Satyam and Slumdog


The looting of Satyam by its founder Ramalinga Raju is not something that is new. Every Indian corporation is looted, some more and some less. So the CII and others professing shock is nothing more than crocodiles shedding tears

Mohan Guruswamy Delhi

The Satyam scandal couldn't have come at a worse moment for India. It comes at a time when the world is catching the American contagion. China, which rose to become the world's factory, manufacturing most of the cheap and shoddy goods needed for the western world and sold through its feeder pipelines like Wal-Mart, and India, which became the world's IT outsourcing base, have both been hit badly. We can take joy in the fact that China has been worst hit. But there is an ironic twist to this.

China hurts more because it grew faster and integrated more with the developed world. India's growth was tardier and its base much smaller. The level of integration with the outside world has been about half that of China. Thus the widely prevalent notion that this was due to the prescience of our policy makers who somehow foresaw this.

My friend Sitaram Yechury has been quick to claim some credit for this as according to him his party contributed most to slow down the pace of India's liberalisation! This is utter bunkum. It is akin to arguing that a beggar hurts less in a recession than a rich person. Of course he does in percentage terms. But he is at a level where every paisa less matters and the rich man is at a level when fewer rupees don't really matter. 

The looting of Satyam by its founder Ramalinga Raju is not something that is new. Every Indian corporation is looted, some more and some less, by section of its ‘management'. So the CII and others of its ilk professing shock is nothing more than crocodiles shedding tears. If they are cursing Raju, it will only be because Raju got caught and the brouhaha that followed may not allow them to continue with business as usual. It must be said to Raju's credit that he built a first class company capable of competing with the best in the business. He is a first generation industrialist and built his enterprise from scratch. Unlike the Infosys crowd, he was not a technocrat. Unlike Azim Premji, he didn't build on an inheritance. And nobody can be like the Tatas, the number one in this business as well as business as a whole. 

I don't for a moment believe the Raju story that Satyam's sales were inflated and so were its profits. That might have been true to some extent. His bench strength too might have been exaggerated a bit. But not by how much Raju pleaded guilty to in his unsigned email. What Raju seems to have been upto is to siphon off corporate funds to make other investments, mostly in real estate, and dressed his books by forging deposit receipts? He obviously didn't expect anyone to challenge the word of a man who shared the dais with Bill Clinton, or someone who got not one but several corporate governance awards? In my book, that should have been big enough reasons for taking a closer look at his books.

Raju was going about his plans perfectly by seeking to engineer the merger of Satyam with Maytas. If he had pulled that off he would have been out high and dry with two top class companies. But like most men who get overly used to having things go according to their script, he got spooked when DSP Merrill Lynch baulked at giving him the whitewashed valuation report he wanted. With that he brought his house of cards down. Minister of Corporate Affairs Prem Chand Gupta has once again promised us that he will get to the bottom of the matter and that the Indian people will soon have the truth they seek. But already Satyam is yesterday's news and others will live to chart a course for the new India that the good doctor crafted. One Raju doesn't herald a spring or a spring cleaning! 

We have been here before and we know what will happen next. Does anybody recall CRB Bhansali, or Enron, or Cybertech or Modi Xerox for that matter? The revelation in 2001 by the Xerox Corporation in the US that its Indian subsidiary, Modi Xerox, had paid over $800,000 as bribes to obtain sales for its products seemed to have shocked the then government into taking action against Modi Xerox. An apparently outraged Department of Company Affairs (DCA) then swung into action and ostensibly prepared to charge the company with a slew of offenses ranging from falsification of accounts, mis-declaration of expenses and other such ‘uncommon' offenses. They must be rare and uncommon offenses indeed, for no other Indian company has been investigated by the DCA for committing such perversities in the recent and recallable past. But we know better, don't we?

One quick answer you will get is that companies need this to pay-off bureaucrats and politicians. Maybe? But let's get one thing very clear. Not all the money the executives say is meant for pay-offs goes to the declared recipient. What actually happens is that a good part of what is taken from the company in bags ostensibly for pay-offs, ends up with the bag carriers who are full-time company executives. This money is then shared between the corporate executives. Likewise, not all the money supposed to pay off the customs, excise, IT, labor, and local government, sales tax and police departments goes to officials. Sure you need to pay these officials on a regular basis but what they get is not what is on the ‘number two' accounts. 

