One week after the surfacing of the Satyam scam, two contrasting scenarios present themselves. At one level, the government has done well to appoint a new board of respected professionals who have brought a measure of stability to a ship that seemed in danger of capsizing. The immediate challenges have been identified and are being addressed: appointing more directors and a new top management, instilling some confidence in all stakeholders (including customers and employees), dealing with cash flow problems, and appointing a new auditor to present a true picture of the accounts. The government seems to have considered offering a financial bail-out, but has thankfully reconsidered this unnecessary step because it is hard to defend the use of taxpayer money when banks can easily be persuaded to lend to the company, against the security of its assets and future cash flow stream. Since there is no “promoter” group left in the company, Satyam remains vulnerable to a stock market raid, especially at its present valuation. The new board should therefore consider carefully whether the company’s businesses should be sold off in pieces, or whether its independent future can be assured by asking some of its more important shareholders to join the board and share responsibility for the management of the company.
But while this orderly transition is being scripted, the country is being treated to a typically messy investigation and prosecution scenario. The danger is that, as is so often the case in India, the investigation and prosecution process becomes a bigger scandal (or farce) than the original scam. There is the initial flurry of hyper-activity by the prosecution agencies, and hasty damage control by governments and regulators who have been caught napping or who were even complicit. Neither ends in swift and satisfactory prosecution. Indeed, the keenness of a variety of investigation agencies to get in on the act is sometimes matched by stories of deal-making down the line.
The Satyam saga has played true to script. There is the initial feeding frenzy by the media, whereby any and everything connected to the Satyam group or its promoters is now automatically suspect. The same state government that gave the Maytas companies vast tracts of land and huge infrastructure contracts is now said to be thinking of cancelling some or all the contracts and reversing the land allotments— which leaves only two views possible: either the initial decisions were defective, or the current reversals are unjustified. Either way, the state government damns itself. Meanwhile, we have various authorities looking into different aspects of the scam: the stock market regulator is looking into possible insider trading, among other issues, and the Institute of Chartered Accounts of India is looking at the conduct of Price Waterhouse (but so are the local police); the criminal investigation department of the Andhra Pradesh government as well as the Serious Fraud Investigation Office seem to be looking into the same set of issues, with the investigation broadened to other promoter companies; and perhaps the enforcement directorate is to follow (one newspaper has reported that money may have been siphoned out of Satyam and routed back into Maytas equity via Mauritius). While any large scam of the Satyam kind will involve the contravention of several laws, there seem to be too many cooks on the scene, and there is evidence that some may be getting in the way of others.