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Bringing Back Satyam

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 Are you auditors?” The security staff greets us with that question at the Satyam Computer Services’ Hitech City headquarters in Hyderabad. It drives home forcibly how the organisation is still battling the fallout of its former chairman B. Ramalinga Raju’s explosive confession of a Rs 7,136-crore financial fraud this time last year.

We are the first media team to be allowed inside the Satyam headquarters for indepth interviews, since the scam broke on 7 January last year. As we complete clearing the formalities at the entrance, we come to realise that most outsiders coming to the Satyam headquarters these days are auditors. There is a battery of them working inside to restate Satyam’s tangled accounts. But where are they?
Once inside the building, it becomes apparent why the guards posed the question. Almost every employee is acutely aware of the presence of KPMG auditors in the campus. And yet, the auditor’s presence is felt despite the fact that most of them are not actually seen in the corridors of the headquarters. They have been working isolated in meeting rooms far away from where the normal employees work. A company official politely tells us that we cannot meet the auditors. That area is out of bounds.
 
REVIVAL AGENT: Anand G. Mahindra, Vice-chairman and managing director, Mahindra Group
There is one more area that is out of bounds, he points out. It is on the fifth floor lobby on the right side of the lift. The dark alley behind the access-controlled glass and wood doors was once the approach to Raju’s semi-circular office, which has since been sealed. Fortunately, those are the only inaccessible areas for us as we go from campus to campus taking a peek into how the new owners, Mahindras, are rebuilding Satyam since they won the firm for Rs 2,888 crore in a government-sponsored auction.
Auditors are doing just one part of the job of rebooting Satyam under the Mahindra banner. Satyam’s new owners have had to bring in significant changes in human resource (HR) and corporate governance standards with some minor yet important structural changes.
There It Was...
A lot has changed at Satyam since Raju’s infamous disclosure in January last year. The first visible change is the logo itself. Earlier, as we reached one of the three business centres of Satyam on the main road in Hitech City, a lone guard explains in Telugu: “Satyam office is no more here. There is nobody inside.” The multi-storied building housed Satyam Cyberspace, which handled information technology (IT) and other back-end businesses from the premises.
Right on top of the building, what is left of Satyam is just the imprint of its logo. “Go back on the road, Sir. Turn right, you will find the main office of Satyam,” guided a passerby. And there it was — the Pacman-like Mahindra group logo has replaced the logo of Satyam. While the firm’s registered name is still to be changed from Satyam Computer Services, many buildings, visiting cards and all external communications already bear the name “Mahindra Satyam”. The takeover has also had an impact on Hyderabad’s landscape. Conspicuous in its absence is the Satyam logo. Just 10 months ago, the logo peppered the city: from the half a dozen offices at prominent locations to roundabouts and culverts, it was ubiquitous. It is no longer present anywhere. But for one place, the Maytas Infra name, too, has vanished.
That Sinking Feeling
In order to understand Tech Mahindra’s nine-month-long struggle to turn around Satyam, it is important to come face to face with what it inherited. Satyam lost over 125 clients and released over 8,000 employees soon after Raju’s disclosure. Its market cap sank by Rs 10,000 crore in one day alone. Employee morale was low and there was lack of decision-making. “I felt betrayed,” says team leader of Integrated Engineering Solutions Venkat R. Gajjala (40), who holds an MTech from IIT and MBA from University of Louisville. Venkat’s wife Padma was worried whether he would retain his job.
 
 
PLUGGING GAPS: CEO of Mahindra Satyam C.P. Gurnani
At one point, when the news of the scam broke, doctors attending to the father of another team leader Chandra Bhushan offered to keep the hospitalisation costs low. In cases where both husband and wife were Satyam employees those initial months were excruciating. “Even cops used to joke and refused to fine us because we were from Satyam,” says an associate.
Mahindra Satyam’s vice- president for Middle-East, Africa and India, Lalatendu Mishra (48), had already spent three years in the company when the scam broke. He recollects how during the first few weeks, they did not have the authority to sign cheques for even small expenses such as visa fees.
 
