India has its 'Enron moment' after revelations of Satyam founder's £1bn fraud

Ramalinga Raju, who resigned as Satyam chairman, amid a scandal that sent company stocks tumbling 70%. Photograph: STR/EPA

Indian industry vowed to improve its corporate governance today after the founder of one of the biggest outsourcing firms confessed to a £1bn fraud, the country's biggest corporate scandal in living memory.

B Ramalinga Raju, the chairman and founder of Satyam, admitted he had made up profits for years. More than 70bn rupees (£1bn) had been deceitfully booked on the company accounts.

In what is being called India's "Enron moment", Raju and his brother hid the deception from the company's board, senior managers and auditors. "It was like riding a tiger, not knowing how to get off without being eaten," Raju wrote.

But the confession pointed to serious lapses in corporate governance that will have global repercussions.

Questions have been raised about the role of the company's external auditor, PricewaterhouseCoopers, and the role of its independent directors, who include the father of the Pentium chip, Vinod Dham, and Krishna Palepu of Harvard Business School.

Experts said the "culture of good corporate governance needed deeper roots" in India.

"The idea of corporate governance has not sunk in as much as it should. Certainly we have dynamic, modern companies in which it has but in many family-owned businesses it has not. We need truly independent directors and auditors," said T K Bhaumik, chief economic adviser to a $2bn family-run conglomerate, J K Organisation.

Other commentators said legal changes would help. For example Hong Kong made it mandatory to count proxy votes on shareholder resolutions at annual meetings. Ironically, the World Council for Corporate Governance ranked Satyam as among the best-run companies in the world.

Infosys, an outsourcing company likely to benefit from the fall of a key competitor, said the fraud was deplorable and that the government and regulators "must investigate and make necessary changes to regulations so that such incidents do not happen in future."

What is clear is that Satyam is rapidly running out of cash and its interim chief executive, Ram Mynampati, announced that the company was still struggling to determine the size of the hole in the company accounts. At a news conference at the company's headquarters in Hyderabad, Mynampati said the company was still uncertain of its financial position.

Rivals are unlikely to be interested in the company. The non-executive chairman of Infosys said it would not bid. "We have no such interest in looking at buying Satyam or anything like that. Absolutely no, we will not touch such tainted company," Narayana Murthy told Indian television.