Why Satyam Backpedaled So Fast

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Keeping Mum

It's not clear who was advising Satyam on the deal because the identities remain a closely held secret. Speaking on Dec. 17 with analysts, Satyam's CFO, Srinivas Vadlamani, said: "We have been advised by a reputable firm from among the top four. This is the right time for diversification into another sector. It was a unanimous board decision." (BusinessWeek called the top four firms—PricewaterhouseCoopers, Satyam's auditors; Ernst & Young; KPMG; and Deloitte. Officials at E&Y and KPMG denied involvement, and spokespersons for Deloitte and PwC said they didn't know anything about Satyam's advisers.)

It's also difficult to know what role the company's high-profile board played. They include Harvard Business School Professor Krishna G. Palepu; Mendu Rammohan Rao, dean of the prestigious Hyderabad-based Indian School of Business; and Vinod Dham, a venture capitalist and former Intel (INTC) executive who earned fame for his role in the development of the Pentium chip.

Satyam has faced questions about its corporate governance in the past. In 2000, investors were livid when the company offered rights issues in a subsidiary and tried to favor a family member of the founder. After the dot-com bust of the early 2000s, a CLSA report questioned Satyam's accounting practices, citing "large accounting gaps" in the company's Internet businesses and joint ventures. Those incidents have weighed on Satyam's valuations over the years. "Despite being the fourth-largest IT player, the company has traditionally traded at a discount to its peers," says Angel Broking's Harit Shah. Raju's associates say the issue has peeved the founder for years.

Many investors want a management shake-up. To win back investor confidence, the company has scheduled a Dec. 29 meeting to discuss a share buyback. That alone won't likely fix everything, though. Gartner's Arup Roy thinks Satyam has to funnel more resources into PR, marketing, and sales. He predicts: "Satyam will find it difficult to win clients in the future."

Lakshman covers India business for BusinessWeek.