Issues Facing Stakeholders and Top Management

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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Furthermore, there is no doubt that Satyam will lose employees as a result of the scandal. There is already a rumor that at least 15,000 (28%) employees from Satyam are looking for change. The CEO and CFO have left the firm when they were required the most. So the first and foremost job of the interim Satyam management will be bringing the confidence back to the employees. Satyam will find it really difficult to find new employees because of the tarnished image.
Now what happens if 30% to 40% employees of Satyam are looking for change? At least that is a huge number to be absorbed by a single firm. Other outsourcing firms like TCS, Infosys and Wipro are likely to gain benefits in terms of hiring experienced hires from Satyam. It would not be surprising if the projects changed hands from Satyam to any other firm in India. And there may be some hiring happening in other firms in anticipation of projects changing hands.
Examining India’s job market, JobSpeak from Naukri (India’s #1 job site) has released statistics for the month of November. According to them the number of job listings with their site have declined since July 2008. This can be mainly attributed to slowdown in economy. Overall job listing on Naukri has reduced by 22.4%. Job listing can be considered as an indicator of demand in jobs in the industry. There may be a slight difference in the original demand of jobs in the industry as the companies may have resorted to other means of recruiting like referral or direct recruitment to cut down their operating costs. The following graph indicates the number of visitors to three major job sites in India from Dec. 2007 to Dec. 2008.

The IT Jobs listing in November 2008 has declined by 22.3% since July 2008. There is a marginal increase (3%) of job listing from October 2008. The numbers for December is also likely to come down due to the holiday season. The demand of Financial professionals have come down almost 40% since July 2008.The number of unique visitors to the job portals have remained stagnant if not reduced since July 2008. This is in agreement with the lower attrition rate generally associated with slow downs such as this.
In regards to Satyam, when the supply of qualified professionals is high in the market, the employer gains as they can negotiate a lower CTC (cost to company). And the candidates have to settle down for a lower pay package. As long as Satyam can remain afloat, they have some time to turn around the company, before the employees leave the firm.
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