Amidst the Ruins: Understanding the Satyam Saga

This is big. Any news which replaces current Indo-Pak diplomatic rhetoric from the headlines, occupies around 30% of space on leading national dailies and prime time on television even on day five after the world got to know the supposed irregularities in the books of Satyam Computer Services, it has to be big. Even the separation of the Reliance Empire did not command such News space in such a short time. Any News which gets a lazy person like me to write about it has to be really, really big. The reasons for me writing this blog are diverse. As an employee of Satyam, I want to quell few rumors which have been doing rounds in the over-zealous media. At the same time I want to reach out to my well-wishers and thank them for their support. The last few days have been an overwhelming experience. Inundated with calls from as far as US and UK from friends, I just want to assure them things are OK at this point of time. I also want to reach out to my supposed well-wishers who have been sympathizing with me ever since the news broke out, asking me for my updated CV. Friends, thanks for your concern, but I would rather sink along with Satyam rather than send CV to people who may not even look at it. Especially in times like these, where jobs are scarce, your show of concern is superficial to say the least. But anyways, thanks! However, my biggest reason for writing this is to capture this moment in present and when we live to see another day, possibly learn few things from the whole fiasco. I personally have never seen an event of this magnitude in the history of Corporate India. Events are unfolding almost every hour and this whole episode will soon find its way to management course books as a lesson on Corporate Governance. Even as I write, the new Board has been constituted by the Indian government which is one big positive step to take control of the whole situation. In light of these facts, I would like to share my views and understanding of the whole episode which has rocked the company which employs me. Hopefully, this will also put an end to endless calls and messages that I have been inundated with since the whole thing erupted. Rather than responding to all those messages individually (which I am sick of receiving), I thought it would be wise to write this whole blog the way I see the situation.


The Scandal: When I first heard the news of Raju’s resignation, I wasn’t surprised. I had somehow predicted this. But the accompanying confession rocked me as much as it did the other employees and the stock market at large. The news was hard to fathom, especially for people who have almost spent majority of their career at Satyam. The next two hours, work came to a grinding halt. News some based on facts and some based on pure conjecture was flying thick and fast. There were long drawn faces inside the company with the worry of a crushing future written large on many faces especially on some of the fresh recruits who are just starting their career. Five days into the scandal, things look much better. As I try to put together the pieces of this hard to construct puzzle, I fail in my quest to put the pieces in their proper place every time. The truth is, even after five days I am unable to buy the story of the fudged books. Simply because of the fact that with so low operating profits (as stated in Raju’s letter) you just can’t build an organization of this size. Some of the facilities (read Campus) are world class and it amazes me if all those can be built just on wafer thin operating profits. There is more to this story than we heard till now.


Ramalinga Raju: The reason for writing about the former chairman of Satyam (who was not only revered in the IT circles but almost worshipped in a city and a state which he put on the world map) is simply because of the fact that the size of the fraud astonishes me and the guts he showed in admitting to the whole fraud. I still don’t know the magnitude of this scandal and the reasons for it, but my outside guess is that Raju was done in by the economic downturn and the resulting fall of the realty prices where he was betting big. But personally I think it’s not proper to doubt his intentions, one can’t build a company of a size of Satyam with evil intentions. It just seems that there was just too much pressure on the recent events surrounding him. However, I can understand the investor fury. Even the frustration of some of the employees is understandable, they just feel like betrayed by a man whom they looked upon as a role-model just about a month ago. But seeing him being taken by the police, I just had one thought going through my mind. Money is just not everything and greed makes one do all kind of things. So the lesson, there is a very thin line between being ambitious and greed.


