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Indian Outsourcer’s Woes May Open Doors for HR There

September 16, 2011
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Revelations of fraud at Indian outsourcing firm Satyam Computer Services have raised questions over the strength of corporate governance among that nation’s companies, highlighting a challenge facing HR as the profession evolves there.

Yet the problems at Satyam, once ranked by Hewitt Associates as the second-best employer in India and the third-best by Mercer, reveals an opportunity for HR leaders there to take a larger role in how a corporation is governed, according to some observers.

Satyam founder B. Ramalinga Raju confessed Wednesday, January 7, that he grossly inflated the company’s revenues and profits in recent years, sending the company’s stock tumbling and jeopardizing the future of its 52,000 employees.

In a letter sent to the Satyam board of directors, Raju admitted that he had lied on earnings reports. He said $1 billion of the company’s cash listed as assets for the quarter ended in September did not exist and that revenue was a fraction of what Satyam had reported.

The company, based in the south Indian city of Hyderabad, provides IT services to more than 650 companies, including Fortune 500 firms Cisco Systems, Unilever, Nestlé and General Electric.

The HR profession has evolved rapidly with India’s economy.

Before India’s economic liberalization in 1991, many industries were state-run. HR’s role was mainly perfunctory and administrative. The decade-long tech boom in India lent star quality to HR professionals, as the focus shifted to hiring and training tens of thousands of employees annually.

“Too often, [HR] has been limited to recruitment, training and employee morale,” wrote Ameet Nivsarkar, vice president of Indian IT industry group Nasscom, in an e-mail. “I would think HR can play a major hand in internal processes such as setting up ‘whistle-blower’ policies or grievance redressal mechanisms and that can help improve corporate governance. HR can also design policies that empower employees to keep their eyes and ears open and report without fear of retribution any misgovernance within the corporations.”

Arun Rao, head of HR for Hyderabad-based software testing company AppLabs, said the current global economic uncertainty makes the need for corporate governance in India all the more pressing, as problems at one company can easily infect whole economies. Rao wrote in an e-mail that HR professionals in India are shut out of corporate governance decisions.

“It is so easy to say that HR people need to be conscience keepers/challenge the wrongdoers, etc. ... but often they may not even get a chance to do that.”

The scandal afflicting what was once one of India’s most respected companies has given management principals a new sense of mission in India, said N.R. Narayan Murthy, founder of Infosys, one of Satyam’s competitors and one of India’s largest tech firms.

“Right now, all of us must conduct ourselves in the most legal and ethical manner,” Murthy told the Times of India. “It is a good warning signal for all managements.”

—Jeremy Smerd

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