Print

Comment

Email

Digg

Del.icio.us

Reddit

Twitter

There was a young lady of Niger Who smiled as she rode on a tiger; They returned from the ride With the lady inside, And the smile on the face of the tiger.

Almost everyone of us who read this famous limerick in school must have wondered, even in our innocent childhood days, about the sagacity of the lady who embarked on a sojourn with the tiger. Strangely, this year on January 7, there was an unfortunate resonance of this limerick in the confessions of Byrraju Ramalinga Raju-when in the now infamous letter he admitted to 'getting on to a tiger and not knowing how to get off”. The only difference was that while the actions of the Niger lady tickled our funny bones, that of Raju was no laughing matter. It not just shocked corporate India, but threatened to permanently tarnish the image of the Indian IT industry built so meticulously over decades.

Even as the moral turpitude of Raju and other top honchos of Satyam like CFO Vadlamani were debated upon following the confession, the demise of Satyam and its debilitating impact on the software outsourcing sector were matters of grave concern. For once, the much maligned government or more precisely the Ministry of Corporate Affairs, acted with haste (and with great sagacity, as was proved later) and constituted a board even as corporate India was sort of paralyzed with shock. That in such a short term an impending crisis was averted, and with Satyam now under a new and respectable owner dreaming of a better tomorrow-is one big success story of positive administrative co-operation with the industry and deserves a major chapter in the annals of Indian corporate history.

The ominous signs were there in December '08 but only when the shareholder fracas over the Maytas affair started did the skeletons start tumbling out of the Raju cupboard. However, till the January 7 confessions, very few had little inkling about the magnitude of the problem. That's why it was no surprise that hours after Raju went public, even as both media and corporate India were still in a state of shock, they were almost concurring on the possibility that this could sound the death knell for Indian software exports. Paraphrasing Neil Armstrong, “It was the misdemeanor of one single man, but it could be a giant misfortune for the entire IT industry.”

Kiran Karnik                                 Deepak Parekh

Even though the situation was unprecedented, the Coporate Affairs Ministry under Premchand Gupta moved in fast and by January 11, they had constituted a board to run the Satyam affairs. The Board constituted of eminent personalities like ex-Nasscom chairman Kiran Karnik, HDFC chairman Deepak Parekh and former SEBI member C Achuthan. Karnik, who was made the chairman of the Board, remembers January 11 clearly: “It was a Sunday when he got a call from the government, and by afternoon we had got together, and we started working on January 12 itself.” In hindsight, that proved to be masterstroke as there was little time to be lost and and the magnitude of the damage control mission was gargantuan.

The three eminent members of the Board along with the three who joined later-Tarun Das of CII, TN Manoharan and Suryakant Balkrishna Mainak-were unanimous from the beginning on certain issues. First and foremost was that the turn of events should not lead to a government takeover of Satyam. “We were very cautious about accepting any financial bailout effort from the government, as all of us were sure that would be a surefire recipe for disaster,” recalls Karnik. The standard procedure of going through BIFR was completely ruled out. The collective wisdom was that topmost priority should be given to collection of financial receivables, that would provide the working capital on which the company could sustain itself till it found a new owner.

“Government bailouts never work out for a company in the long run. Therefore, though the temptation was high to go to the government, we desisted from taking the short cut. The major problem was that there was no precedence of this scale in India. Even in the US, corporate fiascoes of this nature only led to the companies collapsing like Worldcom, Enron or Arthur Andersen.” So when the board embarked on its 'Salvage Satyam' mission, the first few days only highlighted the daunting challenges facing them.

Hold On to the Employees
The two biggest concerns were to retain customer confidence and to maintain and sustain employee motivation; with either one failing, there would not have been much future for the company. The firefighting was on literally from day one, as the Board realized that US salaries had to be paid by January 15. The immediate focus therefore was on collections of receivables even as the Board members spoke with the US employees assuring them that compensations would be paid even if it takes a few days' time. With US salaries being paid fortnightly, there was the same situation again on January 31, but with collections increasing the crises was again averted. Gradually over the next six weeks, the situation stabilized.

C Achuthan	Tarun Das	TN Manoharan

Employee motivation was another big challenge. On the one hand there were media rumors about the veracity of the number of employees (most saying that the reported '53,000 employees' was overblown by at least 40%) and on the other with no money in the coffers, there was no certainty where the next compensation would come from. The assurances from the Board that salaries would be paid regularly till the time a decision was reached, helped Satyam retain most of its workforce through these trying times. Karnik is unequivocal in giving credit to Satyam employees in helping tide over the crisis.

“We made it clear to them that this is not a Satyam scam, but a Raju scam, and no way could Satyam employees be held responsible. It was a great company, delivering high quality of services, and they should maintain those standards, more so in these times of crises, to boost customer confidence,” adds Karnik. Result: the service quality never flagged, even in the days of initial handholding of employees. Even attrition levels were kept to a bare minimum.

