Ramalinga Raju could not have committed the fraud he perpetrated on his own. He was surely aided and abetted by at least a small group of fellow conspirators. It is, after all, not that simple to create more than Rs 7,000 crore out of thin air. The statutory auditors of Satyam Computer Services, PriceWaterhouseCoopers, the market regulator, Securities and Exchange Board of India (SEBI), the Ministry of Corporate Affairs, the company's board that included a number of so-called “eminent” and “independent” directors, bankers and politicians of Andhra Pradesh - were all in their own way responsible for the scandal in ways that were big and small.
One is not for a moment suggesting that there was grand conspiracy to defraud the company's small investors, not to mention its 53,000 employees. What the Satyam scandal has highlighted is that there were systemic failures of official oversight mechanisms and processes that are supposed to be in place to ensure good corporate governance.
It must be acknowledged that government authorities (SEBI and MCA) did little or nothing for at least a few weeks after it become known that Raju had sought to invest a sum of $ 1.6 billion in two companies, Maytas Infra and Maytas Properties, that were controlled by his sons. This proposal aroused the ire of investors and had to be hastily withdrawn. But the damage had been done. Satyam soon collapsed like a house of cards leaving its shareholders and employees high and dry. The authorities acted only after Raju confessed to his crimes.
Many believe the scam could have been checked and its deleterious impact reduced if the government had acted quickly on the basis of warning signals. Former Economic Affairs Secretary in the Ministry of Finance E.A.S. Sarma had written a series of letters to top officials in Delhi, Mumbai and Hyderabad alleging that the two Maytas companies “seem to have the blessings of senior ruling political leaders of Andhra Pradesh who have bypassed all competitive bidding procedures and allotted prime urban land to them for a song…” before the scandal broke out. His letters were not responded to.
The managing director of the Delhi Metro Rail Corporation (DMRC) E. Sreedharan had lambasted the Andhra Pradesh government for awarding a build-operate-transfer contract for constructing the Hyderabad Metro Rail project to a consortium led by Maytas. He wrote to the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia anticipating that there would a “big political scandal some time later”. Sreedharan alleged that Maytas would “reap a windfall profit of four to five times the land price” and that the state government was “selling the family silver”. The state government threatened to sue Sreedharan. He refused to apologize. The defamation suit against him was never filed. Public memory is proverbially short and this scandal too will be forgotten after some months. Who remembers today how Harshad Mehta and Ketan Parekh masterminded share-market scams in 1992 and 2001 respectively? Though, it cannot be denied that the Satyam fraud has revealed the ugly underbelly of Indian capitalism. Can some good come out of this unseemly episode? Will external auditors become more careful? Will company promoters now hesitate before manipulating their balance-sheets? Or will we have to wait for another scandal before getting our act together? One should be cautiously optimistic.