Satyam and fraud saga
Satyam and it’s top management is busted of crores of Indian rupees fraud and hiding of actual company financials. The number 4 IT company of India stands nowhere today. The Chairman, Byrraju Ramalinga Raju, 54, will be remembered in Indian business history — not the way he would have wanted, as a successful software entrepreneur, but as the perpetrator of India’s biggest corporate governance scandal.
It used to be said Hyderabad had two major landmarks: The Charminar and Ramalinga Raju, who created Satyam Computer Services Ltd, that gave the city the sobriquet Cyberabad.
Raju belonged to a family of farmers from Bhimavaram near Vijaywada. His father Satyanaryana helped create the family fortune in a small way, shifting in the early 1960s to Hyderabad and starting a textile business even as he bought land and continued to be a farmer.
Raju recently told Business Today that after returning from the US with an MBA degree, “I had all the enthusiasm and passion to do something… of being an entrepreneur. A friend told me about a part-time teaching opportunity at the Administrative Staff College of India. This really appealed to me. But, in late 1977, over dinner, my father told me: It is always important to stay focused and to avoid distractions.”
Raju chose to enter the relatively new business of providing software services to international customers. Satyam, launched in 1987, started offering such services. In 1992 it raised money through a share sale and listed on the Bombay Stock Exchange.
It was in 1994 that Satyam got its big break when it tied up with Dun & Bradstreet. By then Satyam was well on its way to growth. What separated Satyam from say a Tata Consultancy Services Ltd or an Infosys Technologies Ltd was Raju, who was always comfortable when surrounded by family and those who could speak his language, Telugu.
Says an ex-employee of Satyam Infoway, who did not want to be identified: “For Raju, family, caste and those who could speak Telugu came first. I am not saying he was not a professional but other things being equal, he would look at things in that order.”
To some extent this was true. His brother Rama Raju was the MD of the company and till 2000, Chinta Srinivasa Raju, known as Srini Raju, who was married to his wife’s sister, used to head one of the key divisions. A lot of senior management professionals also hailed from Andhra. Says another industry veteran who also did not want to be identified, “At one point of time there were so many Rajus (in the company) that it would be difficult to identify who was who.”
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Raju has his sympathisers. The CEO of a company, who did not want to be named, noted that Raju had moved quickly to cancel plans to purchase two companies owned by his sons when investors rebelled. Echoing similar views, the CMD of IVRCL Infrastructures and Projects Ltd, E. Sudhir Reddy, said: ”Ramalinga Raju’s decision to buy the firms run by his sons should be seen probably as an aberration and one should not forget to take into account his contribution in building the company to over $2 billion.”
Satyam’s Chief Financial Officer Valdamani Srinivas on Thursday sent in his resignation, dealing a blow to efforts to hold the top leadership team intact, even interim CEO Ram Mynampati said efforts were on to continue with the business as usual.
At a scheduled press conference, Mynampati said Srinivas has sent in his resignation and the Board will take a decision on January 10, 09.
The Institute of Directors, that had conferred the Golden Peacock Global Award for Excellence in Corporate Governance 2008 upon IT giant Satyam,has stripped off the company of the laurel in view of the “falsification of the books of accounts by Satyam”.
“An emergency meeting of Golden Peacock Awards Jury was held on Wednesday in view of the startling admission made by the Chairman of Satyam… the Jury has decided to withdraw the award with immediate effect,” Chairman of the Award Jury Justice P N Bhagwati said in his letter to the beleaguered company.
“The Golden Peacock Awards jury has felt that the Award was obtained as a result of non disclosure of material facts. Satyam therefore did not deserve the award,” Bhagwati, who is former Chief Justice of India, said in the letter addressed to the Satyam Company Secretary and Head of Corporate Governance G Jayaraman.
Interestingly, Satyam Chairman B Ramalinga Raju had cited the award to highlight the company’s strong corporate governance structure to justify the boards decision to bid for Maytas, a deal that had fell through.
The IT firm was also the winner of the Golden Peacock Award for Excellence in Corporate in 2002.
Raju had insisted that all required processes and procedures were followed for making the 1.6-billion-dollar bid “while there was a spirited discussion among members, their vote to approve the motion was unanimous”.
Another institution, Ernst & Young, which had awarded Raju with the Entrepreneur of the Year Award in 2007, however, was tight lipped.
“The award is given by an independent jury and we are not in a position to comment,” a spokesperson of the consulting firm said.
The Satyam chairman on Wednesday admitted to a financial fraud to the tune of Rs 8000 crore.
It is time for India Inc and the Govt.to take action this could rule out India in the future outsourcing and the country as a reliable and trustworthy partner.
Damage is being caused to the reputation of booming IT sector, dedicated human resources,innocent investors & most importantly India as a whole .All these were possible because there are loop holes in our systems. Well said that,The present government has to compensate and assure the loss is being restored,rest mechanism ,test & trials will take its own course of action.The face of India should not shrink with shame in international market.Let the Government take the responsibility of its failure to safeguard the interest of the nation.
Imagine a situation where 50,000 employees of Satyam Computer Services form a group on social networking site Facebook or Orkut, with a title like: Satyam employees out to save the company.
Imagine them using an online poll to elect a senior one among them to lead the campaign, with a panel of others.
Now, imagine them calling a venture capitalist or private equity firm and offering a buyout.
Sounds strange, unbelievable, but sometimes, I think the Internet and knowledge workers can make things happen. I hear things that the Hyderabad company disgraced by Chairman Ramalinga Raju’s fraud may even have understated its number of employees, but is clear that the numbers run into tens of thousands.
The company was just two days ago valued at more than $2 billion but now faces the prospect of its net worth being eroded. The market value was down to a fifth of what it was at the start of the week. But I do think that the sheer presence of skilled software engineers on such a large scale, with existing customer relationships, can make them all look like a healthy startup – even if the current account-book was drained out.
That is the magic of a knowledge company. The assets are the people.
In the US, MBO –management buyout – is a common concept where sitting managers use some cash from outside to acquire the company they know how to run. In the case of Satyam, much of the existing top management – even those who have not quit and are standing by—is discredited.
But institutional investors and customers will not be averse to an MBO-style buyout in which bona-fide employees ask institutional investors.
The move would need entrepreneurial daring from a group of inspired employees, and a committed private equity firm. They can together invite an outside company with sound, credible CEO-level people to be a shell that can acquire the employees, the relationships and the brand of Satyam, even if the liabilities are such that the current book bleeds away.
It sounds like fiction, but I do remember that a company called Kamani Engineering was in the 1990s for an attempt by workers to take it over. Of course, they were unionized workers in a blue-collar-style economy rooted in the past.
In contrast, things can be dramatically positive in a tech-savvy company.
It is my belief that employees can even collectively raise a loan to buy out the company. In the age of Internet and software, a lot can be done.
Imagine, in the Silicon Valley, some companies get high valuations from VCs for the sheer idea and the team involved.
As many as 50,000 employees in collective action can certainly make a difference.
It might be a dream, but I do not see it as an impossible one.
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