Bangalore/Mumbai: Exactly a year ago, B. Ramalinga Raju decided it was time to live up to the name of the company he had built—Satyam means truth—by coming clean after years of falsifying the numbers. Why exactly he chose to go public on 7 January 2009 is something that may be disclosed when the jailed founder’s trial begins.

Starring cast: The men who have written Satyam’s story over the past year; (clockwise from top left) B. Ramalinga Raju, Kiran Karnik, Anand Mahindra and C.P. Gurnani.

In hindsight, the revelation couldn’t have come at a worse time, right in the middle of a frightening financial crisis that had put the scare into Indian companies in September.

Given what was happening around the world, the natural response was to wonder: Who’s next? How many companies would disclose things hadn’t been as good as they made them out to be?

Raju had inflated revenue and profit. The number of clients the company had was suspect. It would eventually turn out that nobody even knew how many employees the company had.

Raju said in his confession that the company had borrowed money, which was not reflected in the balance sheet.

Also Read The Satyam Saga (Full Coverage)

Things looked dire for Satyam and it looked like the fraud was about to take down the entire Indian information technology (IT) sector—the one industry that, more than anything else, had come torepresent India’s newfound economic and intellectual heft following the process ofliberalization that had been evolving ever since the 1980s and gathered momentum in 1991.

A large measure of India’s brand equity had been built up by the ability of the country’s top IT firms to compete at a global level.

Raju’s mea culpa threatened India’s reputation as the preferred global outsourcing and offshoring destination even as the country’s IT industry was struggling to combat the cutback in international technology spending.

Accustomed to 20%-plus growth rates per annum, it was looking at contraction for the first time ever. While the dot-com bust of 2000-01 hit the industry hard, it had not seemed as catastrophic.

On overdrive

“Our main objective was to protect India’s image as the IT capital of the world. …why did the Government of India, why did the Prime Minister and his colleagues in the cabinet take a decision that the board has to be superseded and a government-nominated board has to be set up?" said Deepak Parekh, one of the first three members that the government nominated to the new board of Satyam. “It was also to protect India’s image."

The government moved with uncharacteristic alacrity to minimize the damage, taking over the company and appointing a board. Meanwhile, Nasscom, the main industry lobby group, went on an overdrive to reassure international customers that Satyam was an aberration, an exception. Satyam’s Indian rivals also pledged support that would be critical.

“We will not poach any Satyam employee. We will not proactively approach their clients and customers either..., but clients have to decide for themselves and they have the right to choose their partner at work," Infosys human resources director T.V. Mohandas Pai said at the time.

Companies such as Tata Consultancy Services Ltd, Infosys Technologies Ltd and Wipro Ltd also decided it would be as good a time as any to further enhance their own transparency and corporate governance, to reassure stakeholders both within and without. The government’s handling of Satyam showed that if there was enough honest commitment, the checks and balances of a democratic set-up would ensure systems and processes kick in to set things right.

Led by the efforts of people such as Parekh, Tarun Das (former head of the Confederation of Indian Industry, an industry lobby) and Kiran Karnik—the last of whom was made chairman of the government-appointed board of Satyam between January and May—the company held on.

Client exodus

“We realized that there was basically no money in the bank to pay salaries to the employees. In less than four days we had to arrange that sum, as it would otherwise send wrong signals," said Karnik, former head of Nasscom. Such signals, he said, could have easily led to “further flight of clients".

Satyam wasn’t able to stem a minor exodus of clients, among them the Canadian insurance group Cigna Corp., financial services firm Merrill Lynch (now with Bank of America Corp.), engineering services firm Oceaneering International Inc., technology firm Cisco Systems Inc., Australian telecom firm Telstra Corp., Swiss pharmaceutical firm Novartis AG and US insurer State Farm Insurance.

The company’s employees almost fled in panic with thousands of resumes flooding the market. A combination of deft management, a decision by key competitors not to poach from Satyam and, crucially, a market where companies were not looking to hire because of market conditions, helped the interim board hold on to its flock.

The government established a transparent mechanism to sell the company to the highest bidder. Anand Mahindra—vice-chairman and managing director of Mahindra and Mahindra Ltd, whose group company Tech Mahindra Ltd took over Satyam through a competitive bid in April—acknowledged that he was aware of the calculated risk involved in taking over the fraud-hit company, but was confident that it would be “historical and game changing".

