BackLessons from Ramalinga Raju’s Satyam scam
The Satyam episode that rocked corporate India offers many lessons that no company or government would want to forget in a hurry
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Mumbai: On 28 June, a special court hearing the Satyam Computer Services Ltd fraud case will decide the final date to pronounce its judgement on corporate India’s biggest scandal. Regardless of the outcome, the Satyam episode that rocked India and the information technology sector offers many lessons that no company or government would want to forget in a hurry.
One, it is not wise to assume that a person is honest simply because he is vocal about good practices, has a foundation that does good work, has won awards, or has founded a company with a name like Satyam, which ironically means truth in Sanskrit.
In his swan song to the company he founded, the then chairman of Satyam, B. Ramalinga Raju, wrote on 7 January, 2009, that “It was like riding a tiger, not knowing how to get off without being eaten", publicly admitting to cooking the company’s books over several years to the extent of ₹ 7,136 crore, and rocking the faith of investors, media and especially the Indian information technology, or IT, sector that was already grappling with the aftermath of the Lehman crisis which affected banks and financial institutions in the US and the UK markets from which most Indian IT services providers derive more than 80% of their revenue.
Not that his confession endeared him to anyone that day, least of all the Institute of Directors (IOD), the body that awarded him the Golden Peacock for excellence in corporate governance on 8 September, 2008. And surely not software lobby body, Nasscom, that Raju served as chairman in 2006-07. Both have since tried to erase him from their respective memories—IOD, by stripping him of the award for “non-disclosure of material facts", and Nasscom, by deleting his record from the page that displays the past chairmen of the organization.
Second, what you see, and what is declared, is not necessarily always true.
What followed Raju’s confession, was unparalled drama with lots of speculation in the media over where the money disappeared--not that anyone has understood it till date--coupled with confusion over understanding the involvement of the Maytas (Satyam read backwards) companies founded by Raju—Maytas Properties and Maytas Infra Ltd (now Hill County Properties) and disbelief and astonishment over the fact that the company could have non-existent or “ghost" employees on its rolls that went undetected for years.
Last but not the least, what rattled many was the fact that neither could the watchdogs--the independent directors or the auditing firm--spot, or disclose, any anamolies that Raju finally confessed to, suggesting that there was a lot more that met the eye, casting a shadow on the role of independent directors, auditing firms, and even Hyderabad-based realty and IT companies.
Third, not all government intervention is necessarily bad.
Prompted by Nasscom and pleas from the industry that thousands of employees could lose their jobs in a slowing economy while the IT industry risked tarnishing its reputation that is so critical to a sector that flourishes on work outsourced to India, the government in an unprecedented step decided to take charge and appoint a board to salvage Satyam from near bankruptcy since senior executives and employees were either fleeing from, or being poached by, rival companies. This, even as clients of Satyam were being poached by other Indian IT services providers. They stopped from doing so only after the government and the new board, chaired by Kiran Karnik, requested all rival IT companies to give them a breather while they prepared to sell Satyam.
Fourth, it is possible to restore trust with concrete action and open communication.
Satyam was eventually sold to Tech Mahindra in a transparent bidding process which was communicated to the public step-by-step, not leaving much room for speculation in the media.
Fifth, half measures and indecision do not pay--it’s important to get rid of a bad apple in entirety.
It was the integrity and brand reputation of the Mahindra and Mahindra group that ultimately restored clients’ faith in the company. Eventually, the merged entity that is now called Tech Mahindra did away with the Satyam name that is not only associated with the scam but also a host of class-action suits that had to be settled out of court. Tech Mahindra, in its new avatar, is now aiming to almost double its revenue to become a $5 billion company by fiscal 2015.
Sixth, good leaders need to be consistently good.
Raju was hailed a good leader but failed the very company he founded, and betrayed the trust of his employees, the IT industry and a whole nation that looked up to him.
There are other cases that should not be treated with this severity, or harsh judgement but nevertheless invite introspection.
Take the case of Phaneesh Murthy, who also started out as a good leader, but was asked to quit Infosys Ltd because of a scandal involving a woman. He repeated his mistake when leading iGate Ltd, and had to pay the price again.
Infosys Ltd, itself, paid a heavy price for its leadership crisis and it finally announced that former SAP AG global product head Vishal Sikka will take over from incumbent S.D. Shibulal as CEO and managing director on 1 August, making him the company’s first non-founder chief executive, elected 33 years after Infosys (then Infosys Technologies Ltd) was founded in 1981 by seven engineers who moved from Patni Computer Systems.
Incidentally, N.R. Narayana Murthy was hired by Narendra Patni—one of the pioneers of the Indian IT outsourcing industry and founder of Patni Computer, who died unsung on 6 June. And lack of leadership resulted in Patni Computer not becoming an Infosys and finally getting acquired by iGate in 2011.
There’s also the case of Wipro Ltd chairman Azim Premji, who toed the Peter Drucker thinking when he appointed Suresh Vaswani and Girish Paranjpe as joint chief executive officers of Wipro Technologies, then the company’s global information technology arm, in April 2008—just before the Lehman crisis. The flurry of changes came after the lull of three years that followed the exit of vice-chairman Vivek Paul in 2005. The result is there to see: While Vaswani is today president of Dell Services, Paranjpe is an operating partner in Boston-based private equity firm Advent International. Meanwhile Wipro’s new chief, T.K. Kurien, has been trying to strengthen Wipro in the last three years.
Seventh, good and consistent leadership pays dividends.
Infosys, once the darling of most analysts and the media, paid the price of poor leadership and had to give way as a bellwether of the Indian IT industry to the scorching pace of growth of Cognizant Technology Solutions Corp. This, even as Tata Consultancy Services Ltd continues to remain the leader by far in the Indian IT industry with its smooth transition of leadership—from S. Ramadorai to N. Chandrasekaran, making it an over $12 billion revenue company in a $118 billion IT sector.
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