The UPA governments handling of the crisis that resulted from the fraud perpetrated by the promoters of Satyam Computer Services is widely acclaimed. The role of the bureaucracy in the apparently creditable sale of the scandal-hit company to Tech Mahindra cannot be belittled. The secretary in the ministry of corporate affairs Anurag Goel was at the helm of the officialdom that managed the whole process of saving the high quality company by separating it from the consequences of the fraud. Excerpts from an interview with KG Narendranath.
To what all do you attribute the governments success in facilitating the sale of Satyam and that too, at an apparently good price?
I would say an effective partnership that was forged between the industry and the government worked well and made this happen. The government at various levelsthe highest level, the political leadership and the bureaucracyacted in tandem with a remarkable degree of decisiveness and swiftness.
As far as this ministry is concerned, we had previously set in place the structures and processes that were necessary to perform such huge tasks with a higher level of effectiveness and in the spirit of partnerships. This has helped the whole process enormously.
This ministry has reinvested itself in the last two-three years through a series of measures the re-naming of ministry in May last year in fact marked the culmination of a process of revamping the legal and administrative structures and processes. Our focus shifted to outcomes and working backwards, we evolved the processes that are compatible with that focus.
Partnerships dont happen by themselves, you have to forge them, maintain them and make them work effectively. This ministrys vision is to be a leader and partner in initiatives for corporate reforms, good governance and enlightened regulation, with a view to promote and facilitate effective corporate functioning and investor protection.
The idea of promotion involves a sense of ownership, and facilitation, a sense of ownership of the cause, not of the machinery. In Satyam case, we (the government and the industry), had a common cause and we jointly worked for it.
Once we decided what we wanted to do (that is, to separate the fraud from the company and let the company run), the obvious question was how to do that and also whether and how will the company work after a fraud of this magnitude. These were the issues we had to tackle right at the beginning. The challenge was even more daunting as we had to take important decisions based on incomplete information.
So how exactly was the planning and action?
We appreciated that the real value of the company was not its tangible assets but the clients, employees and of course, its reputation. Of this, the third one had already taken a huge hit. So, the option to save the value of the company was limited to doing the necessary things with regard to clients and employees. Arranging the funds was also a challenge.
As soon as the task was defined at the highest level in the government, the ministry swung into action. As I said, the system were already in place. On January 7, Ramalinga Raju e-mailed his resignation to market regulator Sebi admitting to financial irregularities which in less than two hours was forwarded to this ministry. The same day, the ministry asked the ICAI and ICSI to enquire into the role of auditors and company secretaries for swift regulatory action. There was an emergency inter-ministerial meeting on 8th although it was a holiday.
Concurrently, we in the ministry were drafting the petition to be filed before the Company Law Board. The very next day, we got the CLB order superseding the Satyam Board with government-appointed directors. Clearly, we acted swiftly and thoughtfully.
Satyam could not have been saved if there was any delay in decision-making. Investigations also progressed as swiftly as the process of salvaging Satyam. SFIO gave its report to the ministry on the day the highest bidder was found, i.e. April 13. The criminality angle is being probed by the CBI separately.
Will this (the handling of Satyam by the government and the regulators) set a precedent and enhance the expectations from the government?
Even if it does, one shouldnt have an issue. The government is capable of rising up to such challenges. This might not be the first instance of such collective and decisive action by the government to salvage a sinking firm. But no two situations are the same in real life. If Satyam has set a precedent, it is by breaking the belief that a billion and half dollar fraud is difficult to deal with.
The government at the highest level decided to distinguish the fraud from the fact that Satyam was a high quality company. The concern was for the shareholders, the over 50,000 employees and the clients, many of whom Fortune 500 firms who have depended on Satyam for mission-critical support. These people have not done any wrongs, one was bound to take note of. The clients of Satyam, several of whom are overseas, are as much victims of the fraud as the companys non-promoter shareholders.
