Satyam - Corporate Governance
It was around 10 or 11 am in the morning. I was zipping through channels and there in CNBC came the Breaking News of the day - Ramalinga Raju resigned as the chairman of Satyam Computers. I did not own shares of Satyam but I immediately logged into my stock broking portal to check my portfolio and then assess which stocks of mine will take the hit. I decided against exiting my stocks though I saw the decline of shares in the short term. Being a retail investor, my exposure to stocks was limited.
But what about those who had direct exposure to Satyam stocks - Fidelity, Aberdeen those investors who till now believed Satyam was a frontrunner of the IT stocks in NSE and BSE. This is a fundamental issue of trust and faith which has been shaken. I remember the days when Satyam would rally the IT stocks after a down trend. 3% operating margin is mind boggling and Raju mentioning that no one except him knew about this is bull shit. When VPs and Head of Practice/Vertical manage the P/L for the business, they definitely have a target. Or did they? If they didn't then what the hell were the senior leaders doing? Was Raju the only individual in a corporate with 50,000 employees who had access to operating margins? That is bull shit.
Hmm Price Water Coopers again... It is time Auditors are held up responsible for any such frauds. I strongly believe that the auditor has an equal role as the promoter/management in this misadventure. So the average investor who looks into the balance sheet and the income statement to work out his ratios - what does this do to his confidence? More importantly what happens to the FII? So the question then is - How many more Satyams, DSQs and Pentasofts lie out there? - What about companies in the other industries? I read an article in moneycontrol.com from Udayan Mukherjee that Satyam is not equal to many other Indian companies... I do not agree. This principle holds good until other companies are caught... I am not saying all companies are corrupt - I still believe the top 3 - TCS, Wipro and Infosys are ethical and professional companies with strong corporate governance. But what about companies in the realty space and other industries - backed by promoters who hold a high stake and had gone with the IPO boom to cash the opportunity. The greed for cash versus corporate governance struggle could have led to quite a few choosing the former.
I do not see any direct solutions here. SEBI and outsourcing clients might increase their due diligence but unless auditors are honest and covering all areas, all those practices are not going to help.
What will the 100+ clients who have a $1m + contract do? I followed the news today morning and I heard analysts say that they spoke to some of Satyam's Insurance clients and they have plans to terminate the contract. What happens to the 52000 Employees in India, Europe and America - I heard liquidity was a constraint though Satyam paid the salaries for Dec 2008. With contract termination, absolutely no leadership, and no liquidity where do these guys get paid?
So what are the options to save this debacle? My guesses - Companies might buy the practices/verticals in parts like Tech Mahindra expressing interest in the Telecom vertical etc... Sat yam can play the consultant role to place the employees - but in recession when other IT companies are laying people off, that is difficult
Govt supporting the company is an option too...but why should the other 1 billion tax payers pay for this fraud. Yes, there are 50,000 employees that will suffer but those taxes gave to be better used. So what is the most relevant and feasible option... Clients who terminate contracts should have the option of buying the resources so that knowledge transfer is not an issue for their transition as well - This then can be managed by other companies whom they choose to work with... what if the companies do not have the funds for this buyout. They should float a tender process to identify other providers who can do it for them with or without the infrastructure but definitely with the human resources. That, I think is one way out.
But what about those who had direct exposure to Satyam stocks - Fidelity, Aberdeen those investors who till now believed Satyam was a frontrunner of the IT stocks in NSE and BSE. This is a fundamental issue of trust and faith which has been shaken. I remember the days when Satyam would rally the IT stocks after a down trend. 3% operating margin is mind boggling and Raju mentioning that no one except him knew about this is bull shit. When VPs and Head of Practice/Vertical manage the P/L for the business, they definitely have a target. Or did they? If they didn't then what the hell were the senior leaders doing? Was Raju the only individual in a corporate with 50,000 employees who had access to operating margins? That is bull shit.
Hmm Price Water Coopers again... It is time Auditors are held up responsible for any such frauds. I strongly believe that the auditor has an equal role as the promoter/management in this misadventure. So the average investor who looks into the balance sheet and the income statement to work out his ratios - what does this do to his confidence? More importantly what happens to the FII? So the question then is - How many more Satyams, DSQs and Pentasofts lie out there? - What about companies in the other industries? I read an article in moneycontrol.com from Udayan Mukherjee that Satyam is not equal to many other Indian companies... I do not agree. This principle holds good until other companies are caught... I am not saying all companies are corrupt - I still believe the top 3 - TCS, Wipro and Infosys are ethical and professional companies with strong corporate governance. But what about companies in the realty space and other industries - backed by promoters who hold a high stake and had gone with the IPO boom to cash the opportunity. The greed for cash versus corporate governance struggle could have led to quite a few choosing the former.
I do not see any direct solutions here. SEBI and outsourcing clients might increase their due diligence but unless auditors are honest and covering all areas, all those practices are not going to help.
What will the 100+ clients who have a $1m + contract do? I followed the news today morning and I heard analysts say that they spoke to some of Satyam's Insurance clients and they have plans to terminate the contract. What happens to the 52000 Employees in India, Europe and America - I heard liquidity was a constraint though Satyam paid the salaries for Dec 2008. With contract termination, absolutely no leadership, and no liquidity where do these guys get paid?
So what are the options to save this debacle? My guesses - Companies might buy the practices/verticals in parts like Tech Mahindra expressing interest in the Telecom vertical etc... Sat yam can play the consultant role to place the employees - but in recession when other IT companies are laying people off, that is difficult
Govt supporting the company is an option too...but why should the other 1 billion tax payers pay for this fraud. Yes, there are 50,000 employees that will suffer but those taxes gave to be better used. So what is the most relevant and feasible option... Clients who terminate contracts should have the option of buying the resources so that knowledge transfer is not an issue for their transition as well - This then can be managed by other companies whom they choose to work with... what if the companies do not have the funds for this buyout. They should float a tender process to identify other providers who can do it for them with or without the infrastructure but definitely with the human resources. That, I think is one way out.
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