Reversal of fortune

It's only when the tide goes out that you learn who's been swimming naked." Warren Buffett, simultaneously the world's most cynical and its most successful investor, has a way of summarising broad trends in pithy phrases that befit someone who still lives in a small Nebraska town. The tide, of easy credit and sloshing liquidity, has very definitely receded, laying bare the multitude of sins that it earlier obscured: the trusted Wall Street insider running a pyramid scheme; the investment banks insuring people against their own collapse; and, in India, the outright farce that some "promoters" make of corporate governance.

Satyam's abortive attempt to buy out the Maytas real estate and infrastructure companies is one such example. Satyam's chairman and founder is B. Ramalinga Raju. His sons own the Maytas companies (Maytas is Satyam spelled backwards, as the more acrostically inclined will have immediately noticed). He is also the largest single shareholder, if with less than 9 per cent equity. Satyam is cash-rich, sitting on Rs 8,235 crore; it was proposed that that cash pile be pushed into acquiring the Maytas companies. This would have been, as every institutional investor and analyst immediately pointed out, a blatant violation of Satyam's shareholders' rights: in effect, the cash that they held in common as owners of 90 per cent of Satyam would be transferred to companies under the sole control of the Rajus, in what would have been a heist of truly epic proportions.

Unsurprisingly, Satyam's share price fell 55 per cent in the minutes after the deal was announced. Faced with that, and with universal condemnation, the promoters were forced to backtrack. That must not be the end of the story. Investigating what on earth Satyam's board was thinking in permitting this cash-grab cannot be avoided. But there are even bigger questions. First, given that Satyam's board technically includes several independent directors, does it show that the entire recent debate on corporate governance in this country — following on from the Irani Report, revolving around whether more or less independent directors are required, and descending into childish finger-pointing between leaders of "industry" and Sebi — was basically so much hot air? Second, what genuine ideas can replace the overly personal, chummy, independent-celebrity-directors cosying up to larger-than-life promoters style in which some of our flagship companies are governed? The answers are obvious. Respectively: apparently so, and stronger capital market control combined with the separation of management and ownership. It is time that modernised finance clipped the wings of promoters that think they are untouchable.

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