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For a time on Monday, Jan. 12, outsourcing giant Wipro Technologies (WIT) looked like it might fall victim to the domino theory. Early in the day, Bangalore-based Wipro put out a statement saying it had been banned from doing work for the World Bank for four years, a penalty that the World Bank attributed to "providing improper benefits to bank staff." Investors, fearing Wipro could be the next Satyam Computer Services (SAY), quickly sent the company's stock tumbling by 9% in Mumbai trading.
But is Wipro really another Satyam? The Hyderabad-based company, of course, on Jan. 7 shocked India and its global outsourcing clients with revelations of a $1 billion fraud by its chairman. One of the early signs of distress at Satyam had come when the World Bank accused it of bribing bank officials.
Wipro insists its situation is different. A Wipro press release said the company offered American Depository Shares to World Bank officials during its initial public offering in the U.S. eight years ago. That transaction, Wipro says, was in accordance with Securities & Exchange Commission rules, and the World Bank investors signed a statement saying their purchase didn't violate any conflict-of-interest policies. Wipro also noted that the bank represented very little revenue, so the effect of the ban on its overall sales will be minimal.
"It takes time for people to come to terms with this," says Suresh Senapaty, Wipro's chief financial officer. "Once people understand the story, the stock will be back."
Clients, though, may be rattled by the Wipro news. Gartner (IT) analyst Frances Karamouzis says she received messages from several of her customers who do business with Wipro, and expected them to express concerns about the Indian company's integrity. But she says she doesn't believe it will be a big issue for India's No. 3 outsourcing player.
"Wipro has done nothing wrong, as its share sales were approved by the SEC," she says.
Others say the World Bank may be exaggerating the problem. "It's part of a cleanup act for the World Bank, a practice which was permitted earlier but is now being questioned," says H.V. Harish, the Bangalore-based partner at research and advisory firm Grant Thornton.
Forrester Research (FORR) analyst John McCarthy believes the Wipro news ultimately will have little effect on its international clients. "The Wipro issue is eight years old—which raises the question why it took the World Bank seven years to figure it out," he says. The World Bank's office in New Delhi did not respond to calls.
Wipro's only fault, say the company's backers, is that it didn't keep the World Bank informed about the investors. "If Wipro had the foresight, it could have given the list of investors to the World Bank management. It's normal business practice to do that," says Karamouzis. Wipro and others, she says, might have overlooked the need to reveal investor names, as they "were running 100 miles an hour then."
She hopes Wipro will now go all out to provide clarity to its clients and associates. "It has to be an elegant, efficient, and…clear fixing job," she says.
With reporting by Steve Hamm in New York.
Lakshman covers India business for BusinessWeek.