Investors and the Stock Market: after reaching 188 in the morning trade on both the exchanges (in India), what followed was a free-fall. Around 300 million Satyam shares changed hands, and possibly with it changed the fortunes of millions of investors. The reaction was understandable. Needless to say, Satyam share has always been a favourite scrip since the time it got listed. I know a lot of people (retail investors) who have invested hugely in Satyam. My heart goes out for them, some losing almost their entire life savings in a matter of few hours. But I guess, there is a fundamental lesson to be learnt from this fiasco, especially retail investors. People who don’t know even know basic terms like volume of shares traded leave alone sophisticated terms like P/E ratio, EPS are trading heavily in stock markets these days. Most of their investments are based on hearsay. Just few days back, one of my colleagues was telling me a story where one of his friends wanted to buy Satyam stock at any cost, and this guy didn’t even know if he required a Demat account to trade in shares. I hope this whole incident will make people more prudent when it comes to investing in stocks. Even though the share has nosedived, retail investors are still trading heavily. One more thing which some of the investors need to be cautious of, don’t follow the analysts blindly when they give some stock advice or that much required tip. I have been following these analysts (while they follow the stocks J ) and experts of the stock markets, and more often than not their predictions have gone in a divergent direction from the stock market behavior. I hope once this fiasco settles down, government takes a notice of these analysts coming frequently on the TV shows and making a recommendation. Because what they say, retail investors follow blindly. One way of moderating this is to have only certified investment planners come to these shows and give guidance to the retail investors. Others please keep away, you are better off at the stock market rather than giving your ill-advised views to the retail investors. However, public memory is short. Once the market stabilizes (because I strongly believe the Indian Bull story is intact) and dust settles on this incident, we will have people back to the same old naïve way of investing based on speculation. I just hope and pray that better sanity prevails after this incident.

There have been few talks of reversing the trades done on January 7th so that investor wealth can be preserved. I think that’s a remote a possibility. Though the stock reached almost to Rs. 6 on NSE it has come back above 20. Thank God, stock market was closed on 8th Jan on account of Muharram otherwise who knows one of the analysts prediction of the Satyam Scrip going to zero may have come true. But I think, SEBI (Securities and Exchange Board of India) should have acted proactively and stopped the trading in Satyam shares the moment it received Raju’s resignation. There was a similar move by NYSE (where Satyam shares plunged almost 90% in the pre-morning trades), which I think was a move in right direction to protect investor interest. However, this is just my view as a lay man, there are better educated people on the subject and I am sure they would have factored all the points when arriving at their decision. Having said all this, I am not making a recommendation on the stock (lest some of my friends, colleagues and acquaintances follow it blindly), but what I can say is that the business model of the company is sound enough to weather the crisis though the damage is irreparable.


The New Management Team (Interim Team headed by Ram Mynampati): The current CEO is not the favourite of many people because of the fact he was on the board when the controversial Maytas Deal was passed unanimously by the directors. I am just five months old in Satyam and don’t know much of the people in the SWAT team, but I would like to give a big Thumps Up to the new SWAT team formed immediately after Raju’s resignation. Simply, because of the fact that they showed a lot of courage at the Press Meet on 8th January. Its not easy to face a hostile media when you don’t have answers to most of the questions, when the odds are against you and the whole world is pointing fingers at you. I guess all of them showed great composure in handling the media and putting their point across; to ensure business continuity while retaining customers and protecting the careers of around 53000 employees.


IT Industry: The reaction of the industry was on the expected lines. Everyone expressed shock at an event of this magnitude and believed this to be a one-off case. I still believe and hope that it doesn’t taint the Indian IT Industry as whole. Having been a part of this industry, I have been privy to some confidential client data and I can say with all my integrity that I have followed the norms of the client confidentiality in all my assignments. The same goes for people whom I have worked along at various client sites from various different companies. However, one comment which stands out is from Mr. Narayan Murthy, mentor Infosys. His comment that Infosys wont acquire a tainted company like Satyam was not only in bad taste but simply insensitive, especially to 53000 employees of Satyam and their families. There was no need to prefix the word “Tainted”, his simple comment that Infosys won’t acquire Satyam would have been just fine. Mr Murthy, you are looked upon as a statesman by the Indian IT industry and as a role-model by a young IT work-force but I am sure you lost many fans by this comment of yours. Not long ago, a top level executive of Infosys was accused of Sexual Harassment. That does not mean every manager in Infosys is a Sexual Predator. That also doesn’t mean women boycott or black-list working in Infosys because it has tainted image of Sexual Harassment by its former top level executive. That also doesn’t mean that the former Infosys executive in question who heads another reputable IT company (also listed on NYSE) will render the employees of that company “tainted”. If that’s the case the whole IT industry will be tainted in some way or the other. Not to mention the fake resumes, fake tour bills, fake medicine bills, overstated LTA bills which are so rampant throughout the industry. Please understand the fact, the strength of any company are its employee and as Ram Mynampati said “ The true might of Satyam is a Satyamite”. Satyam is not Ramalinga Raju and Ramalinga Raju doesn’t mean Satyam.


