The Satyam Way

Ramalinga Raju, the disgraced promoter of Satyam--India's fourth largest IT services company--has shown us the true meaning of the phrase 'The Power of One'.


As Satyam's chairman, he single-handedly--and single-mindedly--fudged the company's books for seven years, generating about 1.5 billion dollars out of thin air (or siphoning that much money into his pockets). While creative accounting is de rigeur among Indian businessmen, the smartest of them are doffing their hats to Raju. The reason: for seven years, quarter after quarter, Raju managed to make asses out of the company's board of directors (which included luminaries such as Vinod Dham and Harvard professor Krishna Palepu), global top-tier auditing firm PriceWaterhouse Coopers, some of the smartest financial analysts worldwide and the self-proclaimed watchdogs of the world--the journalists.

It is a shame that he stumbled and fell on the last lap of the fraud marathon he set out to win. In an ingenious move to fill the empty coffers with the 1.5 bil (which the balance sheet said the company had), he got the Satyam board to approve acquisition of real-estate and infrastructure firm Maytas. The cash--supposedly on Satyam's books--would be paid to the Rajus, who also owned Maytas, to acquire their stake. So while actually the Rajus would get little or no money, the notional money would change hands and Satyam's books would be set right.

There was a little glitch in the masterstroke though : Maytas (Satyam spelled backwards) was a company promoted by his own sons. So while the board had approved the deal, Satyam's investors expressed outrage against this "all in the family" deal by hammering down its stock mercilessly. Inexplicably, Raju panicked and declared that Satyam would not go ahead with the deal. Big mistake. The cash holes under the balance sheet and inflated revenues still remained.

There was clamour to remove Rajus from the management (their 7%-odd stake had already been pledged to an institution which sold half of the shares when the stock crashed following the aborted deal, so their running the firm with such a small stake was not right, the investors said). An american firm was bought in to see if Satyam itself could be a good-value acquisition for another, bigger company.

From outside accounts, it looks like this american firm got wind of the fraud in Satyam's books. If they told the SEC (Satyam being listed on the Nasdaq), Raju would face the horrific prospect of doing time in a US jail. Probably to avoid this, he finally threw in the towel. He wrote a confession to the Satyam board and resigned. Later, he surrendered to the police and is now behind the bars of an Indian jail. As long as he stays there, the US government cannot take him away for prosecution in the US of A. And once the heat dies down, with his clout and connections, he can always be out on bail for 10-15 years while the case drags on in Indian courts--again a stroke of genius.

Raju has demonstrated, beyond a reasonable doubt, that if you set your goals clearly and pursue them relentlessly with due diligence (Oops!), getting richer by a couple of billions while collecting awards such as "Businessman of the Year" along the way are easy-PC.


Of course, you need the right mental software to manage all the bugs you introduce into the financial systems of the company. Also, you need to test these systems with different inputs to find the seemingly innocuous flaws which, given the right conditions--can crash the whole system (which is what has happened to Satyam now). Maybe Raju should have spent some time with one of his juniormost software engineers and learnt this.