Satyam Computer Services: Minutes of Board meeting, December 16

"These are the minutes of the December 16, 2008 meeting of the Board of Directors of Satyam Computer Services Limited. In this meeting the Board discussed and approved the acquisition of Maytas Infra Limited and of Maytas Properties Limited for a total consideration of Rs 7,914.10 crore (US$1.615 billion). The scandalous acquisitions were aborted by a shareholders' revolt and after that it was downhill all the way for Satyam and its chairman, B. Ramalinga Raju."

Ramalinga Raju's Satyam Crimes, Self-Interest, & Moral Paralysis

INDIA :

About a couple of weeks back, I had a very interesting conversation with a friend (and former classmate). The conversation started off with him telling another friend that “a day will come when you will look for a meaning, a larger purpose in your job/life”. I inquired what he meant by a larger purpose and the conversation moved to self-interest and sacrifice. By the end of the discussion his position was that sacrifice should not be the guiding principle in normal life but that it might be necessary in certain (rare) situations. I claimed that pro-sacrifice and anti-selfishness principles are the dominant ethical principles today, to the exclusion of everything else and this has severe consequences in our lives, as these principles provide no guidance (at best) in normal life and actually create an undeserved sense of guilt if accepted. He responded that he did not believe that the pro-sacrifice ethical principles had many far reaching consequences. Since we were running out of time at this point, I said that I would provide evidence for my claim. Here is the first piece of evidence. This post seeks to show how prevalent the “selfishness is evil” theme is in the culture at large.

In its leading front page article on Friday, The Times of India asks

Did Raju Pick Lesser Of 2 Crimes?
He Said He Inflated Figures, But Did He Divert Money?

… Raju said that in the second quarter (July-Sept) of 2008, Satyam showed an operating margin of Rs 649 crore (which was 24% of revenue) when it was actually only Rs 61 crore (that’s 3% of revenue). This, he indicated, was part of a fudging exercise over years to inflate profits—presumably to keep the stock price up and the magic of Satyam alive.

Essentially, what Raju confessed to was creative accounting—showing cash where none was generated and therefore did not exist. But, as he kept emphasizing, he did not profit personally from it. Still a crime, but not top of the pops in order of heinousness.
…
It’s a crime to show money in the books where none existed, which is what Raju said he did. But it’s a worse crime to divert money that actually did exist.

Note the assertion that Raju’s crime would be less heinous if he did not profit personally from it. I do not know if this is true as per the Indian penal code. It is the moral angle that is more interesting. Consider the two possibilities.

1) What Raju wrote is true - that Satyam really was making very small profits (compared to the IT industry norms) and Raju inflated the books to keep the company going.

2) Satyam was making normal profits and Raju siphoned them off.

In both cases, Raju betrayed the responsibility he had as the company founder and board chairman. In both cases, he defrauded the shareholders. The difference in the two cases is that the motive in the first case is somewhat less personal than the second. So what does the Times’ assertion mean? It could mean one of two things:

a) Self-interest (personal profit in this case) is bad in itself.

b) Self-interest is amoral (neither good nor bad) but concern with other people’s interests (a larger purpose) is good.

I am sure that the pragmatist Times would hold that there is nothing wrong with personal profit if it is obtained by honest means. Its position on the issue (if it ever took the trouble of taking a definite position at all) would essentially be something like:

Selfishness is (regrettably) part of human nature and it is impractical to oppose it consistently. However it needs to be restrained in favor of a larger purpose (the common good).

So the Times assertion essentially means b. Now consider what that implies. It implies that the supposed “larger purpose” (keeping Satyam going in this case) can be a mitigating factor in the moral judgment of Raju’s actions. If things had gone a little differently and Raju had said that he fudged accounts after considering the delicate position of the global economy, the troubles his employees would face if Satyam were to shut down etc, etc…, the Times would find it difficult to take a unequivocal moral stand. After all it routinely justifies and calls for fudging the national accounts - by imposing fuel prices, interest rates, lending rates, printing money and a host of other such actions - on precisely such grounds.

Holding self-interest as amoral results in moral paralysis. One can no longer say that fraud is wrong irrespective of the motives behind it. All that is needed to justify it is some sufficiently “larger” purpose. And since everyone has a different “larger” purpose, a different “shared” vision for how other people should live - purposes such as Maharashtra for Marathis or India for Hindus or universal health care or universal education or the rule of Islam or saving the planet - anything goes.

I am a software developer based in Mumbai. I am interested in ethics, politics, culture, books and philosophy in general. Most of all, I am interested in making the most of my life. You can find my blog here

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The arrest of Satyam's ex-chief Ramalinga Raju now seems imminent. NDTV has learnt that with our national pride at stake after the Rs 7000 crore fraud that Raju has admitted to, it's now only a matter of time before he is arrested. Raju's lawyer had said on Thursday that he is very much in Hyderabad and is going to co-operate with investigations.

