Hyderabad: AUK-based organization that bestowed Satyam Computer Services Ltd its highest honour—the 2008 Golden Peacock Global Award for Excellence in corporate governance—in September, plans to reconsider the decision after serious questions over lack of governance at India’s fourth largest technology outsourcing company.
If its board concludes the award was undeserving, given recent questions about Satyam management’s attempts to use company money to buy two firms owned by the family of Satyam chairman B. Ramalinga Raju, the UK-based World Council for Corporate Governance says it may ask Satyam to stop using the award in its branding and publicity.
Losing ‘effectiveness’: Satyam’s chairman B. Ramalinga Raju. Hemant Mishra / Mint
“What has come out in this case, as indeed in several high profile cases of malfeasance reported recently, is perhaps the ineffectiveness of the board despite its being constituted by men of such eminence,” said Manoj K. Raut, director general of the India office of Golden Peacock Award Secretariat. “The board and the jury will be meeting shortly to consider what further steps can be taken to rectify the situation and prevent recurrence.”
If the board, which is scheduled to meet in two weeks, concludes that its decision to give the award to Satyam was a mistake, the company would be asked to stop using the Golden Peacock logo or refer to the award for any purpose, Raut told Mint.
The Council has given Satyam a similar award, the Golden Peacock national award for excellence in corporate governance, in 2002 as well.
As per Council rules, the award logo and references can be used by a recipient for up to three years in branding and publicity.
A public review by the Council is another humiliating turn of events for Satyam and Raju, who, as recently as Wednesday, touted the Golden Peacock award in a letter to Satyam employees as proof of the “effectiveness” of Satyam’s corporate governance practices.
Satyam’s management has been caught under a governance spotlight after the management led by Raju got unanimous board approval to spend $1.6 billion (Rs7,792 crore today) of Satyam’s money to “diversify” by acquiring two infrastructure companies—Maytas Infra Ltd and Maytas Properties Ltd, both promoted by Raju’s sons.
An investor revolt forced Satyam to abandon the 16 December deals within 12 hours and amid continued questions about valuation, which Satyam management has stonewalled, and other governance issues, four directors, including highly regarded independent board members, have now resigned from Satyam’s board.
At the heart of the continued controversy is how a large related-party transaction into unrelated and troubled business areas, such as real estate, was pushed through by a management that later disclosed that its already small, 8.6% stake in Satyam had fallen even more as lenders who were pledged the promoters shares for loans started selling them in the open market.
Satyam’s shares, which rose 6.4% on Thursday to Rs181.70 each, are still sharply off the Rs226.50 a share they had closed at, hours before the 16 December deals were unveiled.
The stock then hit new all-time lows but has been recovering in recent days on hopes that a proposed 10 January board meeting could come up with some face-saving measures.
On Thursday, Satyam insisted that it will continue to “use” the award since an eminent jury judged its entry. “At this point, there is no reason for us not to use the award,” T. Hari, head, global communications at Satyam, told Mint.
The jury that picked Satyam for the award was co-chaired by Ola Ullsten, former prime minister of Sweden, and justice P.N. Bhagwati, former chief justice of India
According to the Golden Peacock Award secretariat, one of the key reasons for Satyam winning was a “list of awards won by the company when they applied for this award”.
Raut added, “The company’s corporate governance structure and risk management processes were found laudable as they had eminent people as independent directors”.
Outsiders can easily get carried away by high profile names on a board and it is a common flaw in several awards given to companies, notes Ganesh Shermon, a partner at the audit and consulting firm KPMG India.
“Sometimes, such awards are more of a function of who is on the board,” says Shermon, who heads the Change and People Advisory Services at KPMG. “Award juries have a tendency to get carried away by well-known personalities who are directors on the board.”
“It is possible that the company was good then (when the award was given), and then the management made a bad decision,” says Manoj K. Arora, a director in the ministry of corporate affairs.
Arora also heads the central government-promoted National Foundation for Corporate Governance, established by his ministry, in partnership with the Confederation of Indian Industry, Institute of Company Secretaries of India, and Institute of Chartered Accountants of India, with the goal of promoting better corporate governance practices in India.
The ministry is awaiting a report by the Registrar of Companies as part of its announced intent to probe Satyam management over its Maytas deals.
The Maytas affair isn’t the first run-in that Satyam appears to have had with governance and business ethics.
The World Bank confirmed in December a media report that first appeared in October noting that the bank had first suspended and then banned Satyam for eight years, ending a high-profile and lucrative $100 million Washington, DC- based project for the company over alleged improper benefits to bank staff as well as lack of proper documentation.
Fox News in the US, which broke the story, has also reported that the US justice and treasury departments were involved in the Satyam-World Bank saga.
Satyam first denied it was banned and has since publicly threatened the Bank, demanding the statement be withdrawn.
But the Bank has held its ground leaving Satyam refusing to deny the Bank’s assertions or providing details under the pretext it doesn’t normally discuss specific clients.
Meanwhile, even before it was awarded the 2008 Golden Peacock, in mid-May, news of a legal battle with British telecom services provider Upaid Systems, became known.
The Upaid case, which had actually started in April 2007, involves allegations by the British company against Satyam of fraud, forgery, misrepresentation of facts and breach of contract.
It stems from a dispute involving transfer of intellectual property rights arising from a joint project that the companies worked on in the late 1990s.
Satyam, which was a technology vendor for Upaid at that time, has denied the allegations made by Upaid but a court in Texas has allowed Upaid to proceed with the suit. A hearing is scheduled in that court for 7 January.
The Golden Peacock Awards Secretariat says its selection process involves a “through” scrutiny of information available about the company, based on publicly available information.
However, the “assessors did not come across a single adverse or uncharitable report of the company,” Raut claimed.
Other winners of Golden Peacock award for excellence in corporate governance for the year 2008 include Swiss pharma company Novartis International AG, Reliance Industries Ltd and Oil and Natural Gas Corp.
As part of the award application process, there is a process fee of Rs24,500 for those applying to the national award category and a fee of £450 (Rs32,040) for those applying to the global award category. The award that Satyam won in 2008 was in the global category, while its 2002 award was in the national category.
Satyam appears to have won at least three other Golden Peacocks in categories such as “innovation” and “training”.