Satyam: When Will People Learn?

In acknowledging an enormous fraud at Indian outsourcer Satyam, the chief executive said the overstatements of earnings, revenue and cash were, well, not really intentional. It’s just that he had this small problem a few years ago, so he fudged a bit. Then, to cover that up, he had to fiddle a bit more. Then a bit more. Now, he’s having to acknowledge a scandal that threatens to kill a company that he spent more than two decades building and that employs 53,000 people worldwide.

The CEO, B. Ramalinga Raju, said his ever-expanding fraud felt to him “like riding a tiger, not knowing how to get off without being eaten.”

But that’s how it always is. Just ask Bernie Madoff, who hasn’t explained himself publicly but who surely started his fraud so small that it didn’t even feel wrong, and intended to keep it manageable. Or ask Enron, MCI, Waste Management or any of the other dozen or so companies we cite in our book as examples of companies that prettied up their numbers just a bit, assuming that whatever problem afflicted them was an aberration and that future growth would let them get back to reporting the real numbers–only to find that each additional quarter required a slightly bigger lie, until finally reaching the point where the tiger ate them.

The lesson is simple: Don’t do it.

Don’t dress up the numbers beyond anything you could defend if you were the subject of a front-page article in the Wall Street Journal. Otherwise, you, too, will learn that frauds don’t stay small and that you will get a chance to see how you look in an orange jumpsuit–or whatever color prison garb is in India.

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