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Government moves to save Satyam

NEW DELHI/HYDERABAD: The central government Friday sacked Satyam Computers' directors and announced it will appoint 10 new directors within seven days to run the company tottering on the brink of collapse after its founder B. Ramalinga Raju rocked corporate India by confessing to the country's biggest financial fraud of Rs.70 billion (RS.7,000 crore).With this move Saturday's meeting of the truncated board of the company stands cancelled. The board has shrunk from nine to five members after four independent members quit in the wake of Raju's aborted bid Dec 16 to buy two cash-strapped firms, Maytas Properties and Maytas Infra, promoted by his two sons."The government wants to protect the interests of the employees (53,000) and other stakeholders," Company Affairs Minister Prem Chandra Gupta told reporters in New Delhi.He said the Company Law Board has agreed to the government's proposal "to restrain Satyam board members to continue as members and appoint 10 new members".The government move was cheered by Satyam employees whose job was at stake as the company had funds to pay only the December 2008 and January 2009 salary which, according to the firm, comes to Rs.5 billion (Rs.500 crore) a month.The minister's announcement came within hours after market regulator Securities and Exchange Board of India summoned Raju to appear before it Saturday to depose on the massive fraud by him.The announcement coincided with the crime branch of the Andhra Pradesh police beginning its own probe into the scam.Gupta said in New Delhi that "the Company Law Board has already issued an order to the existing directors of the board restraining them from exercising their functions and the order becomes effective immediately.""The SEBI office at Hyderabad has already taken action which includes seizure of documents of the company and the ministry of corporate affairs has already sent a team of officers who are now inspecting Satyam's eight group companies," he said.On issues of gross violation of corporate governance norms by the company, Gupta said: "The Satyam case in an aberration, the government is determined to take all possible actions under the law to bring to book all those persons who are responsible for betraying the faith of lakhs of shareholders, employees and customers within and outside the country."As the enormity of the scandal broke out, role of auditors of the company, PricewaterhouseCoopers (PwC) came under the scanner. "Action has already been initiated by the Institute of Charted Accountants of India (ICAI) against the auditors of the company," added Gupta.The 54-year-old Raju will appear before a SEBI team at Satyam's corporate office at 4 p.m. Saturday, his lawyer S. Bharat Kumar said.SEBI wanted Raju to depose Friday itself but the lawyer sought a day's extension as the time was too short."The regulator has granted my client (Raju) 24 hours for deposing before its investigative team on our request. My client has been directed to appear for the hearing at Satyam corporate office at 4 p.m. Saturday," Kumar told IANS here.The lawyer met the SEBI team at the Satyam office Friday evening and informed it that Raju was not keeping well and the time given for deposition Friday was too short."I requested the regulator in writing for one-day extension, as the summons were served today (Friday) at 2.30 p.m. for the hearing at 4 p.m. As the summons were given at a short notice, it was difficult for my client to rush for the hearing as he has also not been keeping well," Kumar said.In the absence of Raju or his family at his residence in the upmarket Jubilee Hills neighbourhood, the summons were handed over to the security officer on behalf of the regulator.The Satyam board had nine members - Raju, his brother B. Rama Raju, wholetime member Ram Mynampati and six independent directors. Four of the independent directors quit the board in the wake of aborted bid by Raju Dec 16 to make Satyam buy two firms, Maytas Properties and Maytas Infra.With the resignation of Mangalam Srinivasan, Krishna Palepu, Vinod Dham (all three based in the US) and M. Rammohan Rao, the board now is left with Mynampati, T.R. Prasad, former cabinet secretary to the Indian government, and V.S. Raju.The Satyam scrip was further mauled in Friday's trading. At one point it was quoted at around Rs.6.While the New York Stock Exchange had stopped trading in the scrip Wednesday, the day Raju stunned everyone by his admission of the massive fraud, the Bombay Stock Exchange (BSE) had taken it out of its key 30-scrip index, the Sensex.There was speculation Friday that Ramalinga Raju might be arrested though the Andhra Pradesh police had said Thursday that they cannot do so merely on the basis of his confession that he had rigged figures to inflate the company's profits.There were also an unconfirmed report that Satyam's chief financial officer Srinivas Vadlamani had attempted suicide, but the company denied it. Vadlamani's name does not figure among the people Raju has mentioned in his resignation letter absolving them of any wrongdoing.Vadlamani Thursday sent his resignation to the interim chief executive Mynampati, who said the resignation has not been accepted.There were also reports circulating that the interim team has also sent a mail to the employees saying they would not be paid salary for two months. Mynampati told a press conference Thursday that the December salary is being paid and the company has funds to meet salary commitments for January.Mynampati said the interim management was scouting for a strategic investor as the company was facing severe funds crunch. He said the option of outright sale of the company was not ruled out.He also said about 100 clients who contribute 80 percent of the $2 billion revenue had assured they would stay with the company.

