Now, scramble to get on Satyam board

Prabhakar Sinha

NEW DELHI: Satyam may be tottering but the government's decision to dissolve the the disgraced board-led by B Ramalinga Raju and replace its own has set off a scramble for a seat in the boardroom of the IT major.

As names of potential picks are bruited about amid discreet lobbying by interested individuals, the Andhra Pradesh government joined Life Insurance Corporation, ICICI Prudential, as well as the FII, US's Lazard Asset Management, for berths on the new board of Satyam.

There was also a not-so-subtle lobbying by individuals to join what is going to be the most talked about board of any company in a long time.

As officials in the ministries of corporate affairs, finance and law as well as those in the PMO ran checks on the names on the short list, conflict of interest consideration ruled out M Damodaran. The former SEBI chief is on the board of an IT concern, Tech Mahindra. Former chief of NASSCOM, Kiran Karnik, also did not find favour for the same reason. The criterion is sure to work against other IT biggies whose names began floating after corporate affairs minister Prem Chand Gupta announced the scrapping of the Satyam board.

While the claims of institutions made sense in the light of the concern for their investments in the company, the flurry of interest from individuals - as distinct from those whom the government was reaching out to - was seen as pointing to the confidence that the company was not beyond salvage. It also reinforced the doubts that the profit margins of the company were not as low as claimed by Ramalinga Raju in his Mea Culpa which increasingly appears to have been designed as an alibi. RBI's move to seek the details of Satyam's accounts with different banks reflected the same suspicion. With the government entering the frame and the room for pilferage plugged, there was a real opportunity to get associated with the widely observed turnaround story: a strong incentive.

The chief secretary of Andhra Pradesh backed up the state's claim by arguing that the future of the company will be of special concern for the state once used as the advertisement for its IT prowess. A senior official in the chief minister's office said that as the company is based in Hyderabad and a large number of investors and employees are from the state, the government needs to have a say in the management.

Life Insurance Corporation and ICICI Prudential pointed to their substantial stakes in Satyam. K T Thomas, managing director of LIC which has a 4.34% stake in the belegueared Satyam, said "We are concerned", though he refused to confirm that the company has already asked for a seat in the Satyam boardroom.

Sources confirmed that ICICI Prudential, with a 2.7% stake, also wants to be heard in the selection of the board. Foreign institutional investor, Lazard, which holds over 6% stake in the company, has written a letter to the ministry of corporate affairs that it should also be heard in the selection of the directors. Lazard International lawyer Hitesh Jain said, "We would like the government to consult us for the appointment of the member to the board." Prem Chand Gupta confirmed that he had received a representation from Lazard.

Though he refused to spell out the government's stance, sources pointed out that Lazard, being an FII, cannot be given a seat on the board.

Note: Indian banking system could witness similar financial scandals in the days to come with the government scrapping the bank audit panel system and permitting the chairman of a bank to appoint the internal auditor.

The government's move is retrograde and will expose the financial sector to graver risk as witnessed in the Satyam Computer Services episode.

The Indian banking system has not experienced any major financial scandal mainly because of audit by the Comptroller and Auditor General (CAG), and also because of the internal auditors appointed from the panel.

An auditor, preferring anonymity, said no auditor will certify the bank balance - fixed, savings or current account - without seeing the fixed deposit receipt or the passbook.

It should be probed whether banks acted as a party to the financial fraud confessed by the former Satyam Computer chairman.

It is a basic lesson in Auditing that a company should convert large cash balances into fixed deposits at the year-end. It is crucial to see the books as to what happened in Satyam Computer Services after March 31, 2008.

The working papers on how the bank reconciliation statement was prepared is expected to throw more light on the whole episode.