India and Satyam: A Quick Recovery

Policy responses to the Satyam scandal continue to be very positive, and it seems like the negative fallout will be minimized after all.

First, the government has moved swiftly to appoint a high-quality board of directors (yes, the one that oversaw – or failed to see – the fraud also had high profile people, but nowhere near as experienced and prominent in India as the new appointees). At the same time, they are moving to salvage the company. The government is signaling that it want insiders to be in charge, though there is also talk of bringing in Vivek Paul, the former Wipro number two. It is also identifying assets that can be mortgaged to keep the company afloat. This is as opposed to providing bailout money.

So it looks, like Satyam may survive, with brand new management and governance, and its liquidity situation repaired. The government is talking up the quality of the firm’s human assets and customer base, and its vote of confidence plus its actions look like they will go a long way to restore confidence all round. This is only one firm versus a whole sector, but the Indian government has come across as very decisive and proactive compared to the bumbling and hesitation that characterized the US government response to its financial sector crisis (where the executives who presided over the disaster are still in charge, and receiving bailout money without any seeming accountability).

Finally, one is seeing a very rapid and public discussion of improving regulation. Some aspects where enforcement is weak are being identified, while others where the regulations themselves could be strengthened are also being discussed. In particular, possibilities for improved disclosure requirements are being outlined. Encouragingly, the response is not a knee-jerk anti-business approach. It probably helped that Infosys, one of India’s best-managed companies, announced good results shortly after the Satyam scandal surfaced. Again, what one is reading in the news so far is more sensible than much of what was being written about appropriate policy responses to the US financial crisis. In fact, I recall the Wall Street Journal publishing several opinion pieces blaming it all on government interference, including its (indirect) mortgage programs and new regulations like Sarbanes Oxley. Instead, Indians are pointing out that Sarbanes Oxley-type regulations could have nipped the Satyam fraud in the bud.

In the bigger picture, the government is still projecting growth of 7-7.5 percent for 2008-09, which is almost over. It is not hazarding a guess for 2009-10, but noting the strength of domestic demand in the wake of the Indian government’s stimulus package, things may not be too bad. Let’s see what the next weeks bring.

7 Responses to "India and Satyam: A Quick Recovery"

  1. ram chandar   January 18, 2009 at 4:37 pm

    let me act as a devil’s advocate. why not set an example that the whole board of directors be thrown in jail and thier assests confiscated rather than increasing govt supervision of private enterprise? usa is becoming a law fortress where i wonder what is freedom? rather than keeping making rules and rules, just make one rule that any cheating is going to be punished whenever found.

  2. Anonymous   January 18, 2009 at 9:21 pm

    Satyam is dead…long-term the clients are running for the door…No matter what they try, it will take too long to recover.

  3. Anonymous   January 19, 2009 at 4:04 am

    A quick answer is not the right answer. There are institutionalised faults throughout a) Corporate governance in indian firms b) Charging and management of clients c) Treatmenet of employees d) Threats to whistle-blowers e) Orchestrated audit – showing only the good bits!NO, the answer is a roots and branches clean up and audits that can be carried out without subterfuge and with transparency. Nobody was really suprised – which is in itself a condemnation. Wipro were already under suspicion and the other companies in the BPo / IT outsourcing arena know they are NOT beyond reproach.

    • ram chandar   January 19, 2009 at 6:18 pm

      rules rules and rules. is there a way to decrease the no of rules? or is mankind doomed to be a rule grid? there is no easy answer. but rules is certainly not an answer because every rule can be broken. satyam is a private enterprise. so if the investors were so greedy to jump on the share price increases of the satyam and continue feeding the gambler within, whose fault is it? if i am investing in a chevron corporation who’s aim is to make profit and pollute the whole earth in trying to make this profit, who is responsible? chevron or me? i think its me because chevron is just a paper (virtual) entity.

  4. Deepu   January 19, 2009 at 5:42 am

    One rule which is long over due. The government should take action against the spouse, siblings and relatives or family members above the age of 18 who had benefited from corruption. What is the point of arresting only Raju (satyam) when the others are flashing money of the innocent hard working commoners. I think this rule would lessen the corruption by few points. At present no one cares for law.

    • ram chandar   January 19, 2009 at 6:20 pm

      who is corrupt? raju or you and me? we are all corrupt because we love the stock market. lets put all of us in jail.

      • Guest   January 23, 2009 at 3:19 pm

        The stock price of the jail holding company will go up LOL