Most companies buy equipment and material at inflated costs. We know that the Dabhol Power Company promoted by Enron put up its huge power generation project at a cost of about Rs10, 000 crore when a similar sized project was set up for half that amount in another country. Enron even reported that $28 million or over Rs 100 crores then was spent on "educating" Indian opinion leaders like politicians, bureaucrats and journalists. It obviously was money well spent.

The otherwise well regarded Business Standard (BS) alone carried 685 stories on Enron/Dabhol in the three years preceding the collapse. Each of these stories was eulogistic to say the least. A particularly florid one about the inauguration of the first phase on April 17, 1999 by Prime Minister Atal Behari Vajpayee was captioned an exciting ‘Dawn breaks over Dabhol'.

Most newspapers specialising in reporting on economic and business matters without exception endorsed the Enron proposal, and all those who opposed the project were called various names. Almost every person involved in facilitating the Enron project in India benefited from it. Even bankers, lawyers and consultants made huge amounts. The legal costs itself amounted to a few hundred crores! The Indian people, generous to the core, ended up paying the bill when the bill should have been sent to the likes of Atal Behari Vajpayee, Pramod Mahajan, Bal Thackeray and Sharad Pawar or even BS Editor TN Ninan who rammed the deal down our throats.

The purchase function in every corporation is inevitably in the hands of very trusted and carefully chosen executives. In the typical family managed company, these jobs are reserved for the owner's brothers-in-law or nephews. Another way to loot a company is to procure parts or raw material from companies owned by relatives or by the owners themselves. I know of one instance where a company was sourcing a finished product from the owner's company at a far higher cost than a similar product manufactured in-house. Take any major manufacturer and you will find that persons closely connected with the owners or top managers own most of the sub-contractors and ancillaries. Even public sector companies are no different. Many a successful entrepreneur started off by moonlighting as a supplier to his employer. 

Most of our top executives, apart from maintaining two sets of books, have two sets of standards also. On one side they will talk about professionalism and ethics while stealing their companies. After all, how are they going to pay for those apartments in London and for the trips to Monte Carlo? One fellow not being satisfied with ripping a few crores from his ailing corporation to pay for a palatial house where his wife stays, had to do it twice to get an equally palatial home for his imported girl friend. Another ailing group, while retrenching its senior executives, gifted its aging patriarch a brand new BMW.  

The needs of the highly placed are many and they have to get cleverer each day. There are many highly creative and ingenious ways by which owner-managers and senior executives steal from their companies. A company chairman was caught stealing from his company by placing advertisements in bogus souvenirs for charitable causes where the object of the charity was he himself. The government caught on many years ago leading to his being raided and arrested along with his top executives. Naturally, nothing has come of this. Everyone was paid off.

The total paid up capital of the top 15 companies is about Rs 23,000 crore and these companies together have a turnover of about Rs 120, 000 crore. Even if we assume that a mere 5 per cent of this turnover or Rs 6,000 crore is stolen each year, 25 per cent is not a bad rate of return at all! Especially considering that this is -- over and above or more suggestively speaking, under and below -- what is declared.

If there were a school for scoundrels, most of the star faculty would be Indians. As it is, most top US business schools count many Indians among their faculty stars. Including that world renowned expert on corporate governance, Dr. Krishna Palepu of the Harvard Business School, who served on the Satyam board till it was superseded. 

Satyam couldn't have happened at a worse time for us. Just as India's image was rising above the mire of poverty and apathy, it began to be taken note off as a fast rising power, soon to take a place on the high table. For the first time, the Indian elite could look at their western counterparts in the eye and rub shoulders with them in Davos or the Harvard Business School reunions. However, what makes the post Satyam battering hurtful is the release of Slumdog Millionaire, a sly, witty and brilliant look at the underside of the Indian growth story. It captures the enduring truth of India's poverty, human degradation and the crab in the basket attitude that keeps millions down. This one movie will undo the assiduously crafted image of an incredible India where things are fast happening.

The real irony of this is that the movie is based on the book Q&A written by Vikas Swarup, a serving officer in the IFS. Now we must wonder how much of a future Swarup might have in the IFS when in one brilliant book he took down everything his service had tried to create. More power to his pen.