Riding a Tiger…
Wipro Infotech, is the leading IT Company offering integrated IT solutions to various clients in India, the Middle East and Asia-Pacific. The present Chairman of the company, Azim Premji was reelected as the Chairman of Wipro Infotech for a period of 2 years, i.e. end of July 2011. His reappointment was unanimously supported by the shareholders of the company. Majority of shareholding of the company, i.e., 79.32 percent of shareholding in Wipro Infotech was held by the Premji and his family members. The company reported a profit of Rs.79/- crore in the first quarter of 2009 under his leadership. The success of the company is attributed to ethics that are practiced in the company in addition to the timely strategic business decision made by the management. The chairman practices ethics in the business and they only preaches. Premji strongly believes that ordinary people are capable of extraordinary things and that the key to this is creating highly charged teams. He takes a personal interest in developing teams and leaders and invests significant time as a faculty in Wipro’s leadership development programs. Premji is firmly committed to the belief that business organizations have deep social responsibility, and such responsibility shall be discharged by conducting ethical and fair business, by involvement with community issues and by building an ecologically sustainable business. It’s that kind of integrity that has catapulted Premji and Wipro to unprecedented heights. On the other hand the problems that cropped in another IT services provider in global level is the Satyam Computer Services Ltd. It is stamped as Indian Enron because of the new scam that surfaced in the recent past. The investors shocked at the news that is published in the print media and also broadcasted in the electronic media and it is a big blow on the spirits of the investors more particularly when the world is in the clutches of economic recession. The news shattered the peace and tranquility of investors and Indian public beyond repair. Investors, employees, fund houses companies, all were the prey of blow. The top fund houses like ICICI Prudential, HDFC Mutual Fund, Sundaram BNP Paribas Mutual Fund, and Tata Mutual Fund were big losers as they were the biggest buyers in the Satyam stock. A famous English saying – “riding the tiger, not knowing how to get off without being eaten” best suits to the Chairman, Ramalinga Raju. ____________________________________________________________________
This case is to be used for IBS Hyderabad-Class Room discussion only.

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January 7th came as a shock when the disgraced Satyam founder, B Ramalinga Raju, admitted in writing to the board members that a fraud of Rs.7,800/- crore was committed and resigned his post and landed in jail. He revealed in his letter that he had manipulated the accounts of Satyam computers to a tune of around Rs.7,000/- crore and that the money was non-existent. He further stated that he had boosted the amount of credit interest shown to the value of around Rs.400/- crore was another slap on the face of the innocent investor. To an investor it simply shocks the senses to listen that in which thousands trusted by putting their hard earned money into his business venture could simply write a letter saying he has manipulated his accounts to show better prospects for investment in his company. This is the biggest scam in the history of corporate India. The impact of the fraud was immediate in the market. Satyam equities started witnessing selling pressure, as the sentiments of the investors turned bearish. The Bombay Stock Exchange was at 9296.01, down 290.87 points. Market breadth turned negative on the BSE with 1889 losers and 358 advances. The shares of Satyam Computers were down by 45.68%. Three factors contributed to the problem, which were not the causes of the global and massive fraud, but enabled an environment for abuse and delusion. Firstly, as it was public company it could have raised the capital inexpensively if its existing shareholders assigned it a high value. Secondly, Mr. Raju owned a very small stock with an intention to overstate profits with an objective of influencing other shareholders and that overstatement did not affect him as he held very small stock. Thirdly, it did not preserve its fictitious profits so that it did not have to pay huge taxes. The initial report from the Registrar of Companies (RoCs) indicated untrue picture of accounts of Satyam, which could be because of inflated sales figures and profits. There was ‘diversion’ of funds from Satyam where the facts and figures in the balance sheet are not based on correct information. All that the RoC has inferred is that, after the preliminary inquiry into the company’s balance sheet, it showed that there were issues pertaining to the financial statement as well as non-compliance in filing of documents with the statutory authorities. With this fraud Securities Exchange Board of India (SEBI) thought of taking few initiatives in order to minimize the incidence of such scams in future. Ramalinga Raju confessed that in order to save the Satyam from fire, enough efforts were made to save the investors and other stakeholders. He claims that he sincerely examined various suggestions and proposals given by experts who were confidential to him. Initially, it was thought to file the insolvency proceedings to get protection from the pressure of
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government, existing customers and investors. But, it was thought that the idea of insolvency proceedings further aggravates the company as many projects signed with national and international clients are at different stages. The insolvency law permits the liquidation of the company as the insolvency law is applicable only to living natural person. He also thought that it also effects other sister concerns like the Maytas. Satyam with the help of financial experts examined the possibility of rearrangement and reorganization of the company. Some of them advised the company for restructuring of the share capital of company either by dividing the share of Rs.100/- into 5 shares of each Rs.20/-. As, all the doors were closed the Chairman decided to write a letter to the clients and shareholders of the company to help him in the crucial time of financial crunch. But, it turned differently. All the stakeholders including the government instead of searching way out blown up the issue and started enquiring about the misdeeds of the Chairman. Many shareholders launched dharnas before Satyam offices across the country. Some of them made complaints to police department alleging the fraud, some customers filed complaints with the Registrar of the company and some with the Company Affairs Ministry. Few of them even filed representative suits in the courts. The Central government at the request of various agencies and suo motto appointed committees to enquire into the matter of Satyam. They also requested the Central Board of Investigations to undertake the investigation into the affairs of the company. The CBI appointed a special officer to inspect and investigate the accounts of the company books, transactions, agreements with the clients, financial irregularities that were taken place in the company. The preliminary report submitted by the CBI states that chairman and his brother have transferred the money into real estate ventures by opening a number companies in indifferent names. The enquires further revealed various irregularities in the finalization of the companies accounts. The CBI arrested the Raju brothers and other important persons like CFO, CAO and CEO of the company and placed them under the police custody. The court also permitted the CBI to make enquiries and investigations into the personal accounts of the directors of the company. After the incident came out, some of the clients and staff of the Satyam also stood by Raju and expressed their support in the times of distress. They stated that though there may be some irregularities in the company management they are made only in order to protect the interests of the company. But, the arguments were not accepted.

