Satyam governance failure and what the customers can do
If you have been following the corporate governance fiasco in Satyam and the recent revelation by the chairman on the balance sheet gaps, inflated profits as it slowly unravels I am reminded of the Indian movie industry. The Indian movie industry (Bollywood) for years has been ‘inspired’ by Hollywood movies and continues to make ‘Bollywood’ version of the Hollywood tales with local flavors added in. A number of them have been blockbusters.
Majority of the corporate leaders in India in the past have looked to the West – business schools, global corporations and global leaders to build leadership skills, business acumen and lessons to create and run global corporations. A number of corporate leaders in India have embraced the corporate leadership practices from the West and have strived hard to created sound ethical organizations which can operate in India and globally.
The Satyam incident though looks like the desire to be inspired has seeped into the wrong end of the corporate fabric. The Satyam story seems to be somewhat like a badly copied script of the various fiasco’s rocking the financial world in the west – ‘lack of corporate governance’, auditing mishaps, regulatory failure, misleading the employees, investors and rolling it into one horrible ‘B’ grade movie.
When firms are operating across multiple time zones – corporate trust and governance and the understanding that firms, individuals can be trusted to do what they say they will do is the core of any business operations. Without this trust global businesses might as well be run by lawyers and regulators.
The letter from the Satyam chairman makes it appear that Satyam for years has been doing this and that Raju – the chairman pulled of a ‘Madoff’. That he and he alone was responsible for the fiasco which seems a bit hard to digest.
Raju was once considered a pioneer , an entrepreneur and maybe in his mind he still was when he was trying to do everything to keep his company alive. The point though is that what he did was wrong and there is no way to justify what he did. There may be other’s involved and yes the regulators could have looked more closely and so could the auditors but that is not the point. If we were to take the ‘trust’ equation out of the global business model, the business model will fail.
Impact on customers
The impact on shareholders is evident, the toll on employees is going to be hard and the customers of Satyam have to rethink their decision of being engaged in business with Satyam. Satyam as an entity has to think hard to keep going alone or be sold to someone at a ‘fire sale’.
The customers of Satyam have to be now faced with a tough decision. A number of them moved work or are moving work to Satyam to build and operate low cost delivery centers and manage their own cost.
Here are a few things to think about in the decision matrix if you are currently working with Satyam.
1. With the current set of incidents does it change the governance risk profile within the firm (which it will) and does Satyam still fall in the approved vendor list. A number of firms have internal risk metrics and governance metrics which they use to evaluate and monitor vendors across all services. Bottomline: Are you still willing to do business with Satyam.
2. There is a high probability that Satyam will be bought out by someone and you have to look at your change of control clauses with the contracts to figure out if you can and want to continue to do business with Satyam.
3. If you have multiple vendors you have been working with, how will your mix of vendors change and do you have the willingness and ability to shift work around
4. What additional due diligence you need to do ongoing on your vendors
5. If you continue to do work with Satyam you have to change your plans, timelines to account for management distraction and slow responsiveness in case of a change of control event.
6. What is your fall back plan in case you decide to not continue the relationship with Satyam. You do have to have a short term and a longer term plan but cannot afford to have a knee jerk reaction.
7. What do you intend to communicate to your internal employees and vendor employees on your take on the incident.
8. Finally, what is the financial impact on your business, if you stretch your transition times, have to spend cash to create backup plans for activities or invest more to continue ongoing operations and support and in worst case do you need to get the technology back in house.
In the current global turmoil we are all going through, this is not something you need on your plate today, but something you will have to deal with.
Additional links:
http://www.cnbc.com/id/28539612
http://economictimes.indiatimes.com/articleshow/3948183.cms?in_showcase
Mohit Sharma is the CEO of Corrystone Global partners – a globalization consulting firm. We provide consulting for companies with global operations and risk management and due diligence services with global operations. Contact info: msharma@corrystone.com
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