Amid management turmoil following the financial scandal of its founder, Satyam Computer Services Ltd, still remains the consultant for quality check and project management for the Ethiopian Airlines’ multi-million dollar IT transformation project.
The management of Satyam assured the Airlines through Ernst & Young, the company which was involved in developing Ethiopian‘s repositioning programme in 2004, that the project it is handling will remain unaffected by the situation.
“We wrote Satyam about our concerns when we heard news of the scandal,” Kemeredin Bedru, Ethiopian‘s vice president (VP) for IT told Fortune.
“We asked whether they are still up to the commitment.”
In a reply last Friday, January 23, 2009 to Zemedineh Negatu, managing partner of Ernst & Young, the Indian software and IT services firm, stated that despite the management changes by the Indian government it will continue to deliver its services in accordance with the commitment it made when the agreement was signed.
About six months ago Ernst & Young and Satyam, as a consortium, signed an agreement with Ethiopian Airlines under which Satyam has become the IT Consultant and System Integrator for the airline’s 30 million dollar worth IT and Business Transformation Programme.
IT strategy development is one component of the national carrier’s programme to grow into a world class airline. It includes software procurement and training of its staff.
Under the agreement Satyam provides staff resources and IT experts who ensure that the various technology equipment and software Ethiopian procures to upgrade its entire IT system are up to standard, efficient and installed properly.
However, Satyam, which was once India’s fourth-biggest software and IT services firm, was shaken-up by the Indian government following the revelations of the scandal its co-founder and chairman Ramalinga Raju has put the company in to. The software services firm had overstated profits and hidden liabilities in a 40 billion Rupee (nearly 816 million dollars) scandal following which Indian industry lobbies called for stricter corporate governance norms.
“Satyam was always seen as one of the top Indian IT companies and often represented as a shining example of Indian liberalisation and entrepreneurship,” Rajeev Chandrasekhar, member of parliament and president of the Federation of Indian Chambers of Commerce and Industry (FICCI), was quoted by The Economic Times, an Indian newspaper. “This fraud on the investors and employees of the company shows a systemic breakdown in audit and board oversight of the company.”
Chandrasekhar urged for questions to be asked to quickly establish how and who caused this to happen, according to the newspaper.
Nasscom, the apex body of the IT industry in India, also expressed disbelief following the confession made by Satyam Computers’ erstwhile chief, Raju, who admitted to the fraud before quitting.
Another industry lobby, Confederation of Indian Industry (CII), has also conveyed its disappointment.
“We believe there is need to immediately examine the loopholes in regulation, accounting, auditing and governance that allowed such lapses to occur and address them with urgency,” CII said.
The Associated Chambers of Commerce and Industry of India (Assocham) had, too, expressed shock and suggested setting up of an investigating committee.
The Satyam scandal was a very serious issue which has led to the resignation of the chairman of the company. Raju, his brother, and Satyam’s chief financial officer have been put in custody, charged with criminal conspiracy, cheating and forgery while Satyam is now in the hands of three directors appointed by the government. If there is no swift action, Satyam’s rivals may pick up its most lucrative customers and best employees, according to The Economist.
Nevertheless, both the Airline and Ernst & Young are confident that the work they have given to Satyam remains unaffected by the situation.
“It is something that has to do with their accounting system and financial operations,” Zemedineh told Fortune. “Their business model is still the same.”
The problem Satyam is currently facing is different from its ability to handle the project, according to Zemedineh.
Kemeredin shares Zemedeneh’s view that the company still can handle the project effectively.
“I am completely confident that the company will finalize the project as agreed,” he told Fortune.
Ethiopian‘s IT and Business Transformation Programme is a two-to-three-year project for which Satyam assigned one programme director and deploys subject matter experts.
“Ownership and management changes will not affect the employees and experts,” Kemeredin said.
Though both the Airlines and Ernst & Young consider the Indian company dependable, they, at the same time have their own contingency plans.
“Our staff have been working with Satyam; thus we have been building our own capacity,” the VP said. “In cases of default, we will continue to manage the programme and use experts available in the market.”
Zemedineh believes that Ernst & Young can take over the programme in such cases.
Ethiopian involves its staff in the programme because it targets taking it over by itself at the end of the project period.
Established on June 24, 1987, Satyam is one of India’s leading global business and information technology companies. It delivers consulting, systems integration, and outsourcing solutions to clients in over 20 industries. It also leverages deep industry and functional expertise, leading technology practices, and an advanced, global delivery model to help clients transform their highest-value business processes and improve their business performance.