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Meanwhile the shareholders of the company came out openly and requested the government and SEBI to take all the actions which can save their interests. The employers were waiting for the decisions of the government, more particularly the Ministry of Company Affairs to hear the future action of the Government. Everyday new rumors floated about the company. When the government started plans to protect the employees and shareholders of Satyam, many proposals for reorganization of the came before it. Many IT companies, according to the information available in the media, were ready to takeover the company. The names of WIPRO, Infosys and L&T were in forefront as the companies willing to take over the companies. The proposal for merger of the Satyam was not the priority for the government at that stage. But, it looked to restructure the board of the company so that at least it will not only take the stock of the present affairs of the company, but also take some decisions which will avoid future break of the Satyam and fall of the share price of the company. Initially the government has announced three names of the new temporary board and suggested to take over the management of the company. Immediately after the announcement, the board met and discussed the course of action. The board got the approval of the action plan. It wanted to have a compromise with the creditors and clients who entered into agreements with Satyam for the export of software technologies and solutions. The Govt. of Andhra Pradesh, in the interest of general investors and also employers declared a scheme of bailout and after considering the suggestions of the experts from corporate arena decided to permit the takeover the company. During the takeover bidding many business giants in the field of IT participated and finally it is the Tech Mahindra that succeeded in getting the Satyam. Proposal for takeover were made and Tech Mahindra, an Indian conglomerate famous for its SUVs, tractors, and financial services won the bid. Upon being declared the highest bidder, Tech Mahindra and Satyam executed an agreement whereby Tech Mahindra agreed to subscribe to and acquire Rs.30.28 crore shares of Satyam, representing 31 percent of its share capital, at Rs.58/- a share. This will infuse Satyam with Rs.1,756/- crore. The subsequent open offer for 20 percent, amounting to Rs.1,132/- crore, will result in a total of Rs.2,889/crore coming into the company for the 51 percent stake. By acquiring 31 percent majority stake in the company and Mahindra Satyam was born. Software services provider Satyam Computer Services Ltd., unveiled its new brand identity, ‘Mahindra Satyam’, symbolizing the amalgamation of the Mahindra Group’s values with Satyam’s expertise. Both the companies are benefited by the amalgamation as the two companies have compatible, non-overlapping

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business. Tech Mahindra’s strength is in telecom; Satyam Computer’s specialty is providing engineering and application implementation services to a diverse group of manufacturing, financial, pharmaceutical, logistics and energy companies. Meanwhile, the reports of investigating agencies have revealed some of the astonishing facts of the administration of internal affairs of the company. Rajus of Satyam used to maintain a group of sincere officers and directors in the company who were helping them in acquiring the majority support in the AGM and Board to pass the resolutions in their favour with or without any discussions. At a particular point it was found that salaries were paid to more than ten thousand without physically present in the Satyam. Most of the decisions in the board were being taken by the Raju Brothers in disguise of the majority decisions and majority decisions were against the standards and norms of general administration of the company. The investigating agency found many applications filed by the shareholders with request to transfer the shares were pending in the office without affecting them. The company has not taken any action on these applications as they were detrimental to their personal interests. Evidences were found to prove the mismanagement of the company. Large amounts were transferred to the accounts of unknown persons and to some of the accounts in the name of employees and directors without explaining the reasons for the same. Rajus used their relations with the top people of the government to impress the government machinery and enjoy benefits which were not due. The said relations helped them to get popularity in the state and also across the globe. They were sharing the Dais with the international dignitaries which indirectly sent a message to the officials of the government and the public that they play important role in the country’s administration as such any one who oppose them will have bitter experiences. This made the people not to talk any thing against the company. The agreements the Satyam had with the government resulted huge profits and attracted the investment into the project. Satyam lost its glorious history. People enjoying the prime position in the society are placed in the jail for trails. Still many investors, suppliers and clients are looking to them and government for justice against the oppressions and mismanagement of the company otherwise which would have reserved its position at the epitome of the industry.

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