The Role of the Government: Honestly, I have been surprised by government’s intervention. I wonder what would have been their response if the same had happened if there was no economic downturn. But there is no need to be cynical. All the steps taken so far by the government have been in the right earnest. Their choice of Board of Directors has been impeccable. What better names than Deepak Parekh, someone who transformed the home lending industry and Kiran Karnik someone with wide industry linkages? I have also been impressed by the non-descript minister for company affairs Mr. PC. Gupta who till now was almost non-existent for major part of UPA government’s tenure. He seems to be taking stock of the situation really well and more importantly till now he has not given any irresponsible statement.


Role of Independent Directors: Satyam board had some of the most accomplished names of the industry around the world. But there wasn’t a single dissent note when the Maytas Deal was passed even though everyone knew about the conflict of interest of the promoters. Needless to say, the image of independent directors has been tarnished. Manmohan Roy, the Dean of ISB had to quit from almost all the posts he held. Krishna Palepu, Professor at Harvard is rumoured to have asked by Dr.Reddy’s to leave its board. Post his fiasco, the role of independent directors is going to be under scrutiny and I think there will be much more stricter guidelines detailing their conduct and conflict of interest if any.


Auditors: If the facts stated by Ramlinga Raju in his letter are true even by 50%, then I think Price Waterhouse Coopers, Satyam’s auditors should be banned. More than anyone else they would be the ones responsible for playing with the sentiments of the investors if the allegations of their misconduct are true. But I still fail to understand, how can a firm continue to overstate its books for a period of several years? If that is the case, the role of the bankers should also be probed and serious action taken against them to thwart such events to repeat in future. I am sure the government will take these steps to instill investor confidence.

The Press: I don’t think the Indian Press (both the print and electronic media) has learnt much of its lesson from some of the irresponsible reporting of Aarushi Murder Case or as recently as the Bombay attacks of 11/26. Not that they haven’t been part of some sort of civil revolution. Who can forget the effective role played by the media in Jessica Lall Murder Case, BMW Hit-n-Run Case or Priyadarshini Matto Muder Case? But some of the reporters in their zeal to get the news fresh don’t even try to ascertain the veracity of the news. Some of the vernacular media, in fact goes one step ahead. Media has the most important place in a democratic society; their responsibility is not limited to breaking news but credible reporting. I would rather have verified delayed news rather than breaking news based on mere conjecture. When I came to Hyderabad, I could see a clear disliking for Times of India by many people especially in Satyam. Having grown up on Times, I found this fact a little startling and hurting. But the reporting of the last five days, and I can figure out the reasons behind the dislike. Below are few masterpieces from the responsible media which does not think twice before printing or telecasting anything which can be NEWS. Also being an employee of Satyam and having been part of this whole mess I thought I will come offer my explanation of the news items listed below.

a). Satyam Employees Shamefaced (The news item carried a photo of a girl whose face was covered by her dupatta with only the eyes visible).

Anyone who works in Hitec City or Madhapur in Hyderabad will testify the pollution levels and the dust. It’s a common sight where girls (not just so called shame faced Satyam Employees) cover their faces with dupatta. But our over enthusiastic reporters see only Satyam employees.

b). Satyam CFO Srinivas Vadlamani Tries to Commit Suicide

This news was all over the vernacular media, with some local channels even showing sound bytes of an ambulance to give credence to the news. Two days after the news, the lesser said the better. Everyone knows the truth about this news.

c). Satyam to Axe 10,000 Employees

I couldn’t get the motive behind this news. Was it to create more panic among the already demotivated employees or encourage a mass exodus? The source of this news, which was picked up by almost everyone on the internet; an executive of a head hunter company. This news re-affirmed my faith that it is easier to be famous these days. Just say something in a crisis with certain disclaimers and you are sure to get a good coverage. However, what this news prompted, an official reply from the HR Head of Satyam reaffirming the priority of the current management was to secure the future of employees and retaining the customers.

d). Satyam Fiasco: Investor takes Life (Though I don’t remember the correct headline, but the headline attributed the suicide to downfall of Satyam shares).

