Ever since Jan. 7, when news broke of a $1 billion corporate-accounting fraud at Satyam Computer Services, the scandal has been called India's Enron. There are many similarities: inflated assets, a disgraced but politically powerful chairman, an auditor under a cloud, even an attempted suicide. (Satyam's chief financial officer, Srinivas Vadlamani, was unsuccessful. Enron executive J. Clifford Baxter died.) There is one big difference. Enron imploded, and its employees were kicked to the curb. But Satyam's workers, who number about 50,000, may be spared sweeping layoffs.
Issuing pink slips en masse is a political nonstarter in India, and it's even less likely to happen in an election year. With India's flagship information-technology sector under global scrutiny, the government looks keen to salvage Hyderabad-based Satyam, the country's fourth-largest outsourcing company. "I am pretty sure the employees are on safe terrain," says James Agarwal, head of executive-search firm BTI Consultants India. "There is no chance the government will allow the company to go down. It is important for employees, for Indian corporates, for the government." (See pictures of the global financial crisis.)
Indeed, despite India's economic slowdown, even companies not flirting with bankruptcy are being pressured to avoid staff cuts. When Jet Airways, one of India's biggest airlines, tried to lay off 1,900 employees in October amid a deepening financial crunch due to high fuel prices, India's Aviation Minister called Jet Airways owner Naresh Goyal, who rescinded layoff notices within 24 hours.
Given that many of Satyam's customers may not renew orders and that some belt-tightening will be inevitable, at least some employees will have to go. Kris Lakshmikanth, CEO of Bangalore-based the Head Hunters India, says they will most likely be phased out. Most vulnerable are up to 15,000 employees who are paid on a project-by-project basis, he says.
The extent of the fraud is still unfolding. Investigators currently suspect that Satyam's founder and chairman, B. Ramalinga Raju, skimmed as much as $1 billion from the company. Raju, who has been arrested, admitted that he falsified Satyam's books and that profits were fictitious for several years. The company's true financial condition will not be known until new auditors KPMG and Deloitte are able to review accounts, which is expected to take four to six months. Even the exact number of Satyam employees is said to be inflated. Although Satyam claims to have 53,000 people on its rolls, the investigating agencies are trying to verify the figure, and some estimates say the number could be lower by 15% to 20%. (See pictures of India's disastrous floods.)
Given the uncertainty, there have been reports of business rivals trying to poach Satyam's employees and customers, which could make it harder for the company, which is suffering a cash squeeze, to continue operating. The government has stepped in and appointed a new board consisting of heavyweights from India's corporate sector, but officials say a bailout is not needed. Satyam is seeking bank loans to help cover salaries and other operating expenses as it tries to regain its balance.
Many employees are choosing to stay put. "Changing jobs right now is not on my mind," says Imran Sayeed, 30, a software engineer with Satyam. "The slowdown has impacted the job market, and I don't see any immediate problem with Satyam given the recent developments with the board." Some employees say they're staying out of loyalty to the company. "I can't deny that I'm in a dilemma," says D. Ramesh Krishnan, another software engineer. "I have been with Satyam for 10 years ... I feel a certain affiliation to the organization. But I also worry about my future." On Jan. 15, several hundred Satyam employees gathered outside Chanchalguda prison in Hyderabad, where Raju is being held, to express support for their former boss. Indian corporate culture has long been grounded by an unspoken bond between workers and management that is based on loyalty and an employer's sense of responsibility for his charges.
Yet as Agarwal points out, this bond is breaking down. "The younger segment, with zero to five years of experience for them the loyalty factor doesn't work anymore," he says. "They follow the big bucks. I think if they had a choice, a larger percentage [of Satyam employees] would like to bail out." E. Balaji, CEO of Ma Foi Management Consultants, says the uncertainty of the job market may be a deterrent. "People who joined the workforce from roughly 2004 onwards assumed everything would only go up," he says. "They saw real estate, stocks, salaries going up, and forgot that there's something called a business cycle. These youngsters, in their early- to mid-20s, are shocked at the sudden change."
On Monday, Indian newspapers reported that the board may appoint investment banks to explore the possibility of finding a buyer for Satyam. Since then, board member Tarun Das has said the company was approached by a potential buyer. Board members insist the company has solid cash flow and can continue. Yet with fresh revelations about Raju's alleged malfeasance surfacing every day the latest, that he deleted all his e-mails from his final month as CEO there are fears that the company's liabilities may be so high that it may be forced to fold by the end of the year. Whether, and in what form, Satyam will survive remains to be seen. But at least for now, its employees are safe.
With reporting by Omer Farooq / Hyderabad