Corporate case study

Group members

• Rohit Kiran Bhatte - 03• Ishwari - 54• Tejasheri - 12

Satyam: The fall and rise

Satyam saga

The IT industry is the cornerstone of the Indian economy.

Over the years the IT industry had progressed leaps and bounds. The whole world was impressed by the progress of Indian IT industry. Then out of blue came the Satyam controversy. The debacle of Satyam computers shook the Indian IT industry to its core.

However the phoenix rise of Satyam will be remembered as one of the best examples of corporate turnaround . This was all possible with the active participation of the government & extraordinary individuals.

Highlights of Satyam• Satyam Computer Services Ltd was one of the leading global

consulting and IT services company . • Satyam Computers had domain expertise in verticals such as

Automotive, Banking & Financial Service, Insurance & Healthcare, Manufacturing, Telecom, Infrastructure etc.

• Satyam had nearly 40,000 employees on its rolls, working in development centers in India, the USA, the UK, the UAE, Canada, Hungary, Singapore, Malaysia, China, Japan and Australia.

• Satyam Computers' network was spread over 55 countries across 6 continents.

Journey of Satyam

• Satyam Computers was founded in June 1977 as a private limited company by Ramalinga Raju along with one of his brothers-in-law, DVS Raju.

• In June 1991, Satyam Computers got its first Fortune 500 Client. In the same year in August, Satyam Computers was recognized as a Public Limited Company.

• Satyam went public in May 1992 and its issue was oversubscribed 17 times. In July 1993, Satyam entered into a joint venture with Dun & Bradstreet.

Achievements of Satyam :• First Indian IT Company to get ITAA Certification for Y2K

Solutions.• Satyam Infoway is the first Indian Internet company to be

listed on NASDAQ.• Declared one of '100 Most Pioneering Technology

Companies' by World Economic Forum, Davos in the year 2000.

• First organization in the world to launch Customer-Oriented Global Organization training.

• First ISO 9001:2000 Company in the world as certified by BVQI.

• Ranked by the Brown-Wilson Group as the number two outsourcing vendor globally in the year 2006.

Satyam Computer Services scandal

• The Satyam Computer Services scandal was publicly announced on 7 January 2009, when Chairman Ramalinga Raju confessed that Satyam's accounts had been falsified.

• Raju claimed that neither he nor the managing director had benefited financially from the inflated revenues. He claimed that none of the board members had any knowledge of the situation in which the company was placed.

• Chairman Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India (SEBI).

Aftermath

• Analysts in India have termed the Satyam scandal as India's own Enron scandal.

• Immediately following the news, Merrill Lynch (Now with Bank of America) terminated its engagement with the company. Also, Credit Suisse suspended its coverage of Satyam.

• Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues, which was stripped from them in the aftermath of the scandal.

• The New York Stock Exchange has halted trading in Satyam stock as of 7 January 2009.

• India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on January 12.

• The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts.

• Satyam's share price became a fourth of what it was , almost everybody believed that Satyam’s days were numbered.

Government Steps in

• People who were later involved in the Satyam rescue assignment admit that no less a person than Prime Minister Manmohan Singh himself realized the grave danger to Indian IT industry’s image and to 40,000-odd people that were working in that company.

• If such a large number of people were to lose their jobs in the

thick of recessionary winter, the human and political costs could be catastrophic. The government reacted very swiftly after being nearly comatose for three days.

Steps taken by government

• After the scandal broke, the then-board members elected Ram Mynampati to be Satyam's interim CEO.

• On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors.

• On 11 January 2009, the government nominated noted banker Deepak Parekh, former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's board.

• The Indian Government stated that it may provide temporary direct or indirect liquidity support to the company.

• On 5th February 2009, the six-member board appointed by the Government of India named A. S. Murthy as the new CEO of the firm with immediate effect.

• Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company.

• It also appointed Homi Khusrokhan (formerly with Tata Chemicals) and Partho Datta, a Chartered Accountant as special advisors.

Crack team gets going…• Once the three members of the official crack team — Parekh,

Karnik and Achuthan — went in, they realized that Satyam was like a battle field.

• Since Raju had confessed to cooking the books there was total confusion over how many genuine employees and even customers the company had. And then came one of the most testing moments. Salaries were due on 15th and they had no money.

• Fortunately, the Deepak Parekh factor worked and Satyam was able to get a loan of Rs. 600 crore to tide over the cash crunch. Once salaries were paid out, the employees became a little more comfortable.

The crack team was able to convince the employees but many

customers were not happy. Coke pulled out. Cigna went away. Telstra said bye. One of the potential bidders for Satyam and a rival later

admitted: “We thought “what’s the point of buying this company!” All the customers will desert it en masse.” And they would have. Except that Karnik and the senior management decided to do two things….

Karnik cracks the nut.

• One, they spoke repeatedly to every single customer and two, they had a daily call for about 100 managers of Satyam to monitor progress and also to solve any dicey problems they were up against.

• Over the following month, every customer was encouraged to call and talk to Karnik and the top management. This was critical as any significant drop in revenues would have been the end of the line for the company.

• It didn’t matter when the call was—11 p.m., 1 a.m., 3 a.m. or 5 a.m. Karnik was available to be on the call.

• For each of those calls, Karnik got the management to give him a comprehensive snap-shot of the customer indicating the level of business, profitability measures, and resources employed to service the customer. Armed with the knowledge, Karnik would be there trying to answer all their questions.

• Having interacted with the company staff & analyzing some statistics Karnik knew that Satyam’s delivery had actually improved after the crisis. This was really helpful because he could then promise most clients that their quality would not drop.

• But not every client was convinced. “There were some companies that said their brand could not afford to be seen with a company that had been hit by a serious fraud. We had no choice; we let them go. But we ensured that the transition was smooth,” says Karnik.

• This in some ways worked like a money-back guarantee. “Customers thought that if we were assuring hassle-free transition, then it was quite possible that we could live up to our promise of unwavering quality,” says Hari T., chief marketing and people officer, Satyam.

• It also put an end to senior people walking out of Satyam with key accounts; something that had started happening increasingly in late January and early February.

• Much of February and March was spent arresting customer attrition. Every Saturday night, all the other directors would fly into Hyderabad from different parts of the country. This allowed them to have a very quick board meeting on Sunday morning.

• Once the revenues stabilized, Karnik faced his next challenge. There were rumors that no company would want to buy Satyam, what with its dodgy accounts and sullied reputation. The board had the last laugh though.

Job done.

By April 14, Tech Mahindra had acquired control of Satyam.

And Karnik’s job for all practical purposes was over. Anand Mahindra, vice-chairman and managing director, Mahindra & Mahindra, says that he was keen on Karnik staying back but Karnik wanted to move on.

Successful turnaround

The types of stresses that come with corporate distress

situation are probably not familiar to us. The good news is that although it is not an easy situation to correct, If you are prepared to commit yourself 100%, it is possible.

A business turnaround plan like this works if the problems are approached in the right & scientific way. The Satyam crackdown team proved it.

Bibliography

• Wikipedia• Economic times• India Today