Honest Talk

For some time Satyam Computers was in news for all wrong reasons. This is the company that has won many awards from  world over for corporate governance, quality and many other categories which I do not want to mention here. It has always had a good reputation in the IT space and is the fourth biggest IT company in India. The company was in news for the wrong reasons many times during the last decade. Every time it has been some how buried quietly. The final trouble came out with the proposal to acquire Maytas Infra, a company promoted by their relatives which was vehemently opposed by the Institutional shareholders. Satyam immediately dropped the idea of acquiring Maytas and thought the matter will end there.

But things took a different turn soon. Shares pledged with brokers were sold in market leading to a fall in the share prices. The shareholding of the promoters fell from 9% to 3% in a short time. Then there was an exodus of independent directors from the board. The Chairman held together all the while trying to put a brave face. There were proposals of a share buy back as they were available very cheap and they had about $1.20 billion in cash. Then suddenly on December 29th, 2008 they postpone the announcement of buy back to meeting scheduled on 10th January 2009. Markets in the meantime went up thinking something cheerful will come of that meeting in January. When market was hopeful of something like a buy back or a new management will come in, the Chairman dropped the biggest bombshell which led to 77% drop in the share value in a single day. Nobody wants to hold Satyam stock. Hell broke loose, when the Chairman admitted to committing fraud and resigned.

This is the first time a scam of this magnitude hit Indian corporate sector involving just one company. The previous scams of Harshad Mehta in 1992 and Ketan Parekh episode of 2000 were involving several entities. The biggest loser again is the individual investor who did not know what is happening to his investments in these blue chip companies.

Now that the Chairman has resigned and is sure to go to jail, authorities are trying to find out how others like auditors, bankers, key executives and the independent directors were not aware of these things. Many of those who independent directors who resigned few days ago must have been aware of these things. Then why did they kept mum all the while. They cannot claim that they were unaware of these. The auditors and bankers too were negligent and violated every rule of law. Without the help of these entities the Chairman could not have done it alone.

This brings the question as to who are responsible for such incidents? And what is the solution?