Though there was a verbal understanding between companies through Nasscom not to poach Satyam employees, there were enough instances where HRDs of competitors either directly or through headhunters even created special cells to attract Satyam employees. One of the Board members, on conditions of anonymity, reveals that he is in possession of an email from a competing software services vendor where not only is the Satyam team leader lured with an attractive position, he is also encouraged to bring along his entire team of fifteen to sixteen members. Fortunately, not many such offers were taken up-the scenario might have been different if the scam had happened in 2006-07 where many jobs were available. The paucity of jobs in recessionary times, turned out to be a blessing in disguise for Satyam.

Once the initial media hype cooled off, it was also found, at least on the workforce count, that the 53,000 number was accurate. While the total number of employees not being inflated to divert funds in the name of wages was a big relief, it was paradoxically an Achilles' heel for the Board too. Especially in a contracting economy where the immediate need was to drastically cut the wage bill for Satyam to sustain itself in the short term.

The Board was also able to ensure timely payment of salaries for the large workforce so that they were not unduly inconvenienced. Most importantly, they were able to devise the virtual pool to support the large number of workforce already on the bench. “The fact that Satyam always had a huge bench, bigger than most of its competitors, had given rise to the apprehension that employee headcount too is grossly inflated. While that was not the case, we found that there were nearly 8,000-10,000 people on the bench,” reveals Karnik.

Under the Virtual Pool concept, the Board informed those on Board to remain at home with the assurance to call them up immediately as and when required. However, what was more reassuring was the commitment to protect their base salaries, provident funds and health insurances-many were encouraged to work with NGOs too in the meanwhile. Result: though some of these people did join other companies, most remained and Karnik is proud to mention that even before the Tech Mahindra takeover, more than 1,000 of these were already into projects.

Another factor that helped the Virtual Pool concept succeed was the excellent training program that thankfully the Raju regime had invested in at Satyam. “Actually having a huge bench meant Satyam was giving continuous training to these people and that had actually created wonderful assets of these people.” Therefore, once they got into projects, they straightaway started contributing into the company bottomline. Therefore despite Satyam's specializations in niche areas like engineering services, it did not lose that many people that could have crippled any resuscitation effort put into action by the board.

Don't Let Customers Go
The other big action-point on the Board's agenda was to retain the existing customers-a mass exodus would have obliterated both topline and bottomline, and unerringly led to its early demise. As a bigger picture, it would have caused immense damage to the reputation of the Indian software services sector, though in the short term the Board was not willing to look beyond immediate Satyam needs.

What the Board members did in the initial few weeks was to individually speak to each client, offering their assurance that the 'show would go on' with no drop in quality of services. Karnik, with his Nasscom legacy and experience of dealing with many of these customers, was the preferred negotiator in most cases. “I personally met about seventy to seventy-five customers with the message that, yes, there has been a huge fraud, but now the government has stepped in and all measures are being taken to retrieve the situation. And, yes, there will be no deterioration or break in delivery of services or QoS,” says Karnik.

Thankfully, the strategy paid off and hardly any company left at that stage. The regulatory investigations on Satyam in the US persuaded a few companies, like one consumer brand, to jump ship, albeit reluctantly, because of the apprehension of the damage the continuing Satyam association could have on their brand equity. Fortunately, not too many thought on these lines, though they had a proviso of returning when things stabilized under a new owner. And, another company left after the Tech Mahindra takeover, though for completely different reasons. They compete with the Mahindra group in tractors and business interest conflict therefore led to their departure.

Another problem faced initially was to verify how many of the customers and the financial deals in place with them were genuine. While the two audit firms KPMG and Deloitte were checking the antecedents of each customer as well as each and every transaction quarter-by-quarter, going back to 2001-02 (time of the US ADR), the investigating agencies including CBI too wanted to check whether the customers were genuine or not. “The problem was that it was one thing for these companies to receive letters of verification from KPMG or Deloitte, and another thing receiving them from CBI. It gives rise to the apprehension that something is seriously afoot and it's prudent to stay away from investigating agencies.” The Board fortunately was able to convince the CBI to deal in this matter with extreme sensitivity so it did not lead to customer exodus.

...of Hercules and Ceaser's Wife
That the Board entrusted to save and rescue Satyam performed its two biggest challenges of retaining employees and customers with aplomb, the credit must go largely to the six eminent personalities appointed by the government, and to some extent to the Ministry of Corporate Affairs. On the government side, the very fact that there was no procrastination in constituting the Board in record time itself was laudable. Even more praiseworthy was its action in not unnecessarily meddling with its affairs-it kept its trust on the eminent Board members and their recommendations. “The government was helpful but it was hands off; whenever we wanted support, we got it, but there was no undue interference that could have complicated matters,” says Karnik.

But it was the six board members who performed the Herculean task of cleaning Satyam's Augean Stables, perhaps even more muddled than the Greek original. Some decisions of the Board stood out: foremost, was the decision not to accept government financial doles. Another crucial decision at the very beginning was around the composition of the Board. The decision was taken not to have any bureaucrats on board, not even retired ones, as their set style of functioning could delay the process.

