PALINI R. SWAMY writes from Bangalore: Nothing more needs be said on the decision of Satyam Computer Services to spend $1.6 billion in acquiring two sister companies, Maytas Properties and Maytas Infra Ltd, after outraged analysts and investors shaved $2 billion worth of market cap of India’s fourth largest IT company.
However, the “landbank deal”, while giving a telling insight into the real-estate dreams of India’s IT companies (and Satyam, ahem, is not the only one in the game), has also thrown up questions on the role that heavy-duty “independent directors” companies employ to achieve Corporate Governance.
OK, Ramalinga Raju and family were up to no good.
But what about the acknowledged geniuses, whose words are read and received around the world as gospel truth? What were the acknowledged geniuses who pass off as “independent directors” doing when this gigantic fraud was being perpetrated under their cavernous noses?
The following is a brief bio of Satyam director Professor Krishna G. Palepu, “Ross Graham Walker Professor of Business Administration and Senior Associate Dean for International Development” at Harvard Business School (HBS). Prof Palepu’s 2007-08 remuneration was Rs 91.91 lakh and 5,000 shares at Rs 2:
“In the area of corporate governance, Professor Palepu’s work focuses on how to make corporate boards more effective, and on improving corporate disclosure.
“Professor Palepu teaches these topics in several Harvard Business School executive education programs aimed at members of corporate boards: “Making Corporate Boards More Effective,” “Audit Committees in a New Era of Governance,” and “Compensation Committees: New Challenges, New Solutions.”
“He also co-led Harvard Business School’s Corporate Governance, Leadership, and Values initiative, launched in response to the recent wave of corporate scandals and governance failures.”
Have a corporate governance question for Professor Krishna G. Palepu?
Email him: kpalepu@hbs.edu
Phone him: (617) 495-6759
Conditions apply
Tags: B. Ramalinga Raju, Churumuri, Harvard Business School, HBS, Krishna G. Palepu, Maytas, Sans Serif, Satyam
18 December 2008 at 5:20 pm
He’ll say.. “Do as I say.. dont do as I do”
18 December 2008 at 5:53 pm
First of all, I have to say that the issue was completely blown out of proportions. Before questioning the synergy between an IT services company and an Infrastructure development company, they should look at what GE has done in the past. GE had revenues of roughly $26.8 billion in 1980. The company started looking at opportunities for inorganic growth in the early 80’s and started diversifying by investing in new businesses. So, in 2000, a year before Jack Welch’s retirement, the companies boasted revenues of $130 billion. During the same period, the market value went from $14 billion to more than $410 billion making it the largest and most valuable company in the world – up from a relatively modest position of America’s tenth largest by market cap in 1981.
Many times in the past, Satyam has made it abundantly clear that it is looking at new avenues for inorganic growth. The current economic conditions made this time ripe for such an activity. So, the current acquisition plan is only aimed at fuelling growth in these uncertain times. This does not signal the intent to move away from its core business. To think otherwise would be oversimplifying the issue.
Let us look into Satyam’s history. Right from its inception, it has been conforming to the highest standards of ethics and integrity. There were no instances of foul-play. The recent Golden Peacock Award for excellence in corporate governance is a testimony. Ramalinga Raju (Chairman, Satyam) also heads many successful initiatives like EMRI, Byrraju Foundation and Satyam Foundation. He always made sure that these initiatives functioned independently without using any resources of Satyam. So questioning his integrity by saying he wanted to transfer wealth to himself from Satyam’s balance-sheet would not only be unjust but also plainly ridiculous. Ask anybody who has ever worked for Satyam, they would tell you that integrity is one of the key qualities the management nurtures in its employees and that Raju leads by example by upholding the highest standards of integrity.
18 December 2008 at 7:02 pm
when the Reality Market is not in the best of times , Raju wanted to play the role of the Saviour for his Family’s other Business Entity.Unfortunately His holding in SATYAM was worth only 1200 Crores and HE TRIED to DIVERT 6000 Crores to his Personal Pockets.Last heard some of the Promoters of the reality company were in deep SHIT and had to be rescued.
If he was a AMBANi no one would have questioned the deal.
