Issues Facing Stakeholders and Top Management

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Issues Facing Stakeholders and Top Management

Given the large scale manipulation in the company’s accounts and misconduct within the organization, the name Satyam (which means “truth” in Sanskrit) hardly seems appropriate. “It was like riding a tiger, not knowing how to get off without being eaten.” That is how Chairman Raju described how the company inflated profits for years. The admission of the biggest corporate scandal in India’s history has drawn swift comparisons with Enron, which quickly went from being one of the United States’ most admired companies to a ward of the bankruptcy court after accounting fraud came to light. The media has latched onto the Satyam controversy mercilessly, labeling it "India's Enron moment" and a "shame and scandal." Satyam’s image has been tarnished by the scandal and as lost the confidence of clients, investors, and employees alike. Thus, the key challenge facing top management is repairing the damaged reputation of the organization and regaining the trust of the public, an obstacle that Enron executives were not able to overcome.

The issue of violating corporate governance had been raised even before the company’s fraudulent accounting practices became known. Previous actions threw up red flags and caused investors and clients to become wary of the organization, such as Satyam’s dubious $1.6 billion takeover plan of two sister companies that caused the company’s stock to plunge by over 55 percent and resulted in the resignation of three board members. So, the announcement less than a month later that acknowledged the fact that top management officials “cooked the books” inevitably turned investors away and will sent clients to competitors like Infosys, TCS, and Wipro.. Given the company’s extreme betrayal it will be difficult, if not impossible, for Satyam to regain the trust that was loss.

However, it is not just Satyam alone that will face challenges due to the company’s scandal. The size and scope of the fraud raises questions about regulatory oversight in India as a whole. The scandal is likely to result in a loss of confidence of foreign investors in India, at least in the short-term. Observers may be pressed to know whether similar problems might lie buried elsewhere. The fraud has put a question mark on the entire corporate governance system in India. As a result, the risk premium for Indian companies may rise in the eyes of investors. Also, other stakeholders, such as Pricewaterhouse Coopers who was the company’s auditor, will have to engage in damage control due to their association with Satyam.

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