So, we were aware of many things and the possible implications of the fraud, the global situation, India Inc.s, especially the IT industrys, image abroad, the clients predicament and above all, the credibility of the free market philosophy per se.
One question would be why should the government step in and help the shareholders, especially the big and institutional ones, who appear to not have done the due diligence while putting risk capital in the company?
That is a relevant question but note that in this case, the whole world except Ramalinga Raju and his accomplices was oblivious of the fraud. Risk-capital shareholders did not have the benefit of fair statement of accounts. So, the issue is not simply that of lack of due diligence.
You did face some legal/regulatory problems during the process.
There was the question of locus standi. Under what (legal) framework, we would act also needed clarity. The point is that we have been able to use the existing legal framework in an innovative way, perhaps in a way it has never been used earlier. A Satyam-like situation in the US would not have allowed the government to act on behalf of the shareholders and appeal to the judicial authority concerned.
But we were also very clear even if regulatory modifications are required, those should be part of an open, transparent framework. That is, there would not be special exception for Satyam or any other company for that matter. That is why Sebi relaxed the take-over code per se on an application made by Satyam board to meet the exigency like Satyam (which now appears real) where government suspends the board of a company and appoints directors who act pro bono.
Clearly, the government saw the issue as much larger than of an individual company and was right from the start of the save-Satyam project, was aware of the possible implications of its action. The board members appointed by the government were from diverse fields. Each of them has been instrumental in carrying the process through.
These directors are acting pro bono under the order and dispensation provided by the CLB. Same with the legal advisors. It was the government that enabled the partnership mode. And Team Satyam rose up to the challenge. We have been able to put in place a unique mode of public private partnership.
There are uncertainties over Satyam, the company has liabilities not quantified, yet it got a credible buyer.
Of course, I have my own analysis of that but wouldnt like to make it public. When we plan a strategy (for saving a company hit by a large fraud), we do attempt to insightfully look into other peoples minds without whose co-operation and trust the strategy is bound to fail. You have to anticipate the possible scenarios and strategise on how to manage each and we had done exactly that.
Going forward, what role would the government have?
Of course, the control of the company has been completely shifted to Tech Mahindra, the acquirer, but the presence on the Board of some of the government-appointed directors might need to continue till CLBs final order is issued.
In the meantime, the government is bound to support the transition process and try and meet the legal, regulatory and other requirements if any. The new management of the company and the government would need to work in tandem. Investigating agencies would need the co-operation of the new management and we are quite sure that they would be giving it.
It is important that the process of investigation and prosecution is carried forward with the same level of decisiveness and swiftness with which we have handled the process of saving Satyam and the initial investigation. We need to punish those of guilty of committing this humungous fraud under the law of the land and quickly enough.
Has the Satyam episode convinced the government of the need to bring any new any laws/regulations or tweak existing ones?
We have been concurrently looking at systemic issues including regulatory and legal deficits if any. Wherever the regulatory systems needed to strengthened and tweaked, we surely have addressed it for the purpose of not only carrying forward the process of salvaging Satyam but also addressing similar events if they occur in future.
If any further legal or regulatory changes are requiredI suppose those changes, if at all needed, could be largely regulatory in nature we will bring them about only through a wide consultative process, by playing a catalytic role.
One lesson for us and others in similar positions from the experience of managing the Satyam crisis is that PPP can work effectively even in managing crises of such proportion. In this case, the partnership was built in a matter of hours and still it worked fantastically. We need to have robust, permanent systems for such partnerships.
Such ongoing and long-term partnerships between the government and the corporate sector would also help address legal/regulatory lacunae if any. Right policy prescriptions, delivery systems and competent and dedicated people are what we need.
This ministry is building an institutional vehicle, the Indian Institute of Corporate Governance (IICG) for this purpose. IICG is conceived to be a holistic think tank, a capacity- building and service-delivery institute to help corporate growth, reforms and regulation through synergised knowledge management, global partnerships and real-time solutions.