Dear Mr Ramalinga Raju,
I write this open letter not as an independent
director of Infosys Technologies, a competing
company in the IT space, but as an advocate of
fiduciary responsibility and good corporate
governance — a role that I have performed for the
past decade. Independence demands speaking up when
occasions so require. By being discreet regarding
the Satyam imbroglio, all independent directors risk
being tarred by the same brush, which corporate
India can ill afford.
On 20 April 1653, Oliver Cromwell, minor gentry of
Huntingdon, member of Parliament, soldier, general,
leader of the English Civil War, and eventually, the
Lord Protector of England made an impassionate
speech to the ineffective Rump Parliament before
dismissing it for failure to discharge its duties to
the people. He said, “You have sat for too long here
for any good you have been doing. Depart, I say, and
let us have done with you. In the name of God, go!”
I quote Cromwell with a purpose. You began, built
and grew a great international company that India
was proud of. Nobody can deny Satyam its place in
the big four along with TCS, Infosys and Wipro.
Nobody can deny that for the vast majority of time
under your helm, you grew the business, its profits
and shareholder wealth. Suddenly, you have undone it
all and have seriously damaged the company’s
reputation as well as that of its fiduciaries. I
don’t know what prompted such action: hubris, poor
advice, or the notion that success is the licence to
do anything. Whatever the reason, the outcomes have
been horrendous for Satyam.
First, the proposed transaction. You and your
trusts, owning just 8.74 per cent of the company’s
equity, proposed to transfer $1.6 billion of
Satyam’s cash to Maytas and Maytas Infrastructure,
where your family owns 36.6 per cent of equity. This
is nothing other than a huge related-party
transaction — one that you should not have proposed
at all. It makes no difference to the substance of
corporate governance that you didn’t break any laws,
which seems to be the defence of some of your
independent directors. You broke something far more
important: the fiduciary responsibility that the
board ought to have had for its shareholders.
Second, if you felt that the deal was strategically
important for de-risking Satyam, why didn’t you
first ask the opinion of foreign institutional
investors, ADR holders, Indian mutual funds,
insurance companies, banks and financial
institutions who together held 61.2 per cent of the
stock, or seven times the equity that you and your
family owned? You would have got the answer — as you
did after the stock was hammered like never before.
Third, if the deal was so good for Satyam to a point
where one of your ex-civil service directors said,
“Even your uncle will not sell you the land at the
price Maytas was selling it to Satyam”, why did you
do an about turn in less than 24 hours, and then
talk of a proposed buyback and higher dividends?
Fourth, your management, spokespersons and some
directors have said ruinously contradictory things.
One instance is illustrative enough. It was claimed
that one of the big four accounting firms did the
valuation of Maytas’ assets — which was denied by
each of the biggies. That has destroyed credibility.
Fifth, and probably the most damaging, is the latest
news of the World Bank debarring Satyam from doing
business with it for eight years on account of
“alleged malpractices” and “providing improper
benefits to Bank staff” — a ban that has been
confirmed by the World Bank’s spokesperson in New
Delhi. You must have known of the bank’s reasons for
the ban. Was the board fully informed of it? I mean
fully.
Mr Raju, there are things called negative
externalities, where the action of one or a few can
cause harm to many. Any sensible person in the
corporate world will agree that the actions taken by
you, your management and your board, whether by
design or otherwise, have not only damaged Satyam
but also the reputation of corporate India. Today,
the media is questioning the role of independent
directors. Over the top, you may say. But it is your
actions that have given them the peg to hang the
question on.
There is only one honourable thing to do. You and
your board should offer to resign. Or else you may
feel the heat in the next annual general meeting
when the 70 per cent outside shareholders gather
proxies and force the resignations. Satyam remains a
good company. You cannot let it go down the tube.
It is apt to end with another quote from Cromwell.
When King Charles I was executed, Cromwell called it
a “cruel necessity”. It is time for you to think of
that. Or else, others will.
Published: Business Standard, January 2009
