After the shocking disclosures on Wednesday, corporate India will never be the same. All the chickens came to roost on the same day. The role of rating agencies, audit firms, chartered accountants, investment bankers, big ticket investors, professional valuers and promoters is now in the crosshairs. Throw in media analysts and brokerage house research analysts, and you have a heady cocktail of neglect. Nobody could pinpoint the magnitude of the rot that had set in at Satyam. It ultimately took the promoter himself to accept that he had wilfully committed fraud. When you have a flood, one talks of danger signals as the water begins to rise. In Satyam’s case, everyone missed a trick or two despite several danger signs being raised over the past 20 days or so.
It all began with the Satyam-Maytas (Satyam spelt backwards) deal going sour. Barring TOI and ET and perhaps a handful of the financial press, no one realised the import of the con that B Ramalinga Raju tried to pull off. Overnight devastation on the American bourses convinced Raju to call off the controversial deal. My contention is how could a promoter owning 8.67 per cent in a company transfer $1.6 billion of shareholder reserves to purchase the Maytas twins, which in any case were owned by his sons? On Wednesday, the real story emerged – that Raju was planning to use shareholder reserves to plug holes in his balance sheet for these assets were fictitious. How can a promoter, a poster child, one of the big five of Indian technology, get away with this kind of fraud for so many years? It can only amount to criminal conspiracy. And unlike rogue stockbrokers Harshad Mehta or Ketan Mehta or the PS Subrahmanyam induced UTI scam in which lakhs of retail investors in the blue riband US 64 scheme lost their shirts, Raju was not caught, he actually came forward and said that he had committed fraud. The sum of money involved – Rs 5,040 crore of shareholder wealth.
The same Raju and his board of directors, including Ram Myanpati, who has been installed as interim CEO, sat in earnings calls on financial telly channels and openly committed perjury, lying through their teeth. How can Raju now say that other members of the board were not involved in this fraud, isn’t their complicity established? And Raju himself, poster child of the techie generation, sat through all these earnings calls, investor con calls, annual general meetings and glibly lied his way through. Amazing. What about bulge bracket investors – both foreign and Indian – who owned as much as 91 per cent of the company? They never saw through this scam. What about the independent directors – celebrated names like Vinod Dham, Krishna Palepu and ISB Dean Mendu Rammohan Rao, who sat in on the board meetings. What was their role? One must add here that CNBC-TV18 did speculate on the complicity between ISB and Satyam only a day prior to this big bang revelation.
And finally media, who create hyperbole around corporate chieftains? And the hordes of analysts in media and brokerage houses who failed to spot the glitches in the balance sheet? Or the rating agencies? Or auditors PricewaterhouseCoopers, who turned a blind eye to the scam even as it was unfolding. This has not been done over a quarter or two, it has been systematically engineered over a period of time. Satyam was seen as a zero debt, high growth, high profit trajectory company. And now this. Our regulators and the Ministry of Company Affairs did not take any action whatsoever when the Satyam-Maytas scandal broke. By calling off the deal, it was thought all was well. So, life went on. But what of the neon signs that were held up in our faces. Why did media miss these signs?
The World Bank for one gave us a perfect opportunity when it disbarred the company from any further contractual work. We missed that. Upaid sued Satyam for wrongful practices, but we missed that too. All this happened subsequent to the ill-fated Satyam-Maytas deal and yet nobody woke up the dirt at Satyam, probably because both the entities in question were ‘firang’ and our national pride instinctively felt that they were targeting an Indian company for no rhyme or reason. But there cannot be so much smoke. There has to be a fire somewhere in the background. Yet, Satyam’s smoke and mirrors strategy worked, as it managed to cover up all its tracks. World Bank banned Satyam from doing business with it for eight years over alleged malpractices and bribery. Improper benefit to Bank staff and lack of documentation on invoices was what World Bank said in its statement after the ban, which incidentally came into effect in September. It came to light only in late December. Yet again, no one thought of probing further and digging deeper. A blasé Satyam’s response, “We don’t comment on individual clients.”
A tale of woe is what this saga can be described as. In 2005, World Bank’s Chief Information Officer, Mohommed Muhsin, was asked to leave after he was found guilty of improperly buying preferential stock options from Satyam in return of awarding contracts worth millions of dollars. A top secret internal investigation in January 2007 banned Muhsin from the Bank forever. Still, nobody deigned to investigate further. Since 2007, another client called Upaid Systems has been waging war against Satyam, suing it for a billion dollars in Texas for a serious case of misconduct involving fraud and forgery. So, there is an obvious history of fraud, forgery, intellectual property infringement and bribery, and yet all of us chose to ignore the writing on the wall. Actually, the problem with Upaid goes back to 1996, when considerable portions of the core project over a pay phone were outsourced to Satyam. Once again, nobody woke up to the extent of the misdemeanours on Satyam’s part. Satyam’s communications team kept everything brushed under the carpet until I guess the bulge as large as elephants and camels began to show.
What does all this do to India’s image? To our standards of corporate governance and transparency, our accounting procedures and audit practices? The stock tanked almost 80 per cent on Wednesday, 50 crore shares changed hands on the bourses. Inflating profits, falsifying accounts and saying $1 billion or 94 per cent of the cash on its books was fictitious is a scary turn of events to say the least. Raju in his letter claimed that this was the final solution to the problem. As recently as last June, the company was valued at an astronomical $7 billion. On Wednesday, it dove to end in the low Rs 40s amidst widespread indignation over the criminal conspiracy to defraud investors. Asset stripping over the Maytas deal was a last ditch attempt to cover up the tracks.
Media has botched up the entire story, it failed to act as a watchdog. The regulator always fails us, but media failed in its endeavour to play whistleblower. Guess what, the promoter confessed this time round. Making it a first.
(Sandeep Bamzai is a well-known journalist who started his career with The Statesman in Kolkata in 1984. He has held senior editorial positions in some of the biggest media houses in three different cities - Kolkata, Mumbai and New Delhi - with The Indian Express, Illustrated Weekly, Sunday Observer, Dalal Street Journal, Plus Channel where he ran India's first morning business show on Doordarshan, The Times of India Group, Business India, Hindustan Times and Reliance Big Entertainment. Starting his career as a cricket writer, he graduated to becoming a man for all seasons under Pritish Nandy, who he considers as the premier influence on his career. Since he studied economics at Calcutta University, Bamzai decided in 1993 to branch out into business and financial journalism. Familiar with all three media, he is the author of three different books on cricket and Kashmir.)