It’s “all in the family” for Indian tech firm

December 17, 2008

Hold on to cash and don’t jump in to help family-owned firms.

Satyam Computer Services got this stern message this week when it was forced to dump a plan to spend $1.6 billion to buy two builders, part-owned by Satyam’s chairman and other insiders.

Ramalinga Raju, chairman, Satyam Computer Services is seen in his office in Hyderabad in this undated handout photograph. REUTERS/Handout

The move sent shockwaves across a country known for its trailblazing software industry, and triggered a cloud over corporate governance in India.

“All in the Family,” screamed the Economic Times on its front page, highlighting a furious reaction from the investment community.

Satyam’s move to buy control of Maytas Properties and Maytas Infrastructure was killed just 12 hours after it was announced.

Maytas is Satyam spelt backwards.

Satyam announced the deals after Indian markets closed on Tuesday and its U.S. shares more than halved. In the wee hours of Wednesday, Satyam bowed to investor angst and performed its U-turn, cancelling the deals.

But by then, the damage had been done.

17 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

It was shocking to read the story. I cannot understand how the board of directors (more than half of them independent) comprising of luminaries like Vinod Dham, Harvard professor Krishna Palepu & Dean of ISB M.R. Rao did not raise an alarm and actually approved the same. They owe investors an apology. I am an investor in the Indian market (via mutual funds) and am quite concerned if it was Satyam today, who would be next? Indian companies have not had a good corporate governance record in the past but I thought things were changing and one could trust the large cap names a bit. What are the regulators doing about it? I would say this is as serious an issue as the global economic slowdown and I hope the money managers would be even more stringent about good corporate governance standards before making any investment (some of which is my hard-earned money)

Posted by Govind | Report as abusive

Well, for once the ‘system’ was in place; the deal would not have gone forward even if Raju did not call it back. Now they are also under scrutiny of the Ministry of Company affairs for probably violation of Company Act. The Institutional investors may also push for change in company’s board too.
Good!

Posted by Moonie | Report as abusive

The board definately needs a change..how can he decide something like this with out concurrence of all investors ?? Raju was adament enough to say, this can go with out investors approval !!

Posted by Om | Report as abusive

Satyam or the Rajus haven’t done anything wrong. The board of the company cleared the takeovers in a legal manner. Then why are you guys all protesting? As the proverb says, sitting in a glass house, don’t throw stones.
Less said the better about the corporate governance practices of some top companies in India. Satyam is much better than many of these companies. You should thank the Rajus for building a strong IT company like Satyam.

Posted by Ganesh Kumar | Report as abusive

Folks like Ganesh Kumar should stay away from making idiotic comments. Someone else said the board should apologize for this mess? Apologize? Are you guys joking? For a $1.8B robbery attempt, the board must resign, if they have even an iota of shame.

RAMALINGA RAJU AND OTHER MGMT INVOLVED IN THIS EPISODE MUST RESIGN IMMEDIATELY.

Indeed. It’s shameful for the board to continue, having first allowed the deal to go through, and then allowing the cancellation without (obviously, unless they all had a conference call in the ‘wee hours’) consultations.

Being on board of a company has certain responsibilities associated with it. And, this board failed the company and its investors.

Posted by Sreenivas | Report as abusive

Raju with 8% holding was trying for a day-light robbery.This is atrocious and there must be a regulation stipulating a minimum share holding to be a CEO or the CEO must be a professional. He or his family starts a company, run it for some time, manipulate the valuation and then merge it with a bigger IT company wherein he is a minority share holder. This sucks. All the other major shareholders should join and force Raju to quit.

What Raju did is unpardonable and he has lost the faith i had in the company.He must go!!!

Posted by ram | Report as abusive

I think ganesh has not made any investment in Satyam himself and is hence is very acceptable to Raju pocketing the investor’s money. Let us all inform Ganesh that we are the shareholders in Satyam and were being frauded out of our rights. The total cash reserve sitting in the company was going to be paid to Raju and his family, which is totally unethical and fraudalent in nature.

Posted by Shraddha | Report as abusive

And now the buy back tactics..

Posted by Om | Report as abusive

hmmm but as one goes through the fine print it seems that no law of the land has been voilated and also the board consist of some of the best names, also this was the same set of management which made this company so sucessful so if they had bad itentions why wait till now and why would international bodies recoginize them for corporate governance, i think there is more to this than what is being splashed in press / media which seems to be only one side of the story – i think after Jet they have found Satyam to fill their columns

Posted by srinivas | Report as abusive

Satyam has been recognised globally for its corporate governance. It looks more like a game being played by pockets of media with their own agenda.

As an ex-employee who had worked with Satyam for about 10 years, i know that the board and the management team is driven by values and its focus on stakeholder delight.

The investor community has been mislead by some pockets of the media which had focussed biased anti-satyam discussions. I pity the manner in which the media back home in India has been irresponsible in the way it highlighted incorrect facts to the public, so much so that some media mentioned that the deal had been done while only the intent to acquire had been announced. The company was on the right side of the legal fence.

I hope that the team there takes adequate measures to regain stakeholders confidence that has been dented by this mis-information campaign. Am sure Satyam is going to bounce back and to a greater height.

Posted by Rajesh | Report as abusive

As someone who has followed the fame and fortune of the big 4 in India for the last decade, one definitely gets the feeling that this is more a case of misunderstood intentions or expectations rather than malafide intent.

