The Satyam mess and Sarbanes-Oxley

The Satyam scandal continues to reverberate, with a host of competing companies aiming to pick up some U.S. business and some big firms facing questions about why they did business with the Indian outsourcer.

First, we should note that Satyam's ADR traded on the Nasdaq. As such, the big Indian outsourced service provider was required to comply with Sarbox. Which didn't prevent the fraud. In fact, it has has thrust PricewaterhouseCoopers onto the hot seat. How could it have signed off on the audit? 

We've noted before that all companies who contract with foreign firms cannot simply ignore the Sarbox implications--the need to secure data and maintain the integrity of financial data. All need assurances, but perhaps U.S. customers were comforted by Satyam's Nasdaq listing. Domestic companies that rely on domestic outsourcers are comforted a bit by SAS 70 Type II certifications.

After all, no company wants to get stuck in the position of doing business with a fraudulent company. Citi now finds itself in an awkward situation. Seeking Alpha notes hat Indian securities regulators are asking "if anybody at Citi's Indian unit questioned why Satyam needed so many accounts, whether PricewaterhouseCoopers (Satyam's auditor) conducted any spot inspections on those accounts and whether members of Satyam's management and their families maintained accounts which were used to trade in Satyam shares." Citi has frozen 30 operating accounts in the name of Satyam.

That brings us to the issue of governance and compliance as a marketing differentiator. There are a lot of companies gunning to pick up Satyam's clients. You have to wonder if those with high governance standards will have an advantage.

IBM is a good example. It is compliant with Sarbanes-Oxley of course; it also has 75,000 employees in India. IBM and Accenture might be wise to tout their compliance bona fides. But then again Satyam was supposed to have been compliant. Perhaps all foreign companies--even the likes of Infosys and Wipro--with exchange-traded ADRs have some subtle damage control ahead of them. - Jim

For more:
- here's an article from Investors.com
- here's an article from the Economic Times
- homegrown players are bent on reassuring the world that not all were like Satyam

Related Articles:
Overseas fraud case, the Sarbox implications?
PricewaterhouseCoopers news from FierceSarbox