Governmet installs new Satyam board

HYDERABAD:
The government installed a new board at Satyam Computer Services Ltd on Sunday as authorities stepped up efforts to limit the damage from a fraud that has become India's biggest corporate scandal.The three-member board will meet at Satyam headquarters in Hyderabad at about 0400 GMT on Monday to lay out a roadmap for restoring confidence of clients and staff following revelations of a massive accounting fraud."There are a number of priorities we have to work on," said Housing Development Finance Corp Chairman Deepak Parekh, who was earlier named one of three members on the board."Restoring confidence is the main job, the first job we have, apart from restating the accounts."The other members are Kiran Karnik, former president of the National Association of Software and Service Companies, a technology lobbying group, and C. Achutan, a former official of the regulator Securities and Exchange Board of India (SEBI).The chairman of the board will be selected by its three members, Corporate Affairs Minister Prem Chand Gupta said."These three members will chart the future course of action for the time being," Gupta told a news conference in New Delhi.New York-listed Satyam welcomed the reconstitution of the board, saying it would ensure the outsourcer's continued operations, help maintain customer confidence and staff morale, and restore investor trust."This is a vital stabilising development for Satyam, and it marks the beginning of a new chapter in the company's history," a company spokeswoman said. "It is the best news we've received in the past four weeks."The accounting fraud at Satyam was revealed by its chairman and founder Ramalinga Raju last Wednesday. Its stock has since been battered and its valuation plunged to $330 million at Friday's market close, down from more than $7 billion six months ago.The scandal has cast a cloud over foreign investment in Asia's third-largest economy and over its once-booming outsourcing sector, which posted stunning sales growth for years and lavished investors with handsome returns.BACK ON THE RAILSStand-in Chief Executive Ram Mynampati said on Thursday the scandal had pushed Satyam, which specialises in business software and back-office services, into a crisis of unimaginable proportions and that liquidity was not very encouraging."The aim of the board will be to ensure continuity of business and confidence of clients as clients always gets concerned with such incidents," Karnik told television channel NDTV Profit. "Satyam will be back on the rails."Analysts said the quick move to name new board members was a step in the right direction."I think it's a first good move towards restoring client confidence," said Sudin Apte, country head of market research firm Forrester. "But we still have a long way to go."Meanwhile, police stepped up their investigation, having charged founder chairman Raju and his brother Rama Raju with criminal conspiracy and forgery on Friday after Ramalinga Raju said profits had been falsified for years and quit.In a five-page letter sent to stock exchange authorities last week, Raju admitted about $1 billion, or 94 percent of the cash and bank balances on Satyam's books at end-September, did not exist.The brothers are being held in jail, along with Satyam Chief Financial Officer Vadlamani Srinivas, after they were taken into judicial custody until Jan. 23.Police raided the residences of the arrested executives in Hyderabad on Sunday as part of the investigation, V.S.K. Kaumudi, Inspector General of Police, told Reuters.Minister Gupta said the government would soon make a decision on appointing additional board members.Several securities fraud class-action lawsuits have been filed in the United States on behalf of investors who bought Satyam American Depository Receipts (ADRs) in the last five years.

Satyam fraud worries Indian expatriates

How does the Indian diaspora around the world look at the Satyam fraud?

It is the key point of discussion at the ongoing NRI conference, the Pravasi Bharatiya Divas in Chennai.

"We need to look at what happened in the US. They are calling Satyam the Indian Enron. It's going to have its implication and it would be difficult. We have to see how India would overcome this," said Upendra J Chivukula, deputy speaker, NJ General Assembly.

Some are worried that the Satyam scam could have an impact on outsourcing to India.

"Obama is going to take charge in January. Believe it or not, he wanted jobs not to go to India, to be honest. It's going to affect IT sector so badly. I think India should act and punish like how America put behind bars many billionaires to bring back the confidence," said a NRI.

