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Some relief on the Satyam front

Posted by: Manjeet Krpalani on January 11, 2009

The afternoon of Sunday, January 11, brought the first relief to the distressed employees, customers and shareholders of Satyam Computers, the fourth largest Indian software services company whose owner confessed to defrauding the company of over $1.5 billion on Jan 7. The good news? That India’s Ministry of Corporate Affairs had appointed the first three members of a new, 10-member board for the failing Satyam, and they were all among the most respected names in corporate India – Deepak Parekh, the chairman of HDFC, India’s best and safest housing mortgage lender; Kiran Karnik, the popular former chief of software industry association Nasscom, and C. Achutan, a director of the National Stock Exchange and former member of the Securities & Exchange Board of India.

One could almost hear the collective sign of relief from India’s IT sector – and from much of corporate India and the government which had worried about India’s ability to withstand a fraud of such gigantic proportions as Satyam’s. Parekh “has the ability to convince financiers to keep the money going – especially the financiers in government,” said a private equity investor in India’s tech sector, on hearing the news. Karnik has deep knowledge of the industry’s players, their strengths and flaws, and the credibility to bolster confidence among customers and shareholders. Achutan has the regulatory knowledge and experience to help the shattered company cope with its liabilities. The board members were asked to suggest other credible board members for Satyam. Other names doing the rounds are that of Vivek Paul, former chief executive of Wipro and till Dec 31, a partner with private equity player Texas Pacific Group.

Why should the Indian government take so much trouble to save Satyam? Surely the private company has had private troubles and misspent private funds? And Satyam is an IT company, a privileged, rarified breed in India, whose 53,000 employees are mostly all highly educated and will probably find other jobs sooner rather than later?

The company may not remain the whole piece it was till Jan 7. But, as an observer in Mumbai said, Satyam is now an agglomeration of customers, contracts, employees, management, investors and government – none of which should be frittered away. And the existing contracts must be negotiated and debtors and creditors be made as whole as possible. For the company does have existing an businesses, and the ability to continue making profits.

It would not have been so problematic if India had had a bankruptcy law which would have allowed the orderly unwinding of business; instead, the country has a ‘winding down’ procedure which is less effective. Surprising, given that Indian companies have Gaap accounting and operate in a globalized environment. Perhaps the Satyam situation will pave the way for a proper, western-style bankruptcy law for India.

Meanwhile, India’s reputation will certainly take a hit with customers for the next few months. And Satyam’s auditors in India, PriceWaterhouseCoopers, will be shown the exit to India by New Delhi. The other Indian software majors will soak up Satyam’s unfinished jobs, and Ernst & Young and KPMG will get new clients – all those who PWC served, and who will now be re-examining their books of accounts least they go the disgraced Satyam way.

Reader Comments


January 18, 2009 11:12 PM

with regard to satyam saga govt intervention is good.But too many cooks should not spoil the dish.they should immediately act to keep the morale of its employees,investors.act should be fast to bring back glory of the giant IT co.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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