Thursday, December 18, 2008

Welcome fall-out of Satyam move

It's an ill wind that blows nobody any good. The deal proposed by Satyam was a shocker, of course, but it's good that the management has called it off under investor pressure and after severe criticism by the media and the analyst community.

I see several positives in the episode:
  • Investor activism: institutional shareholders, domestic and foreign, have been much too passive all these years. It's nice to see them flexing their muscles.
  • Pressure for change of management: There is talk of a hostile takeover and also pressure on management to step down consequent to a bad decision. This again is much needed. Management is seldom made to pay a price for bad decisions.
  • Focus on independent directors: The independent directors on the board of Satyam (see my post yesterday) have egg on their faces. They have been named (and hopefully shamed) in the media. Great!
  • Client reaction: One of the best stories I read was in BS about some of the top clients evaluating their relationship with Satyam- they are not sure about sticking to Satyam as there are doubts about the intent of management.
All this is to the good. I would like to see more happening. I certainly want the appointment of independent directors to be looked at. Management inviting their friends to be on boards and paying them a fat fee for nodding their heads is a joke perpetrated on shareholders. We need institutional investors to appoint at least some of the independent directors.

Further, I would like Sebi (or some NGO) to have on their website a link on 'Questionable decisions by management'. Decisions such as the present one should be recorded and also the names of directors involved. Analysts should check to see which other boards these directors are sitting on and take a view on those companies. Other companies planning to appoint independent directors would also benefit from scanning this link while deciding their choice of independent directors.

There is a clear message that needs to be sent out: as independent director, your role is not to play deaf-mute on the board.

6 comments:

Gaurav said...

Both Sterlite and Satyam are listed on NYSE. I wonder if bowing to shareholder pressure has something to do with they being exposed to the US court system.

Anonymous said...

if a detailed investigation is conducted under different legislations on the complete affairs of Satyam Computers, more facts will come out to bring forth the reality.

APSER HUSSEN said...

mmmm

Anonymous said...

I am not sure if Satyam would have risked the de-rsiking strategy without giving it seroius thougght. Raju has been runnnig the business for more than two decades and he has nothing to hide or prove to anybody.
more than anything it proves that media has again played the TRP card to bail themselves out.

Pradosh said...

While it might have been an ill-considered business move or might not, the fact remains that media and audience alike often sensationalize an issue. The same media which went bonkers over the deal, was also continuously highligting some reality show bish-bash over and over again. Time for some activism in the right direction please. It is important to take a mature and considered view of the entire matter before jumping to conclusions about a company.

Shankar V said...

To the extent that the activist shareholders hold a substantial stake in Satyam, they have seen their stakes take an approx. 30% haircut. Maybe I am being myopic, but I am not exactly sure why "activism" is welcome in cases like this. I have always wondered - when managers make egregiously stupid decisions, is there a way to punish them without hurting myself as a shareholder? If not, it seems to be a classic case of cutting my nose to spite my face. The only argument could be that if the managers had gone ahead with the deal, the shareholders may have had to take a haircut well in excess of the 30%, but that is hypothetical, of course.