The New York Times reported today that Ramalinga Raju, chairman of Indian outsourcing giant Satyam Computer Services, falsified the company’s accounts, reporting over $1 billion of nonexistent assets in the second quarter of last year. (Read the full article here.)
While some analaysts warned clients (which have included several Fortune 500 companies, the US government, and the World Bank) to find a way out of Satyam contracts late last year, this news comes as a surprise to many. Satyam, which grew to over 50,000 employees over the last 20 years, has long been held as one of the darlings of globalization. The company made its name providing large-scale back-office solutions to firms including General Motors and General Electric.
The International Association of Outsourcing Professionals’ Code of Ethics and similar measures promoted by regional outsourcing organizations are a start towards encouraging greater accountability among leaders of outsourcing firms, but they lack real muscle without an enforcement mechanism. One problem is the sheer size of most large outsourcing firms– since accounting is centrally managed, fraud on such a large scale is easier to commit.
While much of Satyam’s exising business is likely to migrate to other large outsourcing firms in India, there may be an opportunity for smaller companies in other parts of the world to benefit. In the wake of this news, Samasource plans to encourage its service providers to open their books to external auditors and agree to provide greater transparency to both clients and donors.
One Comment
It’s really reassuring to know that Samasource already has mechanisms in place to deal with unethical conduct like this–from its clear code of conduct and guiding principles to its established verification procedures. If its service providers engaged in such activity, they would face clear consequences.