How to Limit Your Outsourcing Risk
Experts offer advice as companies around the world reel from the scandal at India-based Satyam. High on the list for CFOs: paying careful attention before hiring a service provider.
U.S. and global companies had a serious wake-up call last week when Satyam Computer Services’ founder confessed to accounting abuses that included making at least one false $1-billion cash entry on his company’s books.
Among the concerned corporations were customers directly affected by the scandal — which also brought the resignation and arrest of Satyam ex-CEO B. Ramalinga Raju and CFO Srinivas Vadlamani, and led to the naming of two auditing firms, KPMG and Deloitte, to help with restatements. (Price Waterhouse India, a separately owned affiliate of PricewaterhouseCoopers, was said to be retained by Satyam as auditor.) Satyam claims to have 185 Fortune 500 clients, including Cisco Systems, Caterpillar, Ford Motor, and General Electric.
Those companies that didn’t retain Satyam, however, also have deep concerns about the use of outsourcers, and the outsourcing industry as a whole.
Satyam’s competitors and advisory consultancies have been fielding calls since the news broke last week about Raju’s four-page confession to his board. Their clients had been asking for reassurance about their vendors’ corporate governance, and were rethinking the assessments they made before moving technology and back-office work overseas. "It’s causing a lot of people to pause for a second, and say, Oh my God, there are more unknowns and risk than I thought," says Robert E. Kennedy, executive director at the University of Michigan’s William Davidson Institute, and author of an upcoming book about offshoring called The Services Shift.
