Satyam boss chief quits amid scandal

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The head of the Indian outsourcing firm Satyam has left his post and his firm in a state of disarray.

Ramalinga Raju, founder and chairman at Satyam, resigned yesterday, explaining in a statement that profits at the firm had been falsely inflated for years.

Investors greeted the news by sending the firm's shares down by nearly 80 per cent.

"The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years..." wrote Ragu in a resignation letter that has been leaked to the internet.

In the letter, Ragu explains the financial position of the firm and details the next stage in its operations. "What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years," he admits.

Urging the company and its board to stay together in a strong position Ragu said, "None of the board members, past of present, had any knowledge of the situation in which the company is placed," adding, "I fervently appeal to the board to hold together to take some important steps."

Ragu signs off saying that he is ready to accept the consequences of his actions, "I am now prepared to subject myself to the laws of the land and face consequences thereof," but explains that he will continue in his role until the current Satyam board is "extended".

Analysts have been quick to respond to the corporate governance questions the news raises, and indeed the concerns it creates about Satyam’s future.

“The Indian technology market had already been weakened by a tough 2008, and the badly dented broader market sentiment is sure to impact adversely most other Indian IT services providers. It will potentially even make a dent in the wider international market,” said David Mitchell, senior vice president of IT research, at analyst Ovum, said in a statement.

He added: “In the short and medium term the hugely deflated valuation of Satyam is likely to make it vulnerable to takeover. Even before the news of these corporate governance issues there was open market speculation that Satyam was either looking to bulk up through acquisition or that it would be at the core of a merger with rivals of similar scale… However, it also possible that Satyam might find itself broken into pieces and the pieces sold off separately. The expected fraud enquiry could delay the inevitable but it is equally likely that it will accelerate things, with criminal investigators and forensic accountants working together to establish the real financial position and working out what is in the best interests of the shareholders.”

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