Just a few quarters later it already looks like Mahindra’s bet will come good, mostly because there were some things that Raju didn’t misrepresent.

“In hindsight, it looks like the gamble which Anand took seems to be paying off," said a senior vice-president at a large Indian rival of Satyam, who didn’t want to be identified. “While Raju might have fudged a lot of things, most of the business, the clients, the employees all were for real. If they are able to get out of the legal liabilities part, Mahindra might have really bought a good asset at bargain basement valuation as this year Satyam will still end up with more than a billion dollars in revenue."

Light at the tunnel’s end

While it’s too early to say for sure that Satyam is out of the woods—audited earnings haven’t yet been published (Raju had said these were faked over several years)—there is evidence that the dark days are over. This includes new business and top hires. Nearly 100 deals have been signed since April and senior executives from rivals—both global and Indian—have chosen to shift base to Satyam, now re-branded Mahindra Satyam. Last January, a near-bankrupt Satyam was unable to pay around 40,000 employees; this January it is offering pay hikes of up to 20%.

“Satyam has turned the corner," said Partha Iyengar, vice-president and regional research director at technology researcher Gartner Inc., which advises multinational clients on outsourcing strategies and on choosing outsourcing partners.

More importantly, morale has been restored, said the company’s new chief.

“Our biggest achievement since we took over is that we have been able to restore the spirit of Satyam employees and maintain the faith of our customers, who have stuck with the company through the crisis," said C.P. Gurnani, a Tech Mahindra veteran who is the new chief executive (CEO) of Satyam.

“We have started telling our clients that it is OK to interact with Satyam as any other service provider," added Iyengar. “What we have learned from Satyam’s clients is that if there is one thing that hasn’t changed during the whole of last year, it is the service delivery quality."

That’s a radically different view from the one expressed in January 2009 by research and advisory firms such as Forrester Inc., which told Satyam’s clients to be vary of maintaining a relationship with Satyam as business continuity could be jeopardized.

Still, the firm’s problems are far from over, be it the continued risk of employee attrition, pending class action suits in the US and the ongoing fraud prosecution in India.

The company’s true financials will not be known till June 2010 and market analysts who track the company are still divided about where Satyam is headed both as a company and as a technology stock. While analysts Bhavtosh Vajpayee and Nimish Joshi of CLSA Asia-Pacific are worried that Satyam is still an “unsteady ship", Abhiram Eleswarapu of BNP Paribas Securities India Pvt. Ltd said the “big picture still looks good".

“In our view, the improvement in hiring environment across the industry will open up greater opportunities for other senior/middle management personnel and there will likely be more exits," Vajpayee and Joshi said in their 23 November update on Satyam.

Eleswarapu, in his 24 December report, observed that Satyam has hired a few senior management personnel from rivals such as International Business Machines, Wipro and Infosys Technologies to win back clients that it lost to rivals over the year.

Ghosts of the past

Analyst estimates of the liability from the pending class action suits in the US filed by holders of Satyam’s American depository receipts, which nosedived in the wake of the fraud being uncovered, vary between $44 million and $90 million (Rs203-415 crore).

While the class action suits are expected to be long-drawn-out affairs, Satyam has reached a $70 million out-of-court settlement with British firm Upaid Systems Ltd, which had made claims to the tune of $1 billion, accusing Satyam of fraud, forgery and breach of contract involving the transfer of intellectual property rights arising from the work that Satyam did for the company during the late 1990s.

Then there are the claims by firms, mostly connected with members of Raju’s family, who say they have lent money to Satyam. The resolution of all these issues is going to be neither quick nor easy.

Gurnani is clear-eyed, but naturally upbeat about the future. “The legacy of the fraud may linger, but as a company, the efforts will always be to disassociate ourselves from the ghosts of the past by reinforcing the fact that the fraud was the handiwork of a few individuals and that Mahindra Satyam has a new management now and new promoters whose corporate governance credentials are proven."

Karnik, who helped shepherd the company through the darkest period, however, nurtures a grouse about Satyam being linked inextricably to the man who first built it up and then caused its downfall.

“Why do we have to call it Satyam fraud or Satyam scandal? In my view, it is really a Raju fraud and that’s what we should call it."