Top Rated Projects of Noida Extension
headline »
Fri, 26/10/12 – 14:05 | No Comment

Indian Property Review has announced Top 20 projects in Noida Extension. The projects were evaluated on the basis of Location, Price, Facilities and Builder’s Track Record and following projects emerged as winners with highest ratings …

Read the full story »

Commercial Real Estate

Realty Finance


Residential Real Estate


Home » Featured

Satyam loses faith : Corporate Governnace of the Company in question

Submitted by on Thursday, 18 December 2008No Comment

Satyam Computer Services chairman B Ramliga Raju, Maytas Properties promoter Rama Raju and Maytas Infra Vice chairman B Teja Raju has lost nearly 597 croredue to fall in the stock value of Maytas and Satyam on BSE. Shareholder outcry has now forced Raju to roll back the plan for Satyam to acquire two firms owned by his family for as much as $1.6 billion, but the affair has brought corporate governance in family-run enterprises into focus.

 Even after the reversal of fortunes of the Indian IT sector, Satyam wasn’t in such dire straits or faced such disapproval. It is puzzling that the senior management and the board of directors were not able to foresee shareholder reaction to this deal.

Till date, Raju had been very particular about keeping Satyam away from his other initiatives like Maytas Infrastructure, Maytas Properties or even Byrraju foundation, a not-for-profit institution. When one of these “sister” concerns wanted to use any resource—mostly intellectual rather than material—Raju would discourage it.

So, it is completely baffling that none of the senior members of his team was able to dissuade him from taking this drastic step now. “Raju has been working on this deal for more than a month now and most of the senior management did not have any idea of what was going on,” says a person close to him.

If the senior management was kept in the dark, then officials at Satyam should have at least realized that questions would be asked about an IT company buying a real estate company, especially if they are owned by blood relatives.

“Even if the articles of association permits a company to carry out an activity and it has never done it before, the company should seek shareholder approval,” says Nawshir Mirza, formerly with Ernst &Young, and now an independent director on various Tata group companies.

The law is a bit ambiguous on this. The Companies Act mandates that a company have “articles of association” that spell the kind of businesses this firm can do. Now, most Indian companies make it broad enough to cover most businesses. So generally shareholder approval is not needed. Yet, if a deal changes the revenue profile of a company should the shareholder not be consulted? “I think the company should. If a company is changing its risk profile the shareholder should be informed especially if the new activity has never been done by anyone in the company. And the way an IT company manages its business is very different from an infrastructure or a real estate company,” says Mirza.

Corporate lawyers say current laws are adequate to protect investor interest in cases where promoters enter into sweetheart deals for themselves, but their implementation is based solely on filing of complaints. The system should change to proactive regulation, they say. “SEBI and stock exchanges should use the magnifying glass to look into such deals and prevent what is not in shareholder interest,” says Rajiv Luthra, managing partner of Luthra & Luthra.

The question in everybody’s mind according to Arun Kejriwal, who runs investment advisory firm Kejriwal Securities, is whether this was a board decision or a promoter decision. The company claims that there were no dissenting voices. “It is not clear at this stage that the independent directors erred. Only a proper investigation would show that. There are some reports that a proper vote was not taken,” says the fund manager of a large foreign institutional investor that has a substantial shareholding in Satyam.

Kejriwal says Satyam had betrayed a lack of transparency forcing investors to assume the worst. “The company does not want to give information. This has created suspicion of something hanky-panky. Their reputation will suffer in the long-term,” he says.


Assuming the probability that the board did the right thing and that this deal was a positive for Satyam shareholders, the company ought to have at least gone through a proper process to select the infrastructure company to invest in. “There has to be some explanations of (why) only Maytas Infrastucture was suitable,” says a country head of a large private equity firm.

There are some who believe Satyam’s eventual decision to roll back the Maytas plan as vindication of shareholder power. “Listed companies have to face shareholders, face the law. Here they had to do that, everybody objected and they had to withdraw the proposal. So, it shows the system works.”

Leave your response!

Add your comment below, or trackback from your own site. You can also subscribe to these comments via RSS.

Be nice. Keep it clean. Stay on topic. No spam.

You can use these tags:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This is a Gravatar-enabled weblog. To get your own globally-recognized-avatar, please register at Gravatar.

WP-SpamFree by Pole Position Marketing