Ramalinga Raju, Chairman, Satyam, in a letter to the board said financial statements of the company have been inflated and that this was going on for a number of years. This announcement has come as a shock to everyone, including corporate bodies like Federation of Indian Chambers of Commerce and Industry, and the National Association of Software and Services Companies.

So, will it hit dent confidence and trust in Indian companies, and IT in particular?

Ganesh Natarajan, Chairman, Nasscom, said clients would look at IT companies they are dealing with to ensure reliability, ensure trustworthiness, and make sure that there is long standing capability to service them.

He feels this is a very firm specific issue. “There has been a breakdown of corporate governance, especially over a period of time. There needs to be a lot of soul searching and regulations need to be put in place to make sure it doesn’t happen again. I am worried because India’s reputation in corporate governance has been impacted. I do not believe this has any impact on the IT industry itself. This is an overall corporate governance issue at a firm level. But in terms of improving corporate governance, I really don’t believe that is a mandate of any association.”

Rajeev Chandrashekar, President, FICCI, said, there is a need for a fundamental and deep examination of what went wrong. “I don’t think it is overstating the case at all. What happened following Enron in the US is bound to happen here. There is definitely a need for deeper and harder look at what we have been calling corporate governance over the last few years. There have been far too many self-congratulatory awards being given out in terms of corporate governance and disclosure etc. We have to as a system ‑ whether it is the government, regulators, bankers ‑ take a deep look into what allowed this to continue for so long.”

According to him, the issue raises questions on the capability of independent directors to understand what’s going on. “The whole idea of an independent director on a board is that they actually take the time, have the capacity to understand what the company is doing, what the nature of the business is, and what the details of the business are. The kindest explanation for all this is that the board of directors got conned, which in itself is not a very good thing. I think independent directors have a responsibility and there is probably a discussion that needs to happen about what’s the role of an independent director. Is it just independence that is the qualification or is independence and the capacity to understand the business that is required, when you get independent directors on board?”