Home >Companies >People >Ramalinga Raju’s fall from grace

Hyderabad: Byrraju Ramalinga Raju was one of the poster boys of India’s information technology (IT) industry and the company he built, Satyam Computer Services Ltd, was a fabled entrepreneurial success story until his descent into infamy six years ago.

On 7 January 2009, Raju wrote in a letter to the board of directors that he had been systematically inflating revenue and profits for many years—a confession that set off panic among Satyam’s investors and unnerved its employees, clients and regulators, pushing the company close to bankruptcy.

Admitting that he had resorted to fiction to burnish the company’s performance, Raju wrote that every attempt he had made to eliminate the gap between Satyam’s real profits and the ones on the books had failed. He added that 5,040 crore of cash that was supposed to be on Satyam’s books simply didn’t exist.

“As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap," he wrote. “It was like riding a tiger, not knowing how to get off without being eaten."

The botched acquisition was “the last attempt to fill the fictitious assets with real assets", Raju said in the confession that he retracted during his trial.

Until his abrupt fall from grace, Raju’s life was the stuff of legend.

His father Satyanarayana Raju was among the early migrants from the prosperous coastal Andhra belt to Hyderabad in the 1960s. Satyanarayana Raju set up a textile business with the money he made off farming in his village in the fertile West Godavari district. He also bought land in the northern suburbs of Hyderabad to grow seedless grapes.

Raju studied commerce at Andhra Loyola College in Vijayawada before heading to the US to do his master’s in business administration from Ohio University.

He returned to India and became an entrepreneur. After early trysts with cotton spinning, exports and real estate businesses, Raju ventured into the software services sector despite not having a background in computer science.

He always knew he could fall back on the 100 acres of agricultural land and 20 acres of grape vineyards his family owned, should anything go wrong.

Although his early businesses didn’t take off the way the US-returned entrepreneur imagined they would, he finally tasted success with Satyam Computer Services, named after his father. Satyam means truth.

Raju and a brother-in-law, D.V.S. Raju, who did his master’s in computer engineering from Ohio University, saw promise in software services outsourcing when they set up the company in June 1987, although Raju once remarked that he co-founded Satyam “more as a hobby than anything else".

The 20-member team that began its operations in a small office in Secunderabad would do technology consulting and write software code for clients based in far-away locations, in what would later come to be known as software outsourcing.

Four years later, in 1991, Satyam Computer had its first big client in agriculture machinery maker Deere and Co.

A year later, Raju took the company public when it was still a fledgling firm. Even as he painstakingly built the company by identifying new business opportunities with the help of family members, and by forging partnerships with firms such as Dun and Bradstreet Corp., Raju would become a household name in Andhra Pradesh only towards the late 1990s.

His moment of glory arrived when Andhra Pradesh chief minister N. Chandrababu Naidu showcased Raju as the poster boy of Indian IT to visiting US President Bill Clinton in 2000. His currency soared in business circles when he shared the dais with Clinton in Hyderabad while industry leaders such as Ratan Tata sat among the audience.

Raju returned Naidu’s favour by inviting him to ring the opening bell when Satyam listed on the New York Stock Exchange in 2001.

Raju expanded rapidly in the late 1990s and early 2000s, acquiring more office space in Hyderabad, Bengaluru, Chennai, Secunderabad, Pune, Bhubaneswar, US, Canada, Japan, Malaysia, China, and Australia, among other locations.

By 2006, the company crossed $1 billion in revenue, and a year before Raju’s confession, Satyam claimed $2 billion in sales.

As he grew in stature, Raju associated himself with prestigious institutions such as Indian School of Business (ISB) and software industry lobby group Nasscom, of which he served as the chairman/president. He hosted former Microsoft Corp. chief Bill Gates at Satyam’s campus on Hyderabad’s outskirts.

Raju was one of the founding members of ISB, and was on the business school’s executive board until 2009.

Like most successful Indian businessmen, Raju carefully cultivated relationships with politicians and was close to both Naidu of the Telugu Desam Party and the late Y.S. Rajasekhara Reddy of the Congress, bitter foes of each other.

When the scam became public, friends in both the business and political communities distanced themselves from Raju. Nasscom removed his name from its list of past chairpersons.

Former executives who worked with him have mixed feelings about their ex-boss.

“He would lecture us on corporate governance and go home in the evening and generate fake invoices...," said Venkat Changavalli, who Raju handpicked to lead a paramedical service. “I think there is that space in his mind to acquire wealth through other means."

Still, many middle class households in Andhra Pradesh, in particular from the Kshatriya community he hails from, have a soft corner for Raju, crediting him with building an IT company that was once paraded as Andhra’s pride.

In the aftermath of his confession, solidarity meetings were held and prayer ceremonies conducted in different parts of the state. In a few villages in coastal Andhra Pradesh, Raju is still a hero for the philanthropic work he undertook during his glory years. Raju had set up the Byrraju Foundation in July 2001 to work in healthcare, sanitation, environment, primary education, adult literacy and skills development in 200 villages. He also pioneered the setting up of village call centres to boost rural economies.

A picture of Raju with former president A.P.J. Abdul Kalam, who was the chairman emeritus of an ambulance service the foundation started, is displayed on the website of the foundation. The ambulance service, Emergency Management Research Institute, or the 108 ambulance service, was modelled on the lines of the 911 emergency response system in the US.

Surprisingly for a lover of science fiction (authors Isaac Asimov and Arthur C. Clarke being his favourites), Raju penned a book of poems that dealt with life and philosophy.

Nalo Nenu (‘Me within myself’ in Telugu) is a collection of 56 poems dealing with philosophy, science, space, ambition, betrayal and other existentialist questions that Raju wrote over 30 years. The poems, all in Telugu and published in 2011, were curated by his wife Nandini Raju, who also wrote the book’s foreword.

Raju married Nandini in 1977. Daughter of D.S. Raju, a scientist who worked abroad for 25 years before settling down in Guntur, she has been maintaining a low profile in Hyderabad’s social circles since the scandal broke.

Raju ended his January 2009 confession letter to the Satyam board with the words that he was prepared to “subject myself to the laws of the land and face consequences thereof".

“He was preparing to face the consequences," K.V.L.N. Raju, a close relative of Raju, said in Telugu. “You should note that he surrendered himself. He never wanted to escape. If he wanted to get away, why would he have surrendered?"

“He once said he will face any punishment if the law decides he is guilty."

On Thursday, he was convicted and sentenced to seven years rigorous imprisonment by a special court that also fined him 5 crore. Raju has the right to appeal, beginning with the sessions court and all the way to the Supreme Court. His lawyers said they would appeal the sentence once they go through the court ruling that’s 971 pages long.

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