“In some cases employees paid from their pockets,” recalls Mishra, visibly suppressing his emotions. Emerging from a business meeting, Bhushan goes into a deep thought with his eyes fixed on the table as he says, “We were not prepared for this. I had never even thought of preparing my resume.”
Gajjala recounts how the first few weeks were like operating a mission control. “I had a top MNC client with 400 Satyam employees in the US. For these employees with no big bank balances, getting paid on time was a very big worry.” If the employee leaves, the client suffers. If the client suffers, the company suffers. “We (team leaders) spent a lot of time assuring them that money would reach them on time,” says Gajjala.
The government’s swift move to appoint the six-member board of Kiran Karnik, Deepak Parekh, C. Achutan, Tarun Das, T.N. Manoharan and S.B. Mainak barely four days after 7 January was crucial to Satyam’s survival, affirm Satyam employees. It told Satyam’s 300 odd clients that the government was behind the company. To the employees, this meant that the government will not allow Satyam to sink.
“We lost business because we did not have a balance sheet to participate in bids for new clients,” says Mishra. While firms such as Coke and Caterpillar pulled out, GlaxoSmithKline (GSK) and GE stood by Satyam. “Early last year, we were talking of saving businesses,” says Bhushan, currently senior vice-president of delivery and operations. He recounts how he spent almost 80 per cent of his time early last year just trying to retain clients and lifting employee morale.
We Were Like Commandos...
On 13 April when Tech Mahindra acquired Satyam, Mahindra says, “We were like commandoes hitting the ground.” Tech Mahindra initially brought in six key people to implement a plan without any major overhaul in the middle management. Mahindra says he had a two-point agenda. First, to plug the gaps in corporate governance and ensure the top management walks the talk, and second, to ensure that the businesses were profit-centric.
Vineet Nayyar, vice-chairman of Tech Mahindra joined Mahindra Satyam as vice-chairman (now chairman). C.P. Gurnani, who headed Tech Mahindra’s global operations, sales and marketing, joined as CEO. Rakesh Soni, Tech Mahindra’s COO joined as COO here too. Rohit Gandhi, who was heading Tech Mahindra’s Asia Pacific operations joined as MD, emerging markets. Atul Kanwar, who was chief manager of business at Tech Mahindra, is now president of business development at Mahindra Satyam. And Vikram Nair, who was heading Tech Mahi-ndra’s Europe operation, will do the same for Mahindra Satyam. In a firefighting mode, Tech Mahindra called its strategy “Reboot” to communicate the message of the new management: focus on sales, delivery excellence, cross-leveraging skill sets, and on customers and profits.
 
LOOKING FOR BAIL: Founder and former chairman of Satyam Computer Services B. Ramalinga Raju (AP)
Cost control was the next move. Close to half a dozen offices across Hyderabad were shut down, saving Rs 200 crore. Work force was cut. About 8,000 employees were taken off the company’s rolls since April and made a part of a virtual pool (3,000 of these will be taken back this month end). “Though they were well trained, it was clear that there were far too many employees than Satyam’s business justified,” says Karnik, chairman of the interim board.
In those trying times, Mahindra Satyam drew inspiration from all things positive. Every prominent point inside the building, the canteen, the elevator doors are plastered with posters of this year’s FIFA World Cup in South Africa where Satyam will be the main IT vendor. While a host of its clients walked out, FIFA reposed its faith in the company. With a slight change — the Mahindra Satyam logo has replaced the old Satyam logo on FIFA posters.
 
But Mahindra’s biggest challenge was in ensuring corporate governance so that rules do not get flouted again. Satyam had all the right ingredients. It was listed on the New York Stock Exchange (NYSE). It won coveted corporate governance awards. It had a corporate governance and whistle-blowing policy. But the scam still happened.
Soni, the COO, was given the responsibility to initiate a plan on corporate governance. His team not only rewrote corporate governance guidelines, but, as part of the plan, Soni was also made the chief compliance officer (CCO), a new post directly reporting to the chairman. Mahindra Satyam now plans to redefine the post of CCO as that of an ombudsman. It will be headed by a retired government official (or, perhaps, an ex-judge).
 
What’s On Raju’s Mind 
Recovering from a severe Hepatitis C attack, B. Ramalinga Raju is currently in confinement at Nizam’s hospital in Hyderabad. He is only allowed one family member as an attendant in the room that is guarded round the clock. The only person who is not a part of the family but meets Raju practically every day is his legal counsellor Bharat Kumar. Kumar is working on getting Raju out on bail. So what is on Raju’s mind? Does he think about his company? “Yes” says the counsellor, listing out what Raju desires. “Now that the investigations are over and in view of his (Raju’s) failing health” in right of fairness he “should be granted bail with whatever conditions attached” that will allow him “to take proper treatment” and “face trials spread all over the country”, says Kumar. Raju wants a “fair opportunity to defend himself in the trial”, he adds.
 
Apart from setting up the structure, the company had to ensure that employees report inconsistencies. Every employee has been apprised of an anonymous mail box for raising complaints about ethics. Soon enough, even Gurnani’s mail box was flooded with employee feedback. Initially, lack of awareness brought in mails such as people going for a soccer match or dinner with a client in violation of corporate ethics. But it is settling down now. Over the past four-six weeks, 10 complaints have been investigated. While none had a financial implication, there was one on use of adult websites. The employee has been fired.
Mahindra’s next move was aimed at ensuring the “management walks the talk”. For instance, project heads now have to comply with surprise audits by accounting firm Grant Thornton hired specifically for the purpose. He has also hired audit firm BDO Haribhakti to help the NYSE-listed Mahindra Satyam comply with the mandatory financial disclosure standards under the Sarbanes-Oxley Act. But then, if corporate governance was the biggest void, even Mahindra does not expect changes to happen overnight (see interview on page 36).
Structurally, very little has changed in the company, except for the top management. But Mahindra and Nayyar and team have consciously adopted a more open and collaborative approach to management than Raju. After all, as Karnik says, “Apart from the financial scam, the main problem was a people’s challenge.” Their morale needed a boost.
“We just replaced those who had left post-Raju,” says Gurnani. But what is not well known, he says, is that he brought 8-10 young professionals with an average work experience of 14 months from Tech Mahindra in key posts. It is they who will be the change agents