09 Jun 09 Satyam & Governance


The first prick in the Satyam bubble was the aborted merger of sister Maytas companies. This was also when we all discovered that Maytas was Satyam spelled backwords. Subsequently, things began to unravel very rapidly for Mr. Raju – and culminated in his dramatic confession, professing to sins beyond those ever imagined by the media, investors or the IT industry.

With the market already enveloped by pessimism, the episode turned the spotlight on Indian corporate governance, or the lack of it! Suddenly, India’s haloed IT sector showed signs of the same human frailties that many family run companies have long been accused of – corruption, greed and a total lack of concern for the minority investor.

Media speculation fed on the already gloomy markets, and epitaphs were written: Not only for Satyam, but the IT sector, and also the corporate sector as a whole. Gloomsayers predicted that all Indian listed firms would be suspect, and this would lead to dramatic outflows.

Today, several months later, Satyam is far from dead, and markets have bounced back. Satyam is now a part of the Mahindra group, which has a relatively good record of corporate governance. And the stock markets too, have provided a thumbs-up. Incidentally, if you’d bought Satyam stock the day after Mr. Raju spilled the beans, your return would have been between 300% and 1100% (accounting for the wide volatility on Jan 9th, 2009), in just six months! Talk about investing when “there’s blood on the streets!” – but that’s a post for another day!

Getting back to the point, ironically, the resuscitation of a dying Satyam is a huge positive for governance. The bad guy is out (and still cooling his heels, courtesy the judiciary and police), the good guys (Deepak Parekh, Kiran Karnik, et.al) came in and quickly (and transparently) worked to find a new owner. Last, but not the least, without government support and prodding, this could never have happened. On top of all this, heightened media and investor focus on such issues, only means that governance norms will be tightened.

And so arguably, I may argue that Satyam was the best thing that happened for India’s corporate governance reputation. Scams occur everywhere – it’s how you deal with them that matters!

Arun Jethmalani

Arun is one of the founders of ValueNotes. Apart from trying to build a high-quality research business, he has spent the last 27 years researching, analyzing, and dissecting companies and industries. He has worked with clients of all shapes and sizes, from all parts of the world – in providing them insights that make a difference to their business.
Prior to ValueNotes, he was an equity analyst/advisor, and wrote extensively on investing – including a column titled “Value for Money” which ran for 10 years in the Sunday edition of the Economic Times. To this day, he remains an avid “value” investor.
He has also been published in several other publications, and is a regular speaker at events related to technology, investing, competitive intelligence, business process management, Internet, etc. See: Valuenotes Events
He has been instrumental in developing a community of research and intelligence professionals in India, and is the founder and current chairman of the SCIP (India) Chapter. Arun holds a B Tech from IIT, Bombay and an MS from Duke University, NC, USA. LinkedIn Profile

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