This is a perfect example of reporting with disclaimers. The news talks about an investor losing around 14 lakh rupees in the share market and his family talking about the person being depressed over losses in the share market. Only the last line says that it is not known whether the investor had exposure to Satyam shares. The paper surely knows how to attract readers based on headlines. And the paper? Who else, TOI.

Personally, I have never been in favour of media regulation because that would take away the basic tenets of our democracy but I think some of the stalwarts from the media should raise their hand and draw some guidelines on self regulation by the media. Otherwise, God forbid, in case these overzealous reporters are posted in a war like situation with our enemy, they may term a simple tank attack into a nuclear attack. Just imagine the kind of panic it may create !!


Satyam Employees: It would be an understatement to say that this news hasn’t created any panic among the employees. Especially people who are new to the industry and budding with enthusiasm at being part of this industry. The last few days have been a great learning experience for me. It is rightly said that you learn more in a crisis. And also crisis test the strength of your character. Amazingly, over the past few days I never ever thought of losing my job (being a bachelor definitely helps ) though it is not a threat which is non-existent. But simply for the fact, I think it is a passing phase and it is your abilities as an individual which are the major factors for your success. Within the organization, with each passing day, the resolve of the senior management to quell all rumours doing the rounds in media and assure the associates to focus on client deliverables has been growing stronger. The fact that we are in it all together makes for a comforting factor. Except for first few hours, business has been usual. But there has been a lot of fire fighting to say the least. Assuring the clients about the continuity in business and associates about their future has been the priority of the senior management ever since the scandal broke out. Everyone knows the fact that we still don’t know the enormity of this mess, but we are committed more than ever to emerge out of it stronger. Most of the colleagues I talk to, are eager to turn it around at least one more time for our very own sake.


The Future: We will surely live to see Happy Days again ! I still think the business model of the organization is intact. The workforce remains committed. Clients, well that’s a big question mark. Their confidence has surely been dented. Going forward, lot of clients will have certain other parameters while evaluating vendors not only from India but elsewhere as well. Can Satyam sustain this crisis? Yes, very much. But only sustain, because the brand value has gone. Getting new business will be extremely difficult if not impossible with the same brand. Impact on Indian IT Industry? Yes, there will be, as I said clients will have more parameters while evaluating vendors. But the Indian IT story remains intact. This is just a passing phase. What about Satyam Employees? My way of dealing with any crisis is to think of a worst case scenario. The worst case scenario for Satyam is that it may go bankrupt. The worst case scenario (if it does happen) here is a rarity. There is no such precedent in the Indian history where a company so huge goes bankrupt. If it does go bankrupt, this will be a watershed event for the Indian IT industry and may have larger ramifications which we can’t even think about. So the clear answer is, No. This is too big and a marquee company which the government can allow to go bankrupt. More so, in times like these where India has been one of the few countries which has weathered the economic downturn better than rest of the world. The collapse would put the focus on India and it would be a big setback for it to emerge as a leading investment destination. Solution? Well after ruling out the bankruptcy part and continuance of the brand Satyam. We really have few choices. All of them point towards a possible merger or an acquisition. And that is possible once the potential suitors get to know the real valuation, because there is still value in the whole business. However, the increasing lawsuits by the day, may rule out a complete takeover or merger. So the company being segregated by the line of business and merged along with different companies is a big possibility. Possible suitors? I have a gut feeling about the kind of company that may take over but I would rather not talk about it. Your guess is as good as mine. What this holds for India? As a whole I think this event will lead to tighter corporate governance norms, investors getting more prudent when investing, even employees will think twice about joining the big names of the Indian IT industry. Going by the way government has shown pro-activeness in dealing with this crisis, I won’t be surprised if few companies do file for bankruptcy in the next six or twelve months especially few realty firms which have been bursting at the seams ever since the real estate boon died down. This event may encourage them to rush to the government for a bailout. Just before closing this blog which has been a rather long and painful one, I simply hope this event brings a lot of sanity to us as individuals and price rationalization for just about everything (Property, Cinema Tickets, Food and the list goes on!!!). Just about everyone is fleecing you the moment you mention the term ‘IT’ to them. Auto-wallahs, House Rent, Property Prices and even the local Kirana store !

Disclaimer: The views expressed above are purely personal. They in no way are intended to influence investor actions or shouldn’t be treated as an official version of the Company.