Monday, January 12, 2009

Can Satyam handle its own future?

As the three wise men (a banker , an accountant and an IT professional) appointed by the Ministry of Company Affairs ,settle into the boardroom of Satyam for unearthing the alleged accounting fraud; speculations about the future of Satyam Computers and its 53000 employees mount.

One optimistic view is that as finally expected, the various divisions of Satyam Computers will get merged into one or more of similar entities with 15-20% job losses,if at all. After all, its a manpower-intensive business, difficult to replace in a short time and hence clients would like the business to continue as long as they think that the leadership and management is going to get the company cruising forward.

The pessimistic view says that is precisely the problem with Satyam. In order to move an enterprise forward , one would require a good amount of cash in the system. Quality of leadership will have no effect if the liquidity-gap of Rs. 70 billion rupees, (or more as the actual amount will reveal itself once new auditors are appointed, ) is not met with. Which bank will lend money at a time when the basic "trust" has been damaged in the ability of the company to pay it back? A cash starved company sucks everything in and spews out nothing in return, in general.

Will the government bail-out Satyam ? Should they, actually? Logically no, if there is a potential investor who is willing to shell out money for continuing the business and not for stripping it of its assets. To prevent inappropriate investment as in the latter, the government could facilitate the smooth handing over of the bankrupt business to a responsible investor. To make that happen, the 3 wise men should appoint top-notch IT entrepreneurs ,as their colleague in the board. These will be the ones, who can regain confidence of the clients as well as the bankers in the vision that they paint for Satyam computers in the future.

Painting a picture of the new Satyam will not be easy as the picture now remains very murky. When the top leader of an organisation is accomplished in fudging accounts, the culture surely would have sought its depth as well as width in the hierarchy below. If not overtly, for sure in a covert manner. This is an industry where the top leaders earn compensations in crores of rupees for precisely doing nothing. This is a country, where the promoters of large family-managed companies keep spare, unaccounted cash with themselves for taking care of uncertain factors in the environment. They also appoint auditors to help them evade tax and treat the process or the system as something that is not sacrosanct & easy to manipulate .

The 'knowledge economy' unfurled by the new India of IT whiz kids have expanded the knowledge of all corrupt stakeholders of the economy to create wealth out of favours granted, coercion exercised, protectionism and now,accounting frauds. The power of networking has worked wonders for not leapfrogging an innovative, entrepreneurial culture but for currying economic favours from 'eminent' nodders in positions of power.

The case of Satyam is that of a fish that surfaced on the shore to find the water receding away to the ocean. While bailing out this fish will be easier for the government, there is a fear that the government will do precisely nothing to clear the ocean of a culture of corrupt business practices. On the other hand, allowing the banks, clients ,investors and employees to form an interim task force for taking Satyam forward could be the harder & better way that should include taking temporary salary cuts.
Picture Source:Bigpictures' blog

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