18 December 2008 at 7:18 pm
Whether in Harvard or Hardwar Business schools teach how to maximize profits. Business managers are in the business of making money for their firms and in the way they make money for themselves. Many profit making companies are retrenching people under the grab of global economic crisis, with a view to increase profits. This is what business management teaches and practices.
19 December 2008 at 1:04 am
The great thing about this incident is the shareholder activism that made Satyam “management” pull the plug on this scam. Its good to know that shareholders of atleast some companies are awake and active.
Valuing a shell real estate company at Rs 1cr/acre in this market? Wow…
But I think the Raju’s were being the typical gults, trying to get away cheap. First you have to buyout sundry analysts, MF managers, media folks before pulling this kind of a scam, have them spin it as a great “diversification” plan and then go ahead. If you had told Udayan that he will get his cut, I’m sure he would played along. I dont think they even thought about giving Chidu his cut. Learn how the Goldman Sachs, Ambanis do it.
@Mini Singh, bit too late for the spin :) “Inorganic growth” LOL …
PS: this kind of stupidity from Satyam is making our Murthy angadi folks look like saints.
19 December 2008 at 1:31 am
@Mini Singh,
Is ‘conflict of interests’ outside the scope of ‘integrity’ specially when you are diversifying into an unrelated business in uncertain times? or is patronising nepotism with your shareholders’ capital within the boundaries of corporate governance?
As for Prof. K.G.Palepu , my question is ” What background in executive/ operations do you have to justify your expensive presence in the board of a IT company? Aren’t you more suitable as a consultant,if at all?”
19 December 2008 at 1:06 pm
I would tend to agree with Mini. I have been in Satyam for the last 4 years and I have state here that this company believes only in the highest degree of ethical standards. The very fact that Satyam is an IT company with several social responbility cells and emergency management systems stand as testimonials to the fact that Satyam cares about the society.
The takeover of Maytas has been done with the of intensions for the company and its stakeholders. Through this acquisition, Satyam proposed to move into the civil infrastructure industry – a business segment which is projected to show strong growth for the foreseeable future. This growth in infrastructure is not limited to India, but also extends to many markets across the developing world, especially in the Middle East and Asia. By augmenting the position in IT services with an equally strong position in another high-growth industry, Satyam would have been able to mitigate risks and weather potential downturns better, in either Industry. The result would have been a more stable situation for associates and a higher, more reliable return on investment for the investors.
It is unfortunate that the investor community did not agree with this move, but to question the integrity of this move is not fair.
19 December 2008 at 1:23 pm
Mini Singh:
Raju may have got many awards, but he was up to no good here. He was upto no good when he bought India World for 500crore in cash, as there were allegations of massive kickback in that deal.
And this deal is simply ridiculous. If it was such a fantastic deal, then why shave off the Cash buffers of a company now, when worldwide companies are bracing up for a bad year? Why not do that when the Land banks were truly valuable at Rs.1cr/acre?? Why was Maytas a private holding of Raju family when going was good, and now when real estate companies are in trouble they tried to lump it off Satyam shareholders at prices at which no one would buy properties any more?
1cr/acre?? That’s BS. If Raju & Family thinks 1cr/acre is such a good deal, then I have a few acres that I want to sell at that price, within 25km vicinity of Bangalore. I got these at 26Lakhs/acre at its peak, today I reckon i’d be lucky to get that rate!
More importantly – Even if 1cr/acre was indeed the price – no one will want to sit on an expensive, non-liquid asset right now. They need all the cash to tide over the crisis, and also to buy real good-value companies to expand into newer IT markets.
Taking example of GE isn’t going to wash! GE did what they did after taking the consent from the entire shareholding segment, not in a clandestine manner.
19 December 2008 at 1:49 pm
@Radha,
the Satyam PR machine seems to be working overtime. Nice.
In the current environment Liquor and other “vice” indsutries are the only profitable ones. Does Satyam intend to get into those also in quest of “reliable returns” for its investors?
19 December 2008 at 2:37 pm
There is a common saying…
One who knows does, one who knows not teaches…
SO its apt in this case.
19 December 2008 at 2:53 pm
My vote to Mini Singh !
