Where lies the truth!!

In an attempt to safeguard one’s firm from hostile bid takeover and to increase the brand value of one’s firm, it is not uncommon to claim higher growth rate of the company than the actual rate, inflate the profit earned, understate the liabilities and the debts owed. This makes the investors to believe that firm will be a safe bet and the demand for the company’s stock increases which increases the share prices of the company, thereby increasing the company’s net value (market capitalization) and the clients rely more on such a company that leads to increase in the number of projects the firm gets. And hence the company grows in real terms and with already inflated growth rate and profits, the company tends to further inflate the same in the next fiscal year too. Here gets formed the vicious circle with the company’s growth and the inflated profits forming a complete cycle.

Nothing seems to be wrong with Satyam until the company’s surprise move to take over Maytas properties and Maytas infra. With a major shareholder rebellion, the share prices slide down to a great extent that Ramalinga Raju, then chairman of Satyam computer services limited reversed the decision. With doubts raised about the evaluation of asset values of Maytas when all the leading auditing firms deny their role in evaluating the assets, the question of corporate governance came into picture. Then begin the resignation sagas of independent directors from the Board and the percentage of holdings by the promoters came down from 8.3 % to around 3 % as the shares pledged by the promoters were sold out. Left with no other choice but to reveal the truth, former Nasscom chairman and the chairman of the company which had received the Corporate Governance Award accepted the big hole in the account books creating shockwaves across the investors’ community.

This issue is hailed in the media as India’s Enron case. The energy company filed its bankruptcy in 2001 and accepted the understated liabilities and the exaggerated profits and the company also said to have roots in Republic party.
The plot involved here is no way superficial and is getting deeper as suspicions raised about the political connection of Raju with the AP government. The Hyderabad metro project, irrigational project and other government projects undertaken by Maytas are put under lens to check the credibility, with which the projects were allotted.

A tough road lies ahead for the firm and the employees and the top level managers have to take the hardest steps to march ahead. With the government having announced three persons as Board members, an in-depth inquiry into the deep rooted fraud is to be probed. Finally Power waterhouse cooper(Pwc), Satyam’s auditor has accepted that there could have been error in its auditing report. With the future appearing too bleak for the company, a takeover bid from a well established firm, efficient board members and an energetic CEO and a good cooperation to further investigate into the Rs 7000 crore fraud are the only hopes to steer the company ahead.