The Satyam Saga..!

While ‘Satyam’ means truth in Sanskrit, the company Satyam Computers defeated the purpose of its name, according to many. Satyam Computers is one of the leading software firms in India. With revenues over $2 billion and 52,000 employees, Satyam has operations in 66 countries. It serves over 650 companies around the world. On 16^th December 2008, an uninvited trouble visited Satyam. Its founder and Chairman Mr. Ramalinga Raju decided to acquire two firms belonging to his family- Maytas Infra Ltd and Maytas Properties Ltd for a total value of $1.6 billion. This was to be paid through the cash piled up with the company. The Investors revolted against this which forced Satyam to call off the deal within 12 hours. Questions on the valuation of the deal came out. This feud led four Independent directors of Satyam to resign. Corporate Governance at the company was questioned after this unsuccessful bid. This is after the company has received the Golden Peacock award recently for excellence in Corporate Governance. At the heart of the continued controversy is how a large related party transaction into unrelated and troubled business area such as real estate was pushed through by the company. This was mainly because of the influence of the promoters who had only a 8.6% share which fell ever lower after lenders pledged the promoters shares for loans. Its shares fell drastically both in Indian and international markets.

This is a classic example of the power and role of shareholders in the company. Maytas was said to have extremely good projects in its hands and is a reputed company in the real estate industry. It was agreed to get around Rs.1 crore for every acre of land. But the valuation of this takeover was not done by any big firm as claimed by the company. Many people even questioned the need for such a deal since the synergy between a software company and a real estate company did not match. The secretariat at the Golden Peacock award observed that the company had laudable corporate governance policy when it was instituted by this award. The role of prominent personalities as independent directors has also surfaced. Outsiders can easily be deceived by high profile names on the board. This is not the first time Satyam is in problem. The World Bank had banned Satyam for eight years in October this year stating improper benefits and documentation. In April 2007, a British telecommunication company, Upaid Systems had filed a case of fraud, misrepresentation of facts, forgery and breach of contract against Satyam. These questions on business ethics and Corporate Governance will haunt Satyam for long. Satyam has much at stake. It has built a reputation of being one of the most transparent and well managed companies in India. But has the Board given in to Mr.Raju’s demand and functions just for his family? Is Maytas really worth the deal or is Mr.Raju trying to use the company’s money for his benefits? Only the God and Mr.Raju knows it…!