Indian IT 

service market. 

With a customer base of 44 Fortune 500 companies and over 390  multinational corporations it 

became a global company. It is surprising as to how every expert outside the organization who 

analyses the modus operandi of fraud failed to even notice the very obvious steps which the fraud 

initiator takes. Media hype, rising stock prices, steep  profits  and none of these came to the 

attention of so-called experts  while   Indian media was too eager to shower praise on Satyam and 

rushed to run stories on the CEO .

Investment in real estate and land was seen as opportunity for huge capital gains and opportunity to 

accumulate unaccounted cash besides power. Through acquisition of  another family owned 

company intent  was to create a conduit for siphoning off the cash generated in Satyam. Through 

this method they already cornered 9,000 acres of prime land across cities in India. The greed for 

more power and the lure of real estate drove towards a bid for the Hyderabad Metro Rail project . 

Many subsidiaries were created, including Satyam Info way that listed on NASDAQ and traded at 

double its face value on the first day. Sensing that there was an opportunity for big bucks Satyam 

floated an ADR issue. Satyam shares have been manipulated with help from big time share broker of 

the Bombay stock market who was known for  manipulating and inflating the price. Once the stock 

price went up they were pledged to raise loans from banks by offering them as collateral and that 

cash was used buy real estate. What started as a manipulation of revenue and  cover up one-quarter

performance ballooned later in due course to IRS 7.8 billion fraud .This triggered so many changes 

for other IT organizations .

Hyderabad in India became a major IT center and  Satyam played  a key role in the transformation . 

The IT industry had shown exponential growth during this period and Satyam also grew from a 

handful of employees to 53000 people, doing back-office work for clients in 66 countries All this 

materialized in a matter of few years since its incorporation. Satyam got listed on the New York 

Stock Exchange in 2001 and on Euronext since January of 2008.

As a listed company on the NY Stock Exchange, Satyam was required to comply with corporate

governance practices and e on paper the company looked to be compliant  

The Sanskrit word “Satyam” means “absolute truth” and eventually truth prevailed though the

company officials fed lies to everyone around. If greed drove towards fraud, guilt feeling probably

drove to admit that he had engineered systematically falsification of financial accounts. The 53.6

billion rupees in cash and bank loans the company stated as assets in the accounts did not just exist.

The revenues were posted by creating fictitious employees and billing. What started as small

attempt to hide few bad quarter results turned out to be routine and grew to become unmanageable.  

As the size of company operations grew, the size of the manipulation also grew to become a 

monster.

The size of the fraud raised questions about the effectiveness of regulatory oversight in India. The

government and the regulatory authorities tried to lock the stable when the colt had already bolted

away. When Shares of Satyam collapsed to near zero value it had generated heart attacks of

numerous small investors who lost money.

Satyam had exploited  the manpower supply model by bidding for  low-cost IT services and by

contracting Indian IT professionals to American IT companies who were hungry to show profits.

Satyam happened to be one of the early Indian companies to milk the H1B Visa system of the USA.

First introduced under the Immigration and nationality Act of 1952, the H-1B visa program is a

temporary work visa for non-immigrant workers in specialty occupations and requires higher

qualifications than an undergraduate  degree. Foreign-born workers under the program can typically be

employed for three years by a sponsor company and can even apply for extended time to stay longer. 

The American dream for many Indian IT professionals was met with H1B visa and this eventually led to 

huge manpower trafficking racket from India.