Set aside Giants outside India, look at most of the Large Indian Business Houses within India – Wipro not only sell IT Solutions, they sell Hair Oil too ! Tata, again from T’Consultany’S to Steel, Cars, Shirts, Furniture, of I was missing this even ‘Salt’ ! Reliance (both Brothers put together), from Steel to Telecom to Shoes to Medicines to Jwellery to Vegetables ! Birlas – from Cement to Groceries (More) ! Mahindras – from IT (TechMahindra) to Autorichshaw ! So what’s wrong if Satyam ventured into Infrastructure & Properties ! Ask Govt. of India, what’s the take of all those Ministers on the Future of this Sector; ask and businessmen what is more promising in Indian Market for future after this current recession – IT or Infrastucture and we will have our answer… just because some of the Family Members of the Promoters are in common – that cannot be the reason to ignore the true intent of this deal. Though the deal is off, but what is also important to see is the underlying intent – which in my assessment was ‘value and wealth creation’ for every stakeholder of Satyam in long term, though may not necessarily Maytas !
19 December 2008 at 2:57 pm
Reading the Mini Singh and Radha’s posting it looks like Satyam has hired some heavy hitting PR firm to do fire fighting and damage control.
Looks like PR firms today go thro the web as well to do damage control..
19 December 2008 at 3:56 pm
No one is questioning about Satyam’s foray into other businesses. The question why only ‘Maytas’? What are the auditing companies which evaluated ‘Maytas’ to the tune of Approx. Rs.8000 Crores?
Maytas is not a big company as DLF. It has got lands in and around Hyderabad and that is the reason it offered money, in reverse, to Government of AP in getting the Hyderabad Metro project.
That is only BIG project Maytas got in recent times. So how can it be evaluated to Rs.6500 to 8000 Crore. And also as the realty boom got bursted, the company is in doldrums over the Metro project.
So, the whole deal is fishy. If it had been some other company other than Maytas, may be we can speak of ‘Good Ethical Standards’.
19 December 2008 at 9:35 pm
Aaaah the Indiaworld deal…at that time it was the sify shareholders… Only thing then was it was the middle of the boom and no one made a big deal of it…that was a lot of money paid for a few web pages…
Isnt Satyam … The family.. Originally from construction? If so they can claim that they were going back to their roots
19 December 2008 at 11:54 pm
Come on Ms. Radha. Do you think that we churumuri readers are naive. Dear friends- two-thirds of Ms. Radha’s comments are a word to word reproduction of an email that Mr. Raju sent to all Satyam employees in the wake of this affair. Please check the following link –
http://blogs.livemint.com/blogs/daily_download/archive/2008/12/19/mr-raju-can-you-just-say-sorry-and-get-on-with-it-please.aspx
Ok, Satyam wanted to get into the real estate/infrastructure business. Nothing wrong if an IT company wants to get into the real estate business (remember, Wipro was a vegetable oil company before it became an IT company, so why cant a Satyam become a DLF?). The real estate sector in India is right now in a dump. So one could argue that investing in real estate right now is stupid. But one could take a long term view- because the real estate sector in doing badly right now, you could buy real estate companies at cheap prices and in the long term you could make money. This was the logic that ostensibly motivated Satyam. So I have given Satyam the benefit of doubt until now.
If Satyam wanted to buy or invest in a real estate company, why Maytas? There are many big and small real estate companies in India in which Satyam could have invested in or simply bought. But Satyam was focussed only on Maytas. It appears that Satyam did not thoroughly study and compare Maytas to other real estate investments that Satyam could have made. Ok, Satyam hired one of the “big four” accounting firms to do a valuation of Maytas to ensure that it was not paying more than what Maytas was worth. These valuations are always suspect because any firm that is hired to do such a valuation has an interest in keeping the Satyam management happy, so that it continues to get business from Satyam. So it will inevitably come up with a valuation that will please the Satyam management. And all observers agree that Satyam was paying too much money for Maytas whose credentials and assets are not yet proven (unlike lets say a DLF).
