Satyam fiasco – Lesson 1

Yesterday was a very sad day for the corporate world in India as well as the culture of India. Ramalinga Raju confessed to cooking up Satyam’s books for years. How much money / wealth does a person need? Where was the need for Raju to do what he did? If the company did not grow to the market’s expectation, so what? Its not the end of the world. This unfortunate incident has raised many questions, some obvious and some not so obvious. I have been writing about some of the issues involved here. In next few days, I will discuss some of these issues here, so stay tuned.

First issue that I would like to discuss here is the root cause of the problem, that is, our obsession with achieving growth. I have written a number of times about this topic. Our obsession to achieve unprecendented growth year after year is the cause of all our problems. “Unnatural” or “forced” growth forces you to take undesirable actions which ultimately land the company into problems. It was Raju’s wish to show higher growth that forced him to cook up sales numbers. We need to realize that we should aim for what I call “natural” growth which will come automatically from the correct actions that you keep taking. Once should not think about higher growth but rather one should focus on figuring on taking the right actions. You can get the best results and the highest sustainable growth by taking the right actions only. You will agree that cooking up books is not the right action.

There is another serious problem which arises from unnatural growth, that is, you establish unachievable benchmarks for growth. In the following years, you have to surpass the unachievable benchmarks and you have no choice but to keep riding the tiger as Raju said. You will have to continue to take more incorrect actions to achieve more unnatural growth which is not sustainable.

For instance, it is a common practice adopted by companies to extend their financial year by a few weeks or days to meet their target or boost their topline. They keep their books open and add the sales during this period in the previous year sales to show inflated sales figures. This simply raises the benchmark that the company has to cross next year and the company has no choice to again cook up the next year figures the same way. Unless they have a good year in which they can make adjustment, they are bound to get into trouble.

So the first lesson to be learnt from this fiasco is that we should focus on taking correct actions rather than some ambitious sales numbers to please the stock market or the ego of the CEO.

Avinash Narula

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