One must remember, that a minority promoter by working in the best interests of the investor has made Satyam one of the most profitable, fastest growing and most cash rich IT organisation in India. To an outside observer, while this event itself could be a source of discomfort, 25 years of success and ethical success shoule be a source of comfort.

there is a large degree of involvement in terms of the governance of the organisation and the management focus that is provided by the promoters of this organisation.

Without a doubt a few market signals seem to have been misinterpreted, without a doubt a larger buy in would’ve helped in creating far greater credibility to the event than what it ended up doing, without a doubt, at a sensitive time like this, transparency would’ve been a much healthier alternative, that said, persecution beyond a point comes across as a witch hunt.

as the actions stand corrected, its a lesson that we all take in and move forward.

Posted by Mahidhar | Report as abusive

RamaLingaRaju haven’t done any wrong. He thinks always stakeholders Delight. Many people purchases shares only on the confidence with Raju Garu.Up and down situation is not only in the satyam.we should not prise with firm is up and should not blame when the firm is in down position. we should believe raju’s decision and we should cooperate with him.

Posted by SC | Report as abusive

Anshuman

I must share a few facts with you and others to reiterate that Satyam still fundamentally sound company:

1. Satyam has Presence across the Globe (20 Industries ,65 Countries) more diverse than Wipro & INFY. This does happen by accident. This spread helps Satyam in tough economic conditions. Did you know outside India in Asia Pac Satyam revenue are more than any of the Top 3 Indian IT services firm. De-risked Geographic revenue distribution 21% Europe, 17% Asia Pac, 62% America’s. Best present to leverage emerging markets.

2. Satyam has Mature Practices DWBI & ERP. HCL had to spend over 0.5 Bn to get the ERP skills which we already have. they just save $ 0.5 Bn

3. Revenues & Net Income have Grown Five-fold over last 5 years. This by sheer hard work by 50,000 people. Not by accident

4. FY08 was the 5th successive year of >35% Growth in Net Income. Show’s how they have got profits year after year.

5. 32% revenue coming from New & Emerging vertical : Satyam has diversified and expanded is industry depth.

6. Deepest Fortune 500 client penetration 185, Total 690 clients. Clients continue to support Satyam in spite of the issues that have surfaced in last 10 days. Company has as many clients as Infosys and strong fundamentals then why worry?

7. Company has the largest cash reserve to revenue ratio in IT industry as a result of company employees under management direction … why question it now?

8. Client delight index is a 4.5 out of 5, client retention is 98% – clients are an asset – do not loose sight of the fact and do not slight Satyam and management for just one aberration – this is an organization and not just a script on the BSE/ NYSE.

Posted by Mini | Report as abusive

Respected RAMALINGARAJU SIR,
Iam SK.Sameena one of the candidate selected for SATYAM in August 2007 in Visakhapatnam.
Sir,iam here with this letter to share my feelings regarding the happenings with SATYAM.i felt much sorry with the things and also for the extra ordinary propagando made by the media.
I feel these words give you a little moral support and also wish that with the grace of ALMIGHTY,the mighty and glorious SATYAM will get its previous name and fame. in the coming new year.
Once again i wish a happy,prosperous and glorious NEW YEAR to you and also SATYAM.
Thanking you sir
SK.SAMEENA

Posted by Shaik.Sameena | Report as abusive

I think that the board of directors meeting is just a hoax and a ritual for formality. most balance sheets are dressed up not only satyams. american investors are cheated by Price Water Coopers and the independent board directors not just by the rajus hence bring to book every one. sitting on the board must not become a matter of prestige but that of responsibility. see if the maytas and satyam and their family assets could be attached to bring back the company. ask the employees to work for resurrecting the company. ask the clients to be interested only in the service they expect out of satyam and not abandon because of the crisis as there are 53000 people working. there is a way out if people think calm and nasscom intervenes.

Posted by suresh | Report as abusive

MR.RAJU IS A SIMPLE AND HUMBLE MAN WHO HAD TO THE GUTS TO ADMIT HIS GUILT. SHOW ME ANY MAN IN ASIA WHO HAS RISEN TO SUCH HEIGHTS AND HAD THE GUTS TO ADMIT HIS MISTAKES AND ALLOW THE LAW TO TAKE ITS COURSE. THIS IS THE PRODUCT OF INDIA. HONESTY, AND ADMISSIONS OF GUILT. THERE ARE SO MANY INDIAN POLITICIANS WHO FAIL THIS TEST, WHO HAVE ROBBED THE COMMON MAN OF THEIR LIVELIHOOD OVER A DOZEN SCORES MORE THAN THE RS7000 CRORE SCAM WHICH MR.RAJU PAID IN TERMS OF INCOME TAX.ASK THE GOVERMENT TO REFUND THE EXTRA TAXES HE PAID AND IT WILL TAKE YEARS FOR THEM TO CALCULATE WITH A SIMPLE CALCULATOR AND SLEEP AND WINE AND DINE.
MR RAJU IS MADE IN INDIA- A MAN WHO HAD THE GUTS TO OWN HIS MISTAKES .
DO YOU HAVE THE GUTS AND WILL TO ADMIT YOUR MISTAKES WITHOUT TAKING ANY NAMES.
GOD BLESS YOU.

Posted by REHAN | Report as abusive