Satyam-Maytas deal: One move that damaged the trust

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Companies in which public or shareholders invest money ought not to deviate from the vital principle that it is not enough to do things that one considers right, but one must also do them the right way so that their justification and propriety are immediately apparent. Even the whiff of a suspicion on this count is capable of damaging the trust built up over the years.

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If only the board of directors of Satyam Computer Services (SCS) had lived up to the above principle while approving the proposal to divert $1.6 billion (or some Rs 8,000 crore) for acquiring a 51 per cent stake in Maytas Infra and for effecting a 100 per cent buyout of Maytas Properties, it could have avoided the ignominy of having to take back the decision overnight following protest by investors.

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Not without merits

Taking a dispassionate view, the proposal is not without its merits. It can even be regarded as a timely initiative in the context of the downturn in the growth rates of India's leading firms in the IT-enabled sector and the outlook being made bleak by falling demand in countries which have been the mainstay of Indian companies.

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Hence, it is wise to plan on the basis that IT-enabled services by themselves cannot keep a company going full steam ahead for all time to come, and diversify into areas which are likely to assume great significance in the future economic scenario.

In the current national perspective, nobody can fault the choice of infrastructure and real estate development as the fields having assured potential.

Lessons from the Satyam-Maytas deal

When the avenues of diversification are relevant to national interest, and when the parent company has sufficient resources, seeking to bolster two ongoing enterprises in those sectors certainly makes sense. Especially when the spectacular growth of SCS and its repertoire of entrepreneurial and managerial skills carry with them a credible prospect of success of both the companies after the takeover.

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As regards the valuation of the two companies, one of the independent directors, Prof. M. Rammohan Rao, who is also the Dean of the Indian School of Business and who had brought the IIM, Bangalore to a pre-eminent position by his innovative leadership, has averred that the amounts at which the acquisitions were to be made were low and conservative compared to the valuation worked out by top consultants.

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Lapse from transparency

In any other situation, the arguments advanced would have clinched the issue in favour of the proposition. But in the case of the SCS, the companies proposed to be taken over were in the names of the sons of the founder-chairman of the SCS, and this rendered the transaction colourable as it looked like serving the family interests with public money.

Considering that the family running all the three companies - the SCS, Maytas Infra and Maytas Properties - stood to benefit from the deal, and its stake in SCS was just around eight per cent, propriety demanded the matter being formally brought before the stakeholders for their prior approval, instead of being decided at the level of the board.

Thus, the Satyam imbroglio is more a case of lapse from the strict standards of transparency and omission to observe proper procedure than that of any wanton attempt to defraud or other violation of law.

The independent directors too went by the rationale for the diversification and the reasonableness of the valuation without factoring the susceptibilities of the investor community into their calculation.

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I am sure they have all learnt their lessons. There is no point in flogging the issue further. There can be nothing more ludicrous than demanding the sacking of the board, as some commentators have done.

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