Then, the decision to acquire Maytas was taken by Satyam in a single board meeting. This is incredible. Nowhere in the world would any prudent and independent board of directors take a decision to spend $1.6 billion dollars over a single board meeting, particularly when they know the company being acquired is owned by the family of the promoter and there is a HUGE conflict of interest. It does not appear that the directors questioned the Satyam management to the extent that they should have. Directors of a company are obligated to take decisions to benefit the entire company, and not the promoter or a narrow group of shareholders. The Satyam directors do not appear to have done much to protect Satyam shareholders from the machinations of the Raju family which simply wanted to transfer a lot of cash from Satyam to Maytas through this transaction. The Raju family owns only 8% of Satyam. The rest of Satyam is owned by various financial institutions and public investors. Directors are also supposed to exercise diligence and to properly investigate and question managment proposals before making a decision. Satyam’s directors failed to do that in this case.
It was heartening to see shareholders step up to prevent this deal. If Satyam was an American company, all of its directors would have been sued and made to fork out tens of millions of dollars. However, this is India, but I would still like to see some heads roll. It would serve as a good lesson for corporate India.
20 December 2008 at 1:17 pm
I am an employee of Satyam myself and dont concur with the observations of Radha. Also, Raju is not a person reputed for his ethical stature(I dont know wether you have heard of satyam spinning). All this posturing of Corporate governance and Ethics and and giving it a coating of ’108′ is bunkum. Unlike Murthy Angadi, which is professionally managed, Satyam ultimately is a family enterprise. Satyam has the practice of terminating employees if are found to be in suspicious in ‘BG check’(Background Check). Now that the whole board of directors have been exposed as crooks, wanting to transfer all the cash to themselves, they must quit.
(Also, I find the allegations made by western investors of poor corporate governance perplexing. Where were these bastards when Enrons bosses did what they did or the ‘genuises’ at Lehmann were busy swindling money in the subprime securities ponzi?).
22 December 2008 at 12:03 pm
Giveaway PR tactics at work here..
As a regular at chururmuri i follow all posts and responses..Mini Singh and Radha are not two people who i have seen on this blog ever..may be there were there i havent noticed. Point being, their comments, their line of reaction, the tone and frequency clearly show its Satyam pr machinery at work.
Sahasasimha called Radha’ bluff by pointing out the source.
Satyam has screwed up and its intentions were dishonourable. The term Independent Director is an oxymoron in Satyam. The best PR that can now happen is to agree that it has messed up and draw a plan to rebuild trust..people are willing to forgive if the aplogy is genuine and later actions are honest
No point in crawling blogs and saying indefensible things and quoting from Chairman’s speech.
22 December 2008 at 6:06 pm
As someone pointed out in the Livemint article… Maytas is Satyam spelt backwards …
25 December 2008 at 9:54 am
No its learnt through “EXTRA CURRICULAR” activities.
25 December 2008 at 11:21 pm
Mini, Radha,
Looks like you have been sent out to spread A.S. Murthy and T. Hari’s views. Please don’t blindly believe all the internal hype about “high integrity”.
Just talk to senior executives who have been brought in from outside Satyam and senior client executives and you may not like what you hear.
Also, I presume you think delivering “improper benefits” to World Bank CIO is an example of high moral standards. This fraudster was fired by World Bank after an internal investigation. This action alone taken by one of the most corrupt organizations in the US should hopefully encourage some in the Indian business media to do basic investigative journalism.
Eventually, the names of the corrupt like Shailesh, Ram M., Prabhat, Sriram, VA etc. are going to trickle out supported by emails proving their direct involvement and active collusion in fleecing the regular employees and shareholders.
26 December 2008 at 9:14 am
Bamboo Basappa,
Just to provide fact check.
Enron boss Kenneth Lay had to put a bullet into his head to escape jailtime.
Worldcom CEO is spending his 25 years in jail.
Those who want to dislodge Raju from Satyam can join the mailing list at
http://enjoymypassion.com/blog/?p=160
8 January 2009 at 2:14 am
Mini, Radha,
What do you have to say today?
Do you still believe in fraudsters like Ram, Hari, ASM, Virender, Keshab, Sriram, Raj Asava etc.?
These guys have been stealing from the shareholders and employees for years.
Many other executives were aware of what was happening. Some were silenced or sidelined when they spoke up.
The money was there until 2007. It just has been moved into the illegal accounts of these crooks.
Time to wake up.