Satyam's new board to meet today

NEW DELHI: A new, three-member board was named Sunday to bring back financial order to the fraud-hit Satyam Computer Services and restore confidence of employees, investors and clients into its future operations, even as its former chief financial officer Vadlamani Srinivas was sent to jail.The new board comprises former National Association of Software and Service Companies (Nasscom) chief Kiran Karnik, Housing Development Finance Corp (HDFC) chairman Deepak Parikh and former markets watchdog Securities and Exchange Board of India (SEBI) member C. Achuthan.The board members are reaching Hyderabad Sunday night and the first meeting is scheduled for Monday morning at Satyam headquarters in Hitec city."We will ensure that Satyam continues to function in the best interests of the company and its shareholders," Corporate Affairs Minister Premchand Gupta told reporters in New Delhi, announcing the names of the new board members."The new board will meet in next 24 hours," the minister said a day after the company's founder chairman B. Ramalinga Raju and his brother Rama Raju surrendered before the authorities for financial fraud and were remanded into judicial custody till Jan 23."Having considered all aspects, the government has decided to reconstitute the Satyam board with experts in different fields," Gupta said. "Such a board will provide necessary vision and accountable leadership to the company in the hour of crisis."He, however, declined comment when asked if investors in Satyam like Lazard and Life Insurance Corp of India would also be given representation on the company's board eventually.Andhra Pradesh Chief Minister Y.S. Rajasekhara Reddy made this suggestion during a press conference in Hyderabad Sunday, adding that his government would refer the case to the Central Bureau of Investigation (CBI), if necessary.In a development that jolted corporate India and raised questions about the level of corporate governance in the country, the 54-year-old Satyam chairman Wednesday admitted to perpetrating a Rs.70-billion ($1.4 billion) fraud on the company that saw its revenues cross the $2 billion mark last fiscal.Gupta said the reconstituted board will make its own assessment of the situation and take appropriate decisions. "It would restore credibility to the company, customer confidence and boost employee morale."The minister briefed Prime Minister Manmohan Singh Saturday on the developments surrounding Satyam, including the names of those proposed to become board members of the Hyderabad-based company, officials said.The government sacked all members of the Satyam board Friday. the officials said the prime minister wanted a credible management at its helm so as to instil the necessary confidence among various stakeholders."This is not only a welcome step but also a speedy decision. The government must be congratulated for prompt action which was the need of the hour," said Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII)."All three people named are leaders in their respective field - one knows the IT industry inside out, the second is an expert regulator and chartered accountant, and the third has phenomenal understanding of corporate governance," Banerjee told IANS, referring to Karnik, Achuthan and Parikh, respectively."I am sure the government will consider more such people," he added.Nasscom president Som Mittal said: "We are confident that this will help ensure business continuity, build confidence and protect the interests of all the stakeholders - the employees, customers and investors."By acting in this bold and coordinated manner, the government has sent the right signals to the global community and set an example of what governments can do to protect stakeholder interests while ensuring strict adherence to the rule of law."The Hyderabad-based Satyam welcomed appointment of three members to the new board and pledged full cooperation."Satyam welcomes this key development, which will ensure the company's continued operations, help maintain customer confidence and associate morale, and restore investor trust," a company spokeswoman said."This is a vital stabilising development for Satyam, and it marks the beginning of a new chapter in the company's history. It is the best news we've received in the past four weeks," the spokesperson added.Officials familiar with the developments said that the markets regulator would soon seek permission from Sixth Additional Chief Metropolitan Magistrate D. Ramakrishna, who has the Satyam brass under custody, to record their statements.The two Raju brothers spent Saturday night inside the Chanchalguda jail in Hyderabad, sleeping on the floor along with 26 other prisoners accused of petty crimes like theft. Prison authorities said they will be treated like ordinary under-trials with no special arrangements.The magistrate remanded Satyam's former chief financial officer Vadlamani Srinivas into judicial custody till Jan 23. He was also taken to Chanchalguda central jail.The Criminal Investigation Department (CID) arrested him late Saturday and interrogated him during the night and Sunday.Rajus' lawyer S. Bharat Kumar said he would move a bail petition for the Raju brothers and Srinivas before the court Monday.Earlier, CID officials searched the residence of Srinivas in Habsiguda and confiscated a few documents relating to Satyam accounts. CID officials also conducted raids on Ramalinga Raju's house.CID has not ruled out interrogation and arrests of some former Satyam directors.SEBI, which is conducting a separate investigation, is also likely to move a petition in the court Monday, seeking custody of all the three arrested Satyam officers.SEBI chairman C.B. Bhave met Minister Gupta Saturday to discuss the investigation. Senior SEBI officials have been checking the firm's books of accounts since Thursday.Auditing firm PriceWaterhouseCoopers (PwC) that had certified the accounts of the company as "true and fair" is also under scrutiny, officials said.A top functionary of the Institute of Chartered Accountants of India (ICAI) said in Chennai Saturday that the auditing firm was bound to disclose all the facts and could not hide under the client confidentiality clause.