The truth spelt backwards

An opinion on the Satyam fiasco -

RAM, bam, thank you ma’m, that’s the feeling I got when I read RAM Raju’s letter to his board and shareholders admitting guilt in a multi-year multi-billion dollar fraud that many people are calling the “Enron of India’.  While they will be pleased that we now go down in the history books with a corporate scandal of a magnitude that puts us at par with the USA, (we seem to be obsessed with one-upmanship with the rapidly decaying super-power of the world – what else can explain names like Bollywood, India’s 9/11, and now Enron of India) that is not the point of this commentary.  The point is that even in his letter, while Ram seemingly said sorry, it was anything but apologetic.  If anything the letter was extremely clinical.  One could even say it was arrogant – I did what I had to do, I tried my best to cover it up, the problem is that there was no way to continue hiding things, I am still not going to tell you exactly what happened, now go ahead and do what you have to – is how I read the letter.  Here is what appears to have happened –

Cooking the books

Mr. Ramalinga Raju claimed that his crime was that he cooked his company’s books to overstate the health of the company’s earnings and balance sheet as he was afraid of getting off the proverbial tiger.  This coming from a man, who only a few months back, in September 2008 on an interview on NDTV spoke at length about Satyam’s beliefs and his personal principles.  He discussed the word Satyam’s origins (his father’s name and the Sanskrit term meaning truth) and how his company and its management tried to reflect the very etymology of the word.  This was the same month that Satyam won the Golden Peacock Global Award for excellence in corporate governance – an international award conferred on companies that follow best practices as far as company administration is concerned.  Mr. Raju himself won the coveted Ernst & Young entrepreneur of the year award in 2007.  How did a company exalted for such high levels of conduct and one who’s leadership seemed to represent the highest values that mankind can strive for, go from corporate halls of fame to a shameful existence within 3 months? 

I think that the plot is a lot more sinister than Mr. Raju would have us believe.  Rather than a victim of circumstances of a dog-eat-dog world, Mr. Raju seems to epitomize what our country is quickly becoming – a culturally and morally bankrupt society.  Like many in this country Mr. Raju probably got ahead of himself at some point and started believing that reality was simply what he wanted it to be.  He figured that wrong or right was less about absolutes and more about perception.  The biggest sin was getting caught and with the kind of power he wielded – in Andhra Pradesh at least – getting caught was perhaps not probable.  However, the global economy was something beyond his control and the effects of the meltdown soon came looking for victims in india, of which Mr. Raju is the first but certainly not the last.  Essentially, Mr. Raju got caught in a vicious cycle of downward spiraling real-estate prices and a stock market that could not find the bottom.

 

Bending the truth

What we have been told so far is that Mr. Raju has not profited from this accounting scandal and all he was trying to do was to build value for shareholders of the company most of who were regular everyday people and institutions.  In fact Mr. Raju and other promoters held only 8% of the entire shareholding of the company. What incentive would he then have to engineer such a massive fraud?  There are 2 assumptions here 1) people conduct frauds only for money  2) what Mr. Raju is telling us is the truth.  Both seem faulty.  History tells us that power and competition is a much more heady cocktail than wealth can ever be and perhaps it is this very intoxication that lead Mr. Raju on the same path that many a great men have been tempted down.

Secondly, I don’t believe we are being told the truth.  In fact we may never know the entire truth.  However, for whatever it is worth, I believe that Mr. Raju siphoned off the funds to fund his real-estate ventures.  I believe that the massive land acquisitions, which put Mr. Raju and his companies, amongst some of the largest landlords in this country, were made, at least in part, from funds generated by Satyam.  Let me be clear – I have no evidence to suggest the same.  My claim is simply an opinion.  However, if one looks at Mr.Raju’s track record one finds enough evidence to suggest a man who liked living on the corporate edge.  This is not the first time that he has tried to divert Satyam’s money to other companies held by him.  In the late 1990’s there was some attempt to invest in Satyam Constructions.  In fact over the last decade Mr. Raju has flirted with several investments and companies that were actually not completely thought through, questionable or simply bad business decisions.  I believe that a deeper probe will reveal not only embezzlement of funds but also the involvement of political personalities and other corporate honchos that could raise many questions about the health of our much venerated corporate sector. 

                                                                                    

Skeletons abound

 As we learn more and more about what actually transpired at Satyam, I think we will find evidence of a crime that has long been in the making.  Further, it cannot be one person’s doing.  Crimes of this magnitude can simply not be committed by one person.  Not only are there more people within the organization that are fully in the know, there are several powerful individuals outside the company who were hand-in-glove.  As much as we like to think that the real-estate industry in this country is now professionalized and corporatized, nothing could be farther from the truth.  In reality, it is still an industry characterized by cash deals, political favors, muscle tactics, and vague legislation.  The Satyam fiasco will ideally expose some of the under-belly of this sector in our industry.

 Along with the real estate industry, hopefully this tragedy will put into question regulatory bodies such as SEBI and what their role should be, accounting companies such as Price Waterhouse and where their responsibilities lie, as well as banks and what their duties are.  How is it possible that one company over 7 years managed to release accounting statements that were fictitious, get them approved by their audit firm and get TDS certificates for interest earned on assets from their bank to validate the same?

The Satyam scandal points to a nexus of profiteers who believe that the rules don’t apply to them.  It points to bribes, illegitimate favors, coercion, forgery, theft, and perhaps many other crimes by corporate india, politicians, and the bureaucracy.  I expect that over the next few weeks many organizations in corporate india will be exposed for what they really are – a set of cooked books, ponzi schemes, and hollow transactions.  (Note - Look for at least 1 company in the broadband sector and 1 in the media sector as well as a couple more in real-estate).

 

The new husband

 Ram Mynampati is the guy now in charge.  I don’t know much about him but my only question is – why wasn’t there a criminal case filed by him and his team against Raju immediately after he took over as interim CEO?  Why did they assume what Mr. Raju was saying was the truth?  What, if in fact, Raju has siphoned off funds?  Wasn’t it his responsibility to protect the assets of the company and consequently make sure that Raju and consequently the funds don’t disappear?

 

Booking the cooks

 There is an ongoing debate on Mr. Raju’s ultimate plight.  While Mr. Harish Salve thinks – that India is god’s country and nobody goes to prison here - there are many others who believe that the law of the land will prevail and that Mr. Raju will pay a price for his crimes.  I side with the latter.  However, for different reasons –

Mr. Raju will be brought to task not because he committed a crime or got caught.  He will pay the price because he got caught at a time that citizen activism is the highest in the country.  He will serve time because he got caught just before elections – the current government cannot afford to let the opposition use this as a campaign tool.  He will face consequences as there are too many important people who could get caught in the cross-fire.  He is better ‘kept quiet’ behind bars or in other ways that we will soon discover.

If not for the above I would have agreed with Mr. Salve except with a slight modification – This is god’s country, nobody goes to prison here, they only become celebrities.

Finally, in Mr. Raju’s defense, perhaps he is not entirely to blame.  We should have seen this coming when he christened his real-estate companies  MAYTAS – the truth spelled backwards.