The accounting fraud that shook Satyam was never going to
cause the company to fold like Enron, because of its inherent
value, says newly installed CEO CP Gurnani.
Satyam's fraud, which was revealed in January, is often labelled
India's
Enron,
after the US energy firm that collapsed in 2001 following a huge
accounting fraud.
But the boss of the renamed
Mahindra
Satyam says Satyam's position, after its chairman admitted to
cooking the books for several years, was completely different.
The disappearance of Enron, which folded within months of the
fraud scandal being revealed, leaving its shareholders billions out
of pocket, led to the creation of corporate governance legislation
Sarbanes-Oxley.
Sarbanes-Oxley set new standards in how businesses are managed.
Satyam's fraud has changed corporate India, but Satyam is still
around, although not at full speed, says Gurnani.
Company value
He says the main differences between the Enron and Satyam
scandals were that very
few people were involved in the Satyam fraud and the company's
real value was its workers. Satyam's solid relationships with
customers was another key reason that it would not fold.
The fraud threw Satyam into disarray. It needed money to pay
workers and to continue to operate. Customer and
employee confidence was also reduced.
The true extent of the fraud at Satyam will not become clear
until the company
publishes its financial position in December or January.
When the fraud was revealed, the Indian government quickly
removed the existing board and appointed a new board to
stabilise the company and find new investors.
Back on track
Tech Mahindra
bought Satyam in April.
Gurnani says there was an element of risk for Tech Mahindra in
investing in Satyam, but he says it was a risk worth taking.
"Nobody ever built a business by sitting watching the waves. You
have to get in the water and cross to the other side."
But there are no more sharks in the Satyam waters, he adds. "The
people responsible for the fraud are in prison where they should
be."
Satyam lost some very prominent customers, including
State Farm Insurance and
Coca-Cola, after the scandal. But Gurnani says they left
because they saw Satyam as a risk, not because they doubted its
competency. "The reason they split from us had nothing to do with
our business capability; it was the perceived risk of the
governance and financial stability of Satyam."
The company lost no customers in Europe. It is now running a
programme aimed at getting lost customers back, known as Win Back.
"We are winning customers, but we want to win big deals again
because this will be a reaffirmation of confidence."
The company is focusing on four key customer vertical markets:
banking and financial services; public sector; retail (including
consumer goods); and digital convergence. The company will no
longer focus on customers in the telecoms sector to avoid overlap
with parent Tech Mahindra.
Gurnani says Satyam is safe now, but still has work to do to
regain momentum after the shock of the fraud. "We are out of the
woods. There was an accident, but the bus is on the road again -
although not at full speed," he says.
Innovation government
Gurnani says the Indian government got its handling of Satyam
right, post-scandal - in contrast to how UK and US governments have
dealt with collapsing banks. The Indian government's approach was
innovative, he says.
For example, Northern Rock, which
became state-owned in 2007, reported losses of £750m in the
first six months of 2009. Lloyds TSB and RBS, which have each
received billions in bail-out funds, are also losing billions.
Lloyds TSB reported a loss of £4bn this week.
In contrast,
Barclays
and HSBC, neither of which received money from the government,
reported £2.98bn and £1.97bn profits respectively for the first six
months of this year.
"The Indian government did not put any money into Satyam. It got
rid of the board and replaced it with a new board to attract
investors. The bail-outs by UK and US governments do not put the
onus on restructuring and do not bring in the same vigour," Gurnani
concludes.