Satyam Fallout: Indian Industry Speaks As One

Satyam continues to reel from founder Ramalinga Raju's revelation this month that he had falsified profits for years and fabricated about $1 billion in cash.

As the company limps forward with a new board of directors, India's IT industry is standing by in loose accord to ensure that Satyam's problems don't cast a pall over an industry already slowing amid a global recession.

It remains unclear whether Satyam will emerge intact. Speaking on an InformationWeek Webcast on Jan. 22, newly appointed Satyam board member Kiran Karnik insisted that if Satyam can get past its "truly cataclysmic" cash flow shortfall in the next few weeks, its cash will start piling up -- this time for real. Karnik said customers, including about 185 Fortune 500 accounts, haven't found fault with Satyam's service levels, though State Farm Insurance confirmed that it had terminated its contract with the Indian provider.

Unlike U.S. financial and auto execs, Satyam's new directors have resisted asking for a government bailout. Karnik said such a move of desperation would send the wrong signal to the market. Satyam this week continued seeking emergency funds from institutional investors, while India's corporate affairs minister suggested "many" companies are interested in acquiring the outsourcer. Karnik would say only that Satyam is "exploring all opportunities."

Meantime, new fraud revelations continue to emerge. An Indian prosecutor this week said Raju had forged bank documents and inflated head count to divert funds. Multiple law firms filed class-action suits against Satyam on behalf of investors, and the Indian government widened its probe to other companies linked to Satyam's founder.

Most Satyam customers and employees are staying put, Karnik said, but that will change in a hurry if things head south. "Customers are keeping options in mind and are probably talking to other companies," Karnik said. India's Nasscom (National Association of Software and Services Companies) continues to urge Satyam's competitors not to poach its customers, though interviews with U.S. CIOs confirm it's being ignored.

Representatives of India's IT community remain adamant that Satyam's situation is unique, and they spoke in solidarity on the InformationWeek Webcast. Imagine the CEOs of Dell, Hewlett-Packard, and IBM getting on a Webcast -- as leaders from Infosys, Microland, Nasscom, and Satyam did this week -- to toe the industry line if one of their companies was crippled because of accounting fraud.

Asked whether India needs stronger corporate governance regulations, Nasscom president Som Mittal said India's IT providers already are subject to close oversight -- PricewaterhouseCoopers had signed off on Satyam's books. Still, Nasscom has set up a task force to advise member companies on governance best practices.

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Infosys co-founder and CEO Kris Gopalakrishnan said customers are asking to see results of external audits on the company's governance practices. But beyond that, Infosys' business remains unscathed, he said, and so should India's reputation. "From the dimensions of scale, maturity, the longevity of these services, the experience of working with multinational companies, support from the government -- every one of these aspects remains the same," Gopalakrishnan said.

Surjeet Singh, CFO of Indian IT outsourcer Patni, said the business reality of "doing more with less" will, in the end, make outsourcing even stickier than it is today, but he suggests common problems among Indian companies, such as attrition, may go away as growth slows. The real problems are Satyam's, and the rest of the industry is busy making sure those problems don't affect them.

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