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For God’s Sake, Go!

Omkar Goswami

Dear Mr Ramalinga Raju,

I write this open letter not as an independent director of Infosys Technologies, a competing company in the IT space, but as an advocate of fiduciary responsibility and good corporate governance — a role that I have performed for the past decade. Independence demands speaking up when occasions so require. By being discreet regarding the Satyam imbroglio, all independent directors risk being tarred by the same brush, which corporate India can ill afford.

On 20 April 1653, Oliver Cromwell, minor gentry of Huntingdon, member of Parliament, soldier, general, leader of the English Civil War, and eventually, the Lord Protector of England made an impassionate speech to the ineffective Rump Parliament before dismissing it for failure to discharge its duties to the people. He said, “You have sat for too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go!”

I quote Cromwell with a purpose. You began, built and grew a great international company that India was proud of. Nobody can deny Satyam its place in the big four along with TCS, Infosys and Wipro. Nobody can deny that for the vast majority of time under your helm, you grew the business, its profits and shareholder wealth. Suddenly, you have undone it all and have seriously damaged the company’s reputation as well as that of its fiduciaries. I don’t know what prompted such action: hubris, poor advice, or the notion that success is the licence to do anything. Whatever the reason, the outcomes have been horrendous for Satyam.

First, the proposed transaction. You and your trusts, owning just 8.74 per cent of the company’s equity, proposed to transfer $1.6 billion of Satyam’s cash to Maytas and Maytas Infrastructure, where your family owns 36.6 per cent of equity. This is nothing other than a huge related-party transaction — one that you should not have proposed at all. It makes no difference to the substance of corporate governance that you didn’t break any laws, which seems to be the defence of some of your independent directors. You broke something far more important: the fiduciary responsibility that the board ought to have had for its shareholders.

Second, if you felt that the deal was strategically important for de-risking Satyam, why didn’t you first ask the opinion of foreign institutional investors, ADR holders, Indian mutual funds, insurance companies, banks and financial institutions who together held 61.2 per cent of the stock, or seven times the equity that you and your family owned? You would have got the answer — as you did after the stock was hammered like never before.

Third, if the deal was so good for Satyam to a point where one of your ex-civil service directors said, “Even your uncle will not sell you the land at the price Maytas was selling it to Satyam”, why did you do an about turn in less than 24 hours, and then talk of a proposed buyback and higher dividends?

Fourth, your management, spokespersons and some directors have said ruinously contradictory things. One instance is illustrative enough. It was claimed that one of the big four accounting firms did the valuation of Maytas’ assets — which was denied by each of the biggies. That has destroyed credibility.

Fifth, and probably the most damaging, is the latest news of the World Bank debarring Satyam from doing business with it for eight years on account of “alleged malpractices” and “providing improper benefits to Bank staff” — a ban that has been confirmed by the World Bank’s spokesperson in New Delhi. You must have known of the bank’s reasons for the ban. Was the board fully informed of it? I mean fully.

Mr Raju, there are things called negative externalities, where the action of one or a few can cause harm to many. Any sensible person in the corporate world will agree that the actions taken by you, your management and your board, whether by design or otherwise, have not only damaged Satyam but also the reputation of corporate India. Today, the media is questioning the role of independent directors. Over the top, you may say. But it is your actions that have given them the peg to hang the question on.

There is only one honourable thing to do. You and your board should offer to resign. Or else you may feel the heat in the next annual general meeting when the 70 per cent outside shareholders gather proxies and force the resignations. Satyam remains a good company. You cannot let it go down the tube.

It is apt to end with another quote from Cromwell. When King Charles I was executed, Cromwell called it a “cruel necessity”. It is time for you to think of that. Or else, others will.

Published: Business Standard, January 2009


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