The admission of fraud at Satyam Computer Services by B. Ramalinga Raju was pleasingly graphic. “It was like riding a tiger, not knowing how to get off without being eaten,” he told shareholders in his resignation letter today.

That is probably an accurate way to describe holding $1bn of fictitious cash on your balance sheet, and finally attempting to swallow up the hole by acquiring two family-owned companies. Perhaps the beast that now swallows up Satyam will be Infosys.

The fraud, which is India’s version of Enron, will cause a lot of soul-searching and international investors may have second thoughts about their faith in large Indian companies dominated by families. Lex points out that Wipro and Reliance Industries could feel some fall-out, despite not having sinned themselves.

Of course, that point applies more broadly to various emerging companies multinationals, which are still family-controlled, having grown rapidly from relatively small domestic businesses.

Families are not all alike, and the Satyam fraud is extraordinary. Still, the fact that it was uncovered by a shareholder revolt against an attempt by a controlling family to self-deal among its corporate holdings is salutary.

Sometimes the obvious point - that controlling families have divergent interests from other shareholders, and can be tempted to treat their public companies as their own - is the most important one.

January 7, 2009 2:25pm in Technology | Comment