BY C. S. MIRCHANDANI

The Satyam fraud cannot be pinned on Ramalinga Raju alone. The directors of the board, divisional heads and CFOs, auditors and bankers involved with Satyam could not have been ignorant of the goings-on in the company.

On January 7, 2009 Ramalinga Raju, Chairman of Satyam Computer Services “confessed” to having cooked the company’s books - cash, bank balances and accrued interest exaggerated by a whopping Rs. 5400 crores, overstatement of debtors and understatement of liabilities, etc finally adding up to over Rs. 7000 crores.

Mendu Ramohan Rao, Dean of Indian School of Business, one of India’s premier B schools and director on the board of Satyam Computers says he is “stunned”. Is he going to be allowed to get away with a statement like that? Are independent directors supposed to close their eyes or are they collaborators in fraud? One can’t believe that the dean of a BUSINESS school is illiterate enough to not understand what was going on.

MAYTAS ACQUISITION

SEVERAL weeks before Ramalinga Raju’s “confession”, the story of how he tried to get Satyam to buy his son’s company without diligence, without discussion and without the necessary change in the articles of association broke. Here again Ramohan Rao was an accomplice and apparently chaired the meeting which took this decision. Fortunately, institutional investors were able to get the decision reversed. The depths to which we have sunk can be gauged by the fact that Vinod K. Dham, regarded as the father of Pentium, and Krishna G Palepu, professor in Harvard Business School, were independent directors of Satyam till they stepped down following the Satyam-Maytas fracas. Former Union Cabinet Secretary, TR Prasad, and V S Raju, former Dean of IIT-Delhi, were also part of the Satyam board.

So much for the role of independent directors who supposedly ensure good corporate governance! It’s interesting to note that Satyam won the golden peacock award for excellence in corporate governance awarded by the London-based World Council for Corporate Governance.

WHY?

WHAT about the confession? Is he coming clean? Did he do it, as he claims, merely to shore up a company in which he had a nine percent stake? Was the attempted purchase of Maytas intended to help Satyam as he suggests? Very unlikely. This seems like a fresh bundle of lies. It is impossible to believe that India’s fourth largest software company, with numerous prestigious fortune 500 clients, was working on a three percent margin when the big three work on over 30% and even small players have more than 12%. Obviously, therefore, substantial sums were diverted by the family and cooking the books became necessary to cover up their misdeeds. The sin Raju has confessed to is a smaller sin than the real one. After all, window dressing of accounts is rampant in India’s corporate sector. Huge amounts have probably gone into his large land purchases.

But, while Raju needs to be condemned and prosecuted, he could not have managed without partners. What about Price Waterhouse? Note that the major book-cooking happened in cash and bank balances, not in exaggerated debtors or underreporting of creditors, which need some effort to detect. Rs. 5,000 crores of cash was reported to have been in the banks and PWC have gone ahead and signed on the balance sheets saying that it’s there in the banks when it wasn’t. The interest accrued - where is this interest accrued from? It has to be there. Auditors are supposed to undertake bank reconciliation to check whether the money is indeed in bank accounts as claimed. They need to check bank statements and certificates. An auditor who cannot even check cash and bank balances needs to be shut down immediately. This cannot be negligence. PWC were obviously hand in glove with Raju.

SATYAM EXECS

WHAT about the Satyam executives-divisional heads and CFOs? Were they threatened with dismissal or offered carrots of huge bonuses? Then there are the bankers of Satyam which are quite a few because it is a big company. You have ICICI Bank, HDFC Bank, Bank of Baroda and a lot of other banks. These banks are supposed to provide bank statements on a quarterly basis and bank certificates on the basis of which auditors go ahead and sign the balance sheet. Either the bank statement and certificates are false or the auditors haven’t taken cognizance of the fact that the bank statements showed figures different from what the management was depicting.

Then there are the I-bankers. It seems Merrill Lynch withdrew from the Satyam mandate on the evening of January 6. It did not inform the exchanges till after Mr. Raju informed the stock exchanges. Why did Merrill Lynch, after withdrawing the mandate, not inform the stock exchange or at least the public in general or the shareholders before market hours? These questions have to be answered by Merrill Lynch and that’s a key question because Merrill Lynch was the outside advisor to Satyam. It withdrew from the mandate because of the kind of mess Satyam was in. Merrill Lynch should have informed Satyam and alerted the market that there was something very wrong at Satyam, that being the reason for their withdrawal. Thus, the list of people culpable is bound to be long.

ACTION

INVESTIGATIONS seem to have begun, but with Raju’s connections and the likely involvement of very big political fish will any action be taken? Why don’t we have class action suits in India? Is the judiciary clean enough to really come down heavily on senior ministers, businessmen and senior bureaucrats? In fact. do we have any white sheep left? There are fears in some minds that the entire India story may be a bubble. If the market collapses and the India story is seen as a chimera, it will be worse than any terror strike that one can imagine.

Corporate India has made the right noises about shock, anger and anguish, but will they push for maximum punishment for “one of us”? Past experience shows that when it comes to the crunch, they stick together. Remember the sexual harassment case against Phaneesh Murthy. Phaneesh has become CEO of I-gate and maintains close links with the bosses of Infosys. In fact, most companies have a fund.

While it is true that corruption is not a uniquely Indian phenomenon, our overburdened legal procedures allow crooks to be blasé and bold. Our judicial system, which is alleged to be as corrupt as that of businessmen, politicians and everyone else, is unlikely to really hand down a harsh verdict and dispose of the appeals in reasonable time. In India, even the convicted move around freely and join national political parties!

This scam is being labeled India’s Enron. But in the Enron case justice was delivered fairly swiftly. There were massive penalties and long prison sentences. The CFO recently died in prison. Can similar things happen in India? There are many laws in India under which Raju can be apprehended - SEBI, The Company Law Board & Section 420 of the Indian penal code. Raju was apprehended and a class action suit has been filed in the US. Let us hope that they receive punishments that could become deterrents for future scamsters.