Satyam & Enron: A tale of two companies and two countries

The financial misstatements, admitted by Raju in writing, place Satyam in the league of Enron. It is interesting to compare how the two countries — India and the United States — handled the revelations about the corporate crimes at Enron and Satyam Computers, and the aftermath. The issue has two dimensions — namely, the fate of the beleaguered companies and the treatment given to the wrongdoers. The contrast between America and India is quite telling in both these respects.

Enron, which emerged as a global power company in the 1990s, ran into serious trouble due to losses suffered in its speculative energy derivatives business. The company tried to hide the losses through so-called Special Purpose Vehicles (SPV), but by 2001 things reached a stage when the losses could no longer be hidden. Enron made a proverbial clean-breast and announced restatement of its accounts.

The financial restatements Enron announced triggered chaos. Enron share price nose-dived and there was complete loss of confidence in the company. Enron, which was highly leveraged, was swiftly put into liquidation and its assets were sold piecemeal. Thousands of investors, including pension funds, lost money. Employees lost jobs and the company’s creditors could not fully recover their dues. The result was, more or less, a disaster for all the stakeholders.

Is this outcome acceptable? Or are there better and less painful alternatives? The handling of the Satyam episode in India offers a refreshing contrast. After Ramalinga Raju admitted the financial misstatements in January 2009, the Company Law Board, a governmental agency, stepped in and suspended the board of directors of Satyam. It nominated new directors and the minister for company affairs went on record with a statement that “the credibility of the IT industry should not be allowed to suffer.”

It is not clear if any interim financial assistance was given to Satyam at the behest of the government. In any event, government intervention provided the necessary morale and the company survived. In June 2009, Satyam Computer Services was taken over by Mahindra Group and renamed Mahindra Satyam.

Mahindra Satyam appears to be quite stable and the transition has been handled with minimal disruption. Of course, the price of the company’s shares has had a shaky ride. From a high of Rs 544 in 2008, the price tumbled to Rs 11.50 after Ramalinga Raju made the announcement about the misstatements. It has recovered to about Rs 80 in September 2010. The company IT business, its infrastructure and several thousand jobs have been preserved.

The outcome at Satyam is, undoubtedly, better than Enron. It is quite obvious that the crucial difference was the presence of an agency — in Satyam, the government of India — to spearhead a damage control exercise and keep the company afloat. After all Enron, like Satyam, had its business and assets — namely, power plants and the marketing, commercial, and administrative infrastructure intact. Power, which was Enron’s product and an essential utility, had an assured market. Despite these positives, Enron was simply allowed to collapse, causing pain all around.


Comparing the results with Enron, the merits of the method tried in Satyam are quite clear. But the position is reversed when we look at how the wrongdoers in the two companies have been treated in the respective countries — India and the US. In this, the much-bemoaned inefficacy of the Indian legal system and the comparative efficiency of the American system are evident. The events also provide a measure of the ethical values, and that delicate thing called sense of honour, prevailing in the two societies.

In Enron, 16 people pleaded guilty of the charges brought against them. Andrew Fastow, the chief financial officer, was among the five who turned approvers. Kenneth Lay, the CEO, and Jeffrey Skilling, the chief operating officer, contested the charges, and were convicted in 2006 — less than five years after the scandal surfaced. J Clifford Baxter, a former vice-chairman of Enron, committed suicide in January 2002, shortly after the scandal broke out in late 2001.

In India Ramalinga Raju, the founder-chairman of Satyam, publicly admitted the financial misstatements in January 2009. He was promptly arrested, and ‘investigations’ started.  It is not clear what investigations are necessary when there is public admission of the wrongdoings, in writing by the person responsible for them.  This is quite baffling even by the convoluted and tortured standards of the legal system.

Raju, who is reported to be influential apart from being wealthy, complained of a minor heart attack in Sept 2009 and was shifted to a hospital where he rested until last month when he was granted bail. It is not clear when the trial will begin or what the outcome will be. The contrast between Enron and Satyam could not be starker in this respect either.

However, we should not be too critical of the Indian criminal justice system. After all, most jails in India are overflowing. There must be some efficiency in the system if there are convictions on this scale. It is a different matter that the convicts are mostly hapless poor people who cannot afford to put up the necessary fight — which mostly consists of gaming the inefficient system and influencing the courts and the prosecution machinery whose integrity has often been questioned.

In any event, the moral of the Enron-Satyam story is that both India and the US can learn from each other. Such a collaborative learning process can be beneficial to both the countries — and possibly, even to other countries.

(The writer teaches commercial law at the University of Auckland,  New Zealand)

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