A Jarring Wake-Up Call From India

The resignation and admission of fraud by B. Ramalinga Raju, head of Indian technology and outsourcing giant Satyam Computer Services Ltd., is a disturbing wake-up call for executives heavily involved in the increasing-global economy.

The woes of U.S. financial and auto firms have dominated the news in past months. Fast-growing giants such as India and China may be taking some hits as well, but the assumption was their companies were quickly and steadily becoming reputable, transparent operations.

That's what makes Raju's admission that he kept a fictious cash flow of $1 billion so jarring. His firm was one of the more significant one in the Indian tech sector that not only is selling its products around the world but snaring more outsourced and offshored business to its home operations.

Already there are calls for renewed vigilance in corporate governance among Indian firms and upgrades in accounting and accountability. One of the accomplishments of SEC Chairman Christopher Cox is his effort to make securities regulation more global. Efforts to switch to a One World accounting system also seemed to suggest that everyone was singing out of the same choir book.

However, Indian firms, with some notable exceptions, do not have a high ethical standard. Many kept separate sets of books. They only started to start meeting world standards in the 1990s. It is obvious they have a ways to go.

Not that non-Indians didn't play a role in the Satyam debacle. U.S. accounting firm, PricewaterhouseCoopers had handled Satyam's accounting for the past five years. Its performance seems an unholy flashback to the Enron days that rought shame to the big accounting companies. A Harvard Business School Professor, Krishna Palepu, was a director of Satyam and approved some of the firm's questionable deals. The London-based World Council for Corporate Governance last year bestowed its "Golden Peacock" award to Satyam for exemplary corporate governance.

There were institutions with suspicions, notably the World Bank that alerted the U.S. Justice Department about possible bribery at Satyam in 2006 and later cut Satyam from its contracts. But critics say that the World Bank should have been more vocal.

So, global recession aside, there's plenty to be watchful about.