Satyam fiasco

Satyam NSE 40.25 -138.7(-77.51%)

This day would probably marked in history. Satyam's scandal of not reporting factual numbers is a serious dent on companies of its size and holding. This too will pass, but there are some key takeaways:

- First and foremost, I have always said that it is important to integrate ethics with leadership. And this should happen right from the grass-root level. With each demanding circumstance, the credibility of leadership is tested. People irrespective of nationalities, geographies and races, need to understand the important of ethics. Everything else comes second.

- Mr. Raju's letter to the board cites no knowledge of the scandal on the part of senior management or board members. Its hard for me to believe that no one else knew about the scandal. It brings me to question the roles of Satyam's senior management including the CFO and some key people in important functions! What did the auditors do? Were they merely employed to sign the dotted line?

- At the grass root, it is clear from Mr. Raju's letter to the board that the fear of being taken over is the primary motive behind the scandal. First, what can companies do to prevent this? Well, I believe, promotors and associated parties need to have a majority stake if they want complete control of things. A minority stakeholder cannot assume total control at all times. If you look at companies like Infosys, the promotor holding is as low as 16.51%(as on Sept '08) whereas the public holds the majority. Institutional investors command a higher weightage than promotors. So, there is ample chance to fear a takeover in case of Infy. Even though, the current circumstances may not warrant such an event, the future looks uncertain. The bottom line is - If companies are averse to a takeover or merger, it is safe for them to have substantial promotor holding. If not, one must leave it to what the majority shareholder wants.

- I believe there are many more companies like Satyam who have fudged data. Companies need to pay heed to the warning and report factual data. If not, another "Satyam" among them isnt a distant probability.

This too will pass, but for Satyam, the road has come to the end within a few days! What took over 20 years to build has now collapsed like pins. Satyam would probably need to be re-branded after acquisition or otherwise.