Satyam Scandal Won`t Change Anything
January 13, 2009, 03:02 AM
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The blogosphere is abuzz over the Satyam scandal in India. Many of them are declaring the incident to be the beginning of the end of offshore outsourcing and a return to "Made in America" for all things in Computer/IT. Others hope that Satyam can be used as a silver bullet to put a stop to the H-1B visa program.

Folks, stop drinking the KOOL-AID!

In the grand scheme of things the Satyam scandal will probably amount to very little in terms of restoring jobs in the U.S. It might even make India more competitive because if Satyam folds, labor in India could become cheaper, which is the main reason we have lost so many jobs to that country in the first place. Ex-Satyam employees will have to go somewhere and big outsourcers like TCS (Tata) and Infosys will be waiting to offer them jobs at cut-rate salaries. CEO Kris Lakshmikanth of Headhunters India couldn`t have described the situation better when he said:

"It is most likely that Satyam will cut 10,000 jobs next month as the company is left with no cash to pay the salaries. The current fiasco is likely to put pressure on salaries, which may reduce by 10 per cent due to the surplus of about 20,000 people in the jobs market,"
NeoIT`s CEO Eugene Kublanov said that the Satyam fraud case doesn`t necessarily mean U.S. customers will shun Indian outsourcing companies because "fraud happens globally, in Houston with Enron, Louisiana with WorldCom, and now in India." Kublanov is probably correct even considering that his statement is somewhat self-serving since his bodyshop will be one of the winners if Satyam falls. Keep in mind that customers of Satyam will consider the downfall as a mere inconvenience because they may have to hire another company to outsource to (like NeoIT), but that`s just part of doing business in our global economy. Investors will get burned as Satyam stock drops in value and they may lose all their money if Satyam goes belly up, but again that is just the cost of doing business. As was explained in the LA Times:
Though there`s little evidence that the fraud leaked over to Indian banks or hurt Satyam`s customers, shareholders have watched the value of their investment all but disappear. And one Indian job website reported receiving 15,000 resumes from Satyam workers this week.
If this scandal proves anything to transnational investors and corporations it would be that doing business in India may be less risky than doing so in the more criminal friendly USA. India is demonstrating that it has very little tolerance for white collar fraud and they are showing that corporate criminals will be swiftly punished. It is yet to be seen if most of those arrested will bribe themselves out of trouble but so far the punishment is more severe than anything we see in the U.S.

In contrast to India the U.S. coddles its corporate criminals by allowing them to stay on the job with big pay raises, or giving them golden parachutes so that they can retire in the Bahamas. When the U.S. does incarcerate CEOs or executives it`s usually in a place that resembles a country club.

Let`s look at two different scandals in the U.S. and compare them Satyam to get further perspective.

***** Satyam Scandal *****

A billion dollar scandal was uncovered in India involving Satyam Computer Services. Satyam is the fourth-largest software company in India, employing 53,000 people at its headquarters in Hyderabad. Satyam is an international bodyshop that has operations all over the USA — they are the #4 biggest user of L-1 visas and #3 biggest user of H-1B visas.

Ramalinga Raju, founder and chairman of Satyam Computer Services admitted in a letter of resignation that Satyam has been cooking the books for years in order to inflate their profits. Satyam means "truth" in Sanskrit, which is doubly ironic because PriceWaterhouseCooper has been signing off on Satyam`s books for eight years.

India is showing very little tolerance for the white collar crooks at Satyam. The entire board of Satyam was sacked but that`s not all! Ramaliga and his CEO brother were quickly arrested and thrown into jail along with their CFO, Srinivas Vadlamani.

Be sure to check out this picture of Ramalinga as he was escorted to the Chanchalguda Central Jail in Hyderabad, India, Saturday, Jan. 10, 2009. It`s a wonderful scene we rarely get the pleasure to see in the U.S. when our corporate executives are busted for fraud:

The jail they are staying in is located in the old part of Hyderabad. It`s a colonial-era jail with concrete watchtowers, a massive steel studded front gate, and electrified wire ringing high stone walls. The Indian government said that Satyam criminals will get no special treatment, which means they will receive:

  • Housing in a barrack with 26 other persons
  • A brief morning walk in jail before breakfast
  • 650g of rice, 250g of vegetable curry and 125g of dal thrice a day.Yummy stuff, huh?
  • One blanket each and a bed-sheet in the cell.
  • A daily newspaper
Some people in India think that giving them a newspaper is being too kind — they demand harsher treatment!

Mr. Raju is a rags to riches story. As the story goes, he was the son of a farmer that got a U.S. education and then became a rich man. He earned a master`s in business administration from Ohio University in the late 1970s and founded Satyam in 1987.

Sometime after Raju was jailed he complained of chest pain. According to the superintendent of the Chanchalguda Central Prison, a jail doctor attended to Raju. Hopefully Raju won`t do a Kenneth Lay on us before his trial. LOL! And speaking of Enron....

***** Enron *****

Many are calling the Satyam scandal India`s Enron, so it`s fair game to compare the two. The total cost of each scandal is estimated at $1 billion (although in inflation adjusted dollars Enron was far larger), but that`s where the similarity ends. Remember when Lou Dobbs Moneyline used to have an Enron criminal conviction scorecard that kept track of the number of days from the date Enron declared bankruptcy until something was done to the fraudsters? Of the 18 top executives, it took 262 days until Michael Kopper became the first Enron executive to face criminal charges, so the score went to 18-to-1. It took 647 days for Ben Glisan to become the first Enron executive to serve jail time. At day 808 Dobbs reported that only 3 corporate executives were in jail, and that included all companies involved such as Worldcom and Arthur Anderson. There was nothing swift in the way justice was served to Enron crooks, but it took no time at all for employees and shareholders to lose all their money. Several newspaper editorials complained that Lou Dobbs was being unfair to Enron executives.

***** Bernard Madoff *****

The Madoff scandal makes Enron and Satyam combined look like child`s play. So far it`s estimated that investors got ripped off of at least $50 billion. At the time of this writing Madoff is out on bail. He has been ordered to stay in home confinement in his multi-million dollar apartment until a judge decides what to do with him. To top it off, Newsweek published an editorial saying that it would be unjust to throw Madoff in a jail like Riker`s Island because it`s too icky.