Page 17 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Entrepreneurship and Small Business Management

Notes
He confessed to an accounting fraud that amounted to ` 70 billion. In a letter addressed to
the board of directors of the company, he declared that the ` 50 billion of cash balances
reported by Satyam for the quarter ending September 30, 2008, did not exist, that the
revenues were ` 21.12 billion as against ` 27 billion reported earlier, and the operating
margins were only 3% as against the 24% declared by the company earlier.
He wrote that the gap arose due to the difference between actual profits and the profits
reported, which kept on growing over the years. In his confession, Raju wrote, “Every
attempt made to eliminate the gap failed. As the promoters held a small percentage of
equity, the concern was that poor performance would result in the takeover, thereby
exposing the gap. It was like riding a tiger, not knowing how to get off without being
eaten.”
Raju was one of the pioneers in the Indian IT industry. He started Satyam with 20 employees
in 1987, when the industry was still at a nascent stage. At that time, Satyam’s main objective
was to provide software services to large companies based mainly in the US. Over the next
two decades, Satyam grew to become the fourth largest IT services company in India with
operations in 63 countries and revenues of over US$ 2 billion for the year ending March 31,
2008.
Though the company had been declaring healthy profits and dividends year after year, it
found itself unable to maintain the pace of growth in revenues that it had achieved in the
early 2000s.
Industry insiders were of the view that Satyam’s growth was not matching up to that of the
top three companies in the Indian IT industry, namely, Tata Consultancy Services Limited
(TCS), Infosys Technologies Limited (Infosys), and Wipro Technologies (Wipro). At the
same time, analysts warned that if Satyam did not keep up its growth momentum, it could
lose its coveted position to multinational companies like IBM or Accenture that had ventured
into India, or to home-grown companies like HCL Technologies. Analysts blamed
the slowdown at Satyam on Raju shifting his focus to his family promoted real estate
businesses – Maytas Properties Pvt. Ltd. (Maytas Properties) and Maytas Infrastructure
Limited (Maytas Infra). Raju faced severe criticism in mid-December 2008, when Satyam
made its intentions of acquiring the two Maytas companies public.
The deal was called off within a few hours due to the opposition from investors and the
adverse reaction from the stock markets. Satyam’s problems continued and on January 07,
2009, Raju who till then, had been hailed as a visionary, accepted responsibility for
committing the biggest corporate fraud in India.

Raju’s revelation shocked not only investors, employees, and clients of Satyam but also
corporate India as a whole. The repercussions of the fraud were felt not only by the Indian
IT industry but also by overseas investors who had invested heavily in the American
Depository Receipts (ADRs) issues of major Indian IT companies including Satyam.
India’s image as a global outsourcing hub was also badly affected. The international
media was taken aback by Raju’s shocking revelation. Commenting on Raju, Forbes, in its
January 2009 issue wrote, “It was a horrifying turn for a man long considered one of
India’s self-made success stories - and active philanthropists”.
Background Note
Raju was born on September 16, 1954. His father Byrraju Satyanarayana Raju was an
agriculturist. Raju did his MBA from Ohio State University and returned to India in 1977.
According to him, “I was just back from the US in the late 1970s after completing my
business administration and was in two minds on the way forward.
Contd...

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