The Satyam scam saga may be, but the Hyderabad IT firm’s woes are not. There is still a lot of uncertainty around the restatement of accounts, legal liabilities, transition plans and surplus employees. The sale to a strategic investor, in that sense, is not an end in itself. It is a promising start.
Even though the “game-changing” buyout has the ability to free Tech Mahindra from the overwhelming dependence on one client (British Telecom) and one vertical (telecom), it comes straddled with its set of challenges. For starters, two critical aspects of Satyam — legal liabilities and re-statement of financials — remain shrouded in mystery.
Remember, as well, that the company still faces over a dozen class-action lawsuits in the US; and the two-year-long litigation between Satyam and Upaid still remains an overhang on the deal. On the operational side, Tech Mahindra faces the daunting task of ensuring that Satyam’s clients do not walk away — that itself could prove to be an uphill task given that its own experience is largely limited to the telecom domain. Even if one were to argue that key Tech Mahindra nominees on Satyam board have had an association with the Noida-based HCL in their previous avatars and are therefore well-poised to steer a diversified business, there are still issues pertaining to excess staff and the operating margins of the scam-hit company.
It is certain, for example, that it will be difficult to continue with Satyam’s employee strength of 48,000 when revenue run rate is seen at substantially lower levels — now at an estimated $1.3 billion compared to $1.8 billion earlier. Indeed, it is being said that up to 10 per cent of Satyam’s employee base could be redundant. On the other hand, new business in troubled times is hard to come.
An Example
But all said and done, one fact is incontrovertible: Thanks to the way Satyam has been handled, it has the potential to become a classic case study on how to manage the after-effects of such deep and massive corporate shocks. The entire episode has demonstrated India’s ability to handle large crisis, an ability that not many people would have thought existed. A key takeaway from the incident is clearly the finesse with which it was handled.
As the Satyam Chairman, Mr Kiran Karnik, puts it: “While we may look at regulations and systems, some of which may need to be tightened-up to prevent a repeat of what we have seen in Satyam, there is also a need to bring in more ethics.
The issue is, can you put in enough ethics that people do not resort to fraud even if a loophole exists? Education and ethos within corporate India is important and the acceptability levels have to be changed. We have to take a tougher stance on ethics. Do not wait for legalities, ethics is all about self-discipline.”
Critical Focus
The Satyam affair has also highlighted a point that has been made over the decades and is now being made again by Mr Karnik: Promoter-owners must go out at the proper time. “They bring a lot of value and I do not want to minimise that, but there is a point where they need to handover (the control) to professionals,” he says.
Satyam has also focused the spotlight on corporate audits and standards, the role of auditors in detecting massive frauds and, to an extent perhaps, the role of independent directors. At this point it is hard to say what will eventually emerge as a result of this focus, but one thing has become clear: the standards have to be tightened and enforced properly.
“Three elements were critical — ensuring that the process was smooth, transparent and quick. Had we waited, the customers and employees would have walked away. Transparency was essential too, as there had been a case of fraud. We also wanted to ensure that there were no jolts. So customers must not see a break in service. Similarly, with employees, we had to make sure that they do not lose confidence,” says Mr Karnik.
The question, though, remains: Could the swift, smooth and efficient handling of the case been possible without help from the Government. “Frankly I think there are lessons for Government, too. The concept that the Government helps but does not interfere, we saw that exemplified here,” says Mr Karnik. Each move made over the last few weeks has been well-orchestrated.
The stakes, after all, were high. Satyam-gate, as it is sometimes dubbed, had left an IT giant with high brand value and marquee clients tottering on the brink of a collapse; and fate of its then-50,000 employees hanging in the balance. At another level, the fraud had seriously dented the image of corporate India, and threatened the goodwill earned by its thriving outsourcing industry.
Commendable job
It speaks volumes for the way in which the affair was handled that although the company itself was mired in controversy, the interest of suitors in acquiring Satyam either in part or as a whole had not waned.
The modalities for a stake sale were thrashed out, and Goldman Sachs and Avendus identified as investment bankers. The sale of 51 per cent stake was conducted under the watchful eyes of former Chief Justice of India Mr S. P. Bharucha.
Most importantly, the process kicked-off within weeks, perhaps because the Government-appointed Satyam Board was aware that any delay in the process would seal the fate of the troubled firm. As suitors including Tech Mahindra, L&T, Spice Group, WL Ross-Cognizant started lining up, the Board decided on some key aspects of the bidding process in place to shore-up realisations. The board decided to conduct the initial round through sealed financial bids. Without a floor price, holding an open auction in the first round could have proved fatal.
The strategy paid off on April 13 when the Board received the highest bid for Satyam from Tech Mahindra at Rs 58 a share (a 23 per cent premium to the previous closing price). It was finally curtains down on the 100-day Satyam saga.
India, for long-castigated as a slouch in matters of handling scams, has now shown that given the political will, the right management team that is properly empowered and cooperation from the regulatory agencies, it is second to none. That is a matter of some pride in a country where scams, like Banquo’s ghosts, hang about for decades on end.
