Satyam and the Indian Family Business
by Gita Piramal
After all the investigations into the Satyam scandal are over, one question will remain: why did its
founder, B Ramalinga Raju, plunge into fraud?
Four out of ten entrepreneurs fail in the first five years -- but in Raju's early entrepreneurial years,
he had a family advantage. His father, Satyanarayana Raju, built a grape growing business
profitable enough to support entrepreneurship in the next generation (three sons and one
daughter). It was a big relief in the Raju family when, after a rough stretch, the grape farm started
bringing in a steady income. This new prosperity led to a transformation of the family from
farmers to professionals. During such transitions, typically parents want their children to become
doctors, lawyers or engineers. Satyanaranaya could afford to send his two sons to the USA,
where Ramalinga became fascinated by computers -- hence the family's entry into the IT industry.
A highly talented entrepreneur, Raju built Satyam to a point where it had 185 Fortune 500
companies as customers; 53,000 very employable employees; and systems and paperwork so
sophisticated that razor-sharp analysts from the world's top financial firms could not detect a fraud
committed over seven years.
Indian family-run businesses historically have taken the notion of governance very seriously. In
2003, when new governance regulations were implemented around the world in the wake of the
dot-com implosion and the Enron debacle, 71 percent of family owned businesses in India said
they had "tightened up internal controls as a safeguard"--despite the governance regulations
mainly affecting only publicly traded firms, according to a Grant Thornton International Business
Owners' Survey (IBOS) in India that year.
But by falling into the temptation to cook the books, Raju was soon "riding a tiger, not knowing
how to get off without being eaten," as he put it. In the process he not only seriously damaged the
company--he destroyed the family inheritance and the legacy he had so carefully built.
Legacy -- the conviction that one is not just building a business, but providing a
stable and successful future for the next generation -- is one of the most
important aspects of the Indian family business.
In the West, aging entrepreneurs either sell off the business or close it down if their children don't
want to run it. In India such an approach is largely unthinkable; it's assumed both that children will
continue the family venture, and that parents are building the business for that very purpose -- not
to sell it. Indian culture, like most of Asia, puts society at the center, unlike the West (and
particularly the USA) where the individual is foremost. Hence Indian social mores are geared
towards protecting the family business. These social mores, in turn, translate into government
regulations that make it very hard to close down a business. Further, if a firm closes its doors or is
sold, it is automatically assumed that there was a failure -- rather than just a rite of passage in the
entrepreneur's long career.
Very recently, we've seen some changes to this culture, from leaders like Hemendra Kothari (a
merchant banker who sold his stake in DSP Merrill Lynch to Merrill Lynch) and Narottam
Sekhsaria (founder of cement major Gujarat Ambuja), but these entrepreneurs are still seen as
It's too soon to tell what effect Satyam will have on the family business either as concept or
institution. Family businesses in India remain vibrant. Could the Satyam example (couched as a
"family business gone wrong") or the recent examples of Westernized succession planning
change the cultural norms of family businesses? Perhaps. But parental figures in these
businesses are still under tremendous pressure to build their legacies, and their children remain
expected to follow in their parents' endeavors. Whether this remains the case rests on the
shoulders of India's other, diverse family entrepreneurs