SATYAM

AN EVENTUAL ANALYSIS

Bac ground Indian share mar et, already plagued with the virus of global economic recessio n got shattered when CEO of Satyam computers conceded that he manipulated compan y s account to the tune of Rs. 7000 crores in the past few years; such that cash and ban deposits reflected in the accounts, actually did not exist. This was not l imited to share mar ets alone; in fact, the whole nation lost faith on corporate governance by this episode. Tech Mahindra forwarded its claim on Satyam compute rs by bidding for 31 percent sta e in the company at a price of rupees 58 per sh are. This ended all speculations about the future of Satyam computers. Earlier common belief was that private sector companies could ta e care of thems elves on their own. Corporate governance is capable of handling any eventuality. Representatives of public sector financial institutions and independent directo rs have always been on the board of directors of these private sector companies. In addition to this, various regulatory bodies such as Company Law Board, Secur ities and Exchange Board of India (SEBI) also eep vigil on the activities of th e companies. For all these reasons, corporate governance was claimed to be compl ete in it self and it was argued that there is no need for any intervention in t he management of these companies on the part of the government.

Independence of Auditors & Directors In addition to the well-placed institutional mechanism as enumerated above, the se companies get their accounts audited from auditors of international standards . Thus in this process accounts of these companies are also thoroughly inspected . However, this well placed faith in corporate governance was shattered by the exp oses of Satyam. We understand that any ind of report could be obtained from aud itors by luring them, including giving exorbitant fees (in this case auditors were given a fees of rupees 4.3 crores, whereas normal fees was rupees 2 crores). This fraudulent behavior of auditors is not limited to Satyam only. In fact, there are examples of hundreds of such frauds in India and all over the world helped by auditors. F rauds committed by Arther Anderson, which lost its existence by manipulating acc ounts of Enron, grant of AAA rating to the companies under deep financial crisis and ultimately filing for ban ruptcy by Price Waterhouse Cooper, (which inciden tally is also auditor of Satyam), are already in public nowledge. Further dependen ce' of independent' directors on company s management are also well nown. Failure of S EBI and Company Law Board is also well nown. Future of Satyam and Tech Mahindra Under these circumstances, the government reconstituted the Board of Directors o

f Satyam computers, by including personalities from IT sector, corporate sector and the legal luminaries. Offers were invited from willing parties to ta e over the management of Satyam in a transparent manner. In the process a leading const ruction and engineering company Larsen and Toubro and leading IT and software co mpany Tech Mahindra, which is a joint venture of British Telecom (BT), a UK base d company and Mahindra and Mahindra, participated in the bidding. Tech Mahindra emerged as the successful bidder by offering the highest bid of Rs. 58 per share .

Lessons for future Maturity of Indian legal and political system is very well demonstrated by the f act that in just 3-4 months of the fraud, not only that Board of Directors was r econstituted but also even the process of handing over the same to the new compa ny was almost completed in most transparent manner. Though the problem is seemin gly solved for the time being but this is also correct that regulatory agencies li e SEBI, independent directors, Company Law Board, auditing firms etc. have al l proved to be incapable. Finding solution to the problem arising out of Satyam fraud does not in any way provide any guarantee against repetition of such fraud s. Incapability of the regulatory agencies has been sufficiently proved in earli er cases such as Harshad Mehta fraud, Ketan Pari h etc. The government also has to ensure the safety of the investment of the public sector institutions and the public in big companies of private sector. We understand that Comptroller and A uditor General of India (CAG) audits public sector companies' accounts. This is also a fact that in the past there has never been a fraud to this magnitude. We can ma e suitable changes in the law, bring private sector companies having busi ness more than Rs. 1000 crores under the scanner of CAG, and thus put a stop to these frauds.

Tech Mahindra which at present is sixth largest IT and software company would be come fourth largest company in the field after ta ing over Satyam. After the ta eover biggest challenge before Tech Mahindra would be to maintain client base of Satyam, apart from dealing with the obstacles to the growth of IT sector due to the recessionary trends. Tech Mahindra will also have to deal with cases of fra ud against Satyam abroad. After a new offer of Tech Mahindra, which was much hig her than earlier offer of Rs. 45.90 of Larsen and Toubro, share mar ets respond ed quic ly by showing a general uptrend. Mar et seems to be confident about the future of Satyam after its ta eover by a leading software company. Even Larsen & Toubro is not willing to off load the 12 percent sta e in the company, which it had purchased in anticipation of its success in bidding, as L&T is confident th at share prices will go up after the ta eover.