The year 2009 will be remembered always for what is one of the biggest setbacks in Indian IT and services Industry – the Satyam debacle. The issue not only shook the stakeholders of the company but had far reaching implications on Indian IT/BPO sector. The case brutally exposed the manner and extent to which Corporate Governance in India is inefficient and faulty. But what we shall be discussing here, are the reasons behind Mr. Ramalinga Raju taking these steps and how ethically correct or incorrect he had been in taking them.
Satyam Computer Services was established in 1987 by Ramalinga Raju and his brother Mr. B. Rama Raju. In 1991 it was listed as a Public Limited company and received its first Fortune 500 client Deere and Co. From here on there was no looking back for the company. Rising from humble beginnings it became one of fastest growing IT companies in India. The company was held in the same league as biggies like Infosys, TCS and Wipro. The rise of Satyam coincided with the rise of IT industry of India and the development of Hyderabad as one of the most prominent IT hubs in India. Over the time it won many feathers in its cap like becoming the first ISO 9001:2001 company in the world, certified by BVQI, winning the Frost & Sullivan Award for Competitive Strategy in ASP in 2001etc. Satyam became the first company in the world to start a program called Customer-Oriented Global Organization training in the year 2000. It is only ironical then, that this company Satyam meaning ‘Truth’ in Sanskrit came under the firing line for fraud and cheating its stakeholders.
On reading his resignation letter it is very clear that Mr. Raju has no guilt on his actions. He believes it was done for the greater good of the company and its development and the letter vehemently justifies the fraudulent acts. The letter comes across as a mere statement of facts that were hidden from the stakeholders. He bears the entire responsibility of the fraud on his own shoulders, though. When it comes to pass a judgement on the fraudulent actions taken for the apparent greater good, we fall on a sticky wicket. How great a purpose can justify a fraud of levels like this? How can we predict if those actions could actually serve the desired purpose in future in case they were not revealed? For that matter, how can one person decide what the greater good of a company is and go ahead keeping the stakeholders in the dark? It is not easy to answer these questions but they can atleast provide a direction to pass a judgment on whether the actions were justifiable or not.
Interestingly this has not been the first case of fraud on Satyam that has come into light. An Australia based firm IPP Technologies helped Satyam launch in Australia in 2000 and Satyam later violated the terms of contract. Quoting Managing Director of IPP Technologies, Satyam is not an ethical company. So one can say that fraudulent activities have not been new for the company and have been used in different stages of its growth.
Doing a character sketch of Mr. Ramalinga Raju we come across many relevant findings. It has been said about Mr. Raju that apart from being a person who believed in the principle of “High Risk-High Returns”, he was also shrewd and manipulative as a person. He is also said to be a control freak, remorseless person who found it difficult to deal with people other than “’Yes-men” which led to many high-profile employees leaving the company. He was a very secretive person. The Finance department of the company was a under his control and a complete black box for others. It is a matter of deliberation that how plausible it is for a person to alienate one’s personal attributes from his profession. It is not really possible to maintain two personalities, personally and professionally.
In May 1988 Satyam Construction Ltd was established by Ramalinga Raju and his brothers which were later renamed to Maytas Infra. This construction company was more or less a family affair with the family having 37% stake in it and was run by Mr. Raju’s son. Like Satyam it also grew at a very high speed and became one of the leading infrastructure development companies with reputation of delivering complex, high quality work within required time. Satyam and Maytas were popular with the state government of Andhra Pradesh. The company had 25 irrigation projects in its hand worth Rs. 16,262 crores. In 2008 AP government sanctioned a 121 crores project to Maytas Infra without a normal process of inviting tenders publicly. A project of such huge level is never allotted on nomination bass unless an emergency. This clearly shows the kind of relationship that Mr. Raju enjoyed with the Andhra Pradesh government. Also, in 2008 the company made a successful bid to bag the Hyderabad Metro Rail project worth Rs. 30,300 crore with a bid so low as compared to other competitors that called national attention. There is no doubt that manipulation was used as a very successful and efficient tool by Mr. Raju in bagging these projects.
The decision made by the Board of Satyam to diversify by investing in Maytas Infra and Maytas Properties was against the Companies Act and raised grave concerns on the integrity of the company towards the stakeholders. It was an act of sheer desperation to save the sinking ship which fell flat.
Mr. Raju in his letter mentioned some employees of the company who were supposedly unknown of the inflated figures. However, it seemed as the mention of their names was a message as to who he was entrusting the responsibility for cleaning up the mess the company was in. At the same time, the letter bears an authoritative stance that suggests he does not believe that anyone is capable enough to bail out the company from the situation other than he himself.
Mr. Raju’s justifications on the actions based on the greater good theory also takes a hit because of the fact that his shareholding in the Satyam dwindled from 26% to 8.6 %. He raised loans for the company quoting inflated value of his own stake. The reasons behind the dropped stakes are not clarified by him at any point of time and raises doubts on whether he wanted to guard himself when the company went down.
One can say manipulation is the necessary evil in business but how do we decide where to draw the line. It is said that that the main purpose of a company is to maximize the shareholder’s wealth but the condition being it is also vital to guard the shareholder’s interest. Satyam was not a family affair for Mr. Ramalinga Raju. It had many thousands stake holders including the employees of the company, and those who had invested their hard earned money in the shares of the company. They did not deserve to pay for the frauds that the senior management had committed in the company. The greater good that Mr. Raju talks about in his letter and techniques that he employed to achieve it, was not only for him to decide. It is unfortunate that the tiger that Mr. Raju was riding finally consumed the empire he had so efficiently built, but it is even more unfortunate that the tiger was only a cub when he got on it without realising what it would cost him in the future.