Also, while the initial clamoring was to have many eminent IT personalities on Board (Satyam being an IT company), the Board members argued against the reasoning. Their point of view was not to fall prey to a knee-jerk reaction and look at this as an IT problem, and to instead go for personalities from the finance world who will understand the financial and accounting aspects. More importantly, someone from the regulatory side with an understanding of regulations and statutory knowledge. Thankfully, the government not just consulted the Board members but listened to their advice too.

The six board members need to be lauded for not just making themselves available at such short notice to take up the challenge, but for working pro bono despite their professional commitments. Meetings were convened once or sometimes twice a week, members had to travel to Hyderabad at short notice, but despite their busy schedules the members hardly missed any meetings. They also convinced both SEBI and the Company Law Board against proceeding on any takeover option; in fact, they managed to create a solution that was more generic and did not look at Satyam's as a one-off case. Thanks to the board, corporate India now has a blueprint of the course of action to follow in case there is another such incident.

The Board successfully co-ordinated with top sets of legal firms in both India and the US to protect itself against the class action suits threatened in the US and also against many of the SEC regulatory investigations. It also co-ordinated with two top sets of audit firms to check out whatever discrepancies there were in the accounting system and subsequently devise a fresh set of norms and guidelines that would help not just Satyam but also provide a corporate governance guideline for India, Inc.

Corporate Governance Blueprint
In fact, by January 11 night, the board had appointed the lawyer firm of Amarchand Mohandas as there was already a $2 bn class action suit pending against Satyam in the US. The Indian set of lawyers subsequently tied up with a US legal firm as the first few weeks involved lots of firefighting with teams from SEC and SEBI. Next, was the focus on receivables collection to ensure payment of salaries-fortnightly in the US and monthly here in India. And the first few weeks also involved hectic parleys with employees and customers, convincing them to stay on. “During this phase, we also needed to make the government understand that for an IT company, employees and customers are the biggest assets. You know the traditional mindset in the government in such situations is to look at the real estate available and such. We gave the analogy of a fruit and vegetable market: like today you pay the full rate for the foodstock, you also get good value for the company with biggest assets. Tomorrow, you have to sell the same vegetables at 20% discount, and it's the same if some of the assets leave. The day after, once all the assets are gone, you have to pay to dispose off,” says Karnik.

Once, by March, when things had stabilized, the board was embarking on its last crucial role of finding a new and trustworthy owner for Satyam through a fair and transparent bidding process. In fact, the situation had stabilized to such an extent that some started questioning the need to sell at all, though none of the board members was supporting that. Again, they were able to convince the government not to set a floor price for the sale.

“It was critical in the Indian context to see how many bids come and the whole process needed to be transparent. Whenever the government had set a floor price like in Tulip or Centaur Hotel sales, there have been controversies, so we decided to go for an auction based mechanism for the bids,” explains Karnik. Again, in an option-based mechanism for a fair and transparent bidding process, there was the need to have someone as Ceaser's Wife. Ex-Chief Justice Sam Bharucha consented to join in and meticulously signed every bid and document-in quick time.

Even when various potential bidders were informally treading the waters, the board members had to constantly parley with customers to allay their apprehensions. Many of them were uncomfortable with an MNC company taking over Satyam-both IBM and Accenture were talked of as potential buyers. “Many of them wanted an Indian company and that was the rationale for them to outsource to India. IBMs and Accentures already have relations in the US, and they don't want to extend them to India both for reasons of diversity and cost.”

Some were not comfortable with the likes of Indian majors like TCS taking over Satyam. The reason was that they consciously outsource to multiple vendors and do not want to put all their eggs in one basket now. And some were reluctant to see any of the traditional IT bigwigs taking over Satyam, in a tacit acknowledgement of Satyam's specialized niche skills. In fact, one aerospace client of Satyam was apprehensive that Satyam's new owners might deviate from its strong engineering services pedigree and lead the company on the BFSI path.

Ultimately, according to the Board members, Tech Mahindra was an appropriate choice as the new owner. They had two advantages-barring the appointment of a CEO and a few positions in top management-they hardly had to undergo any restructuring. And, more importantly, being telecom-centric till now, they will be able to cross-sell extensively between Tech Mahindra and Satyam clients. And like ideal surrogate parents, the Board members had been able to find the most appropriate foster parent for the child they saved from imminent demise. Or, more in keeping with the Indian tradition, the father selected the best groom for the daughter-the future of course rests on the luck and fortune of the bride.

As an acknowledgement of the efforts of the six board members in steering the Satyam ship through the troubled waters, for motivating and retaining the large workforce, for ensuring that most customers stayed back and consequently retaining confidence in the Indian IT services sector, for ensuring the survival of Satyam without any monetary doles from government, for successfully abiding with all regulatory and investigative mechanisms of different bodies in India and the US, for successfully finding for Satyam a new and respectable owner through a fair and transparent bidding process, and finally for successfully creating a new model for corporate governance in India, Dataquest has chosen the government appointed Board of Satyam for Dataquest IT Persons of the Year 2009 award.

Rajneesh De
rajneeshd@cybermedia.co.in

Page(s)   1