Does India have an Enron in waiting?

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Satyam may have avoided becoming India's Enron but there could be another fraud around the corner.

The Satyam scandal that hit the outsourcing industry might not be the last, according to the Asian Corporate Governance Association (ACGA) in Hong Kong.

The independent organisation has published a white paper and it claims that corporate India is open to a repeat of the billion dollar fraud committed by Satyam chairman B. Ramalinga Raju.

See the full ACGA report here.

The report is 55 pages and have not gone through it all but appears there are major questions regarding corporate governance in India. The fact that directors are the owners seems a problem as well as the companies that audit these firms not being appropriate.

The website the azdailysun.com quotes one of the reports authors
Sharmila Gopinathas saying "To think there aren't other companies [other than Satyam] that dabble in less than forthright practices, to believe that other companies are not doing this kind of thing is naive."

Is there reason for UK corporates to think twice about outsourcing to India?

The Satyam fraud could have left companies that outsourced to the company high and dry if it had collapsed.

What does the industry think?



 

4 Comments

The irony is that India hasn't actually had an Enron. Or a Maxwell. Or a Lehman, come to think of it. (I suppose that Ramalinga Raju might be India;s Madoff.) Getting back to the point, isn't it astounding that an Enron happened in the USA in the teeth of the SEC? And that Madoff happens 70 or so years after Ponzi was convicted? I can tell you that there are some influential Big Four accounting heads who believe that another Enron could happen in the USA, despite Sarbanes Oxley. So to say that India could have an Enron in waiting is easy. Any country could, with or without Western corporate governance and regulation. Should UK corporates think twice about outsourcing to India? No. Should they do better, more intelligent financial, promoter and background due diligence on their supplier shortlists before outsourcing? Yes.

I agree with both of you - there will of course be future corporate scandals involving fraud, but predicting whether it is more likely to take place within the corporate environment in India is difficult to say. The lack of structural reform over the last 12 months is worrying, however vendors in the tech/outsourcing sector are now acutely aware that corporate governance is a big issue which may lead to voluntary reform, if not legislation. Clients are, however, increasingly wary of entering into long-term arrangements with Indian-based vendors without sufficient contractual safeguards, including the right to exit the arrangement quickly with minimal financial penalty. Much of this is blamed on Satyam. Due diligence is also being increased, although how much reliable information can be obtained is debateable.

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This page contains a single entry by Karl Flinders published on January 19, 2010 9:41 AM.

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