Satyam Computers is the Enron of India. Like Enron, Satyam was one of the biggest and most feted companies. Like Enron, Saytam perpetrated a balance-sheet scam with the support of supposedly world-class auditors. Like Enron, Saytam stands exposed as a gigantic fraud, and faces lawsuits galore.
Yet while Enron deserved to die, Satyam deserves to be rescued. The best way to achieve this is for the government to ask NR Narayana Murthy, former chief of Infosys, to take over as the CEO of Satyam. He is almost the only person with the capacity and credibility to rescue the company from its current plight.
His reputation for integrity is formidable, so he is a rare individual who can quickly cleanse Satyam of the Raju taint. And since he no longer has executive duties at Inofsys, he should be available for the task. For the sake of the software industry, and of India’s reputation as a software exporter, I hope he will himself offer to take on such a difficult and challenging job.
Enron was a loss-making company that hid its losses until they could be hidden no more. But Satyam is profitable. Even while confessing to cooking the books, promoter Ramalinga Raju said that Satyam’s profits in the last quarter were not Rs 649 crore but Rs 61 crore. The lower figure, representing a very low operating margin of 3%, is nevertheless a substantial profit, and is a perfectly good basis for survival.
Besides, industry circles are unanimous that Satyam’s actual profit must have been much bigger. Given that competitors had operating margins of 25-33%. Even if its financial assets have been stripped, even if it has a negative net worth right now, its ability to service top global customers profitably represents a potential asset of great value, to the nation no less than shareholders. This is now in danger of disappearing.
Why does it look so difficult to rescue what is a potentially one of the software gems of India? First, no other company will dream of making a takeover bid until Satyam’s true assets and liabilities are established, and that may take some time. Second, its creditors are going to shut off funds, and its debtors will probably delay payments due, starving it of cash to pay salaries. Third, many staffers see no future in Satyam and are desperately trying to find other jobs. Customers too will seek to migrate from the tainted company.
For these reasons, no takeover bid looks likely, even as time runs out for the company. The government has the power to appoint new directors, but if it appoints bureaucrats—as it has done in mismanaged companies in the past–these will carry no credibility with either investors or customers. So customers, creditors and employees will continue to flee, and company will be destroyed.
The stock market has given an indication of this expectation already. The shares of TCS, Infosys and Wipro have shot up, in the expectation that Satyam will go bust and its existing business will migrate to its top three rivals.
Some analysts think that the company can be saved if the government guarantees new bank credit to Satyam. That will enable the company to pay salaries till such time as the company’s books are fully investigated. Other analysts think the company can be taken over by the government and broken into smaller pieces for sale. However, Satyam’s problems are so deep that the company looks like collapsing, so there might soon be nothing left to be broken up and sold in pieces.
This is why the company needs a new chief with an unimpeachable reputation for integrity. Some analysts want Narayana Murthy and Azim Premji of Wipro to advise the company, or become directors. I do not think that will be enough. Satyam already had several eminent independent directors on its board, and yet these failed dismally to stop the scam. The company needs not just a new board but also a new management.
So, Satyam needs Narayana Murthy or Premji as CEO. Premji is not available, since he is already running Wipro. But Murthy retired as CEO of Infosys many years ago, and it now its mentor and ambassador at large. That is an important and valuable role. But rescuing Satyam would be a bigger and more fruitful role.
Cynics will say it does not matter if Satyam goes bust, since much of its business and staff will ultimately get redistributed to other Indian companies. But meanwhile much business will be lost, and many employee families will suffer tragedies. It is better to save the ship than just salvage something from the wreckage.