Satyam saga gets chaotic - Editorial

If there was ever a case for investor activism, it is Satyam. The primary task now is to protect the company, India’s fourth largest software 

and services company, from the negative fallout of its incumbent management’s actions that violated all norms of corporate governance and amounted to blatant breach of stakeholder trust. 

To retain client confidence and employee loyalty, a swift change in management seems inevitable. And that can be effected only by an emergency meeting of its shareholders. The government and Sebi should proactively remove regulatory roadblocks, if any, so that that can happen. 

The large institutional shareholders in the company, who collectively own 61% stake, must take the lead and call an emergency meeting of all shareholders to work out solutions. The company’s board clearly lacks the credibility to decide on the behalf of the shareholders. 

Non-executive and independent directors who have failed in their fiduciary role of protecting stakeholder interests and exercising oversight on the activities of the company management must go, no matter what their profile. Shareholders must decide afresh who will best represent their interests on the board. 

Aberdeen Asset Management — the single largest investor in Satyam with about 5% holding — does not seem to be in a hurry to seek the replacement of the current management, arguing for the cause of continuity and stability of business, given the complicated nature of work the company is engaged in. 

However, even that decision must be endorsed by the larger body of shareholders. The government and the regulators should avoid the temptation of interfering with shareholder democracy, but they should also act to facilitate it. 

Satyam and its board will remain under public scrutiny for some time to come. The company will need to take steps that will restore confidence of all stakeholders — investors, employees, clients and lenders. And, it will need to act fast if it wants to retain business at a time when overseas clients would be looking to renegotiate orders. 

Developments at Satyam may prove to be a test case in corporate governance in India, as it would be for the success of investor activism.