Handling of the Satyam Scam

The Satyam scam. How does that fit into Montek Singh Ahluwalia’s book on reforms in India, Backstage? The reason is that, as both NASSCOM and the government of India felt:

“(Satyam’s) collapse would create a great deal of disruption for clients worldwide and seriously damage India’s reputation as a reliable source of software services.”

 

Therefore, the government decided to work with the private sector to “organize a quick takeover by a reputable new buyer, who would quickly restart the company”. But that could not be done overnight. In the meantime, the new board would have to reach out to Satyam’s clients and “reassure them that the company would survive”.

 

For the new board to have credibility when it made that statement, it had to be staffed with people who understood the private sector, the IT sector in particular, and commanded respect and trust. Deepak Parikh from HDFC was made chairman, and other members of the board included a former NASSCOM chairman, CII member, and a former SEBI member. No civil servant was added to the board, since government presence is always a turn off in such situations.

 

The situation was on a knife’s edge – Satyam’s global clients could have jumped ship, and/or Satyam’s top technical and managerial staff could have quit. Either scenario would have doomed any plan to save the company. Fortunately, it worked out – within 4 months, Satyam was purchased by Mahindra & Mahindra in an auction and the attempt to “protect India’s reputation in the IT world” had succeeded.

 

Ahluwalia cites this as an “unconventional approach” followed by the government since an entire sector was at risk, not because all IT companies were frauds, but because fear and suspicion might have set in the IT sector’s international client base. Fortunately, there was no opposition to the effort to save a private company, helped by the fact that it didn’t involve the use of government money to save the company. A good example of how the private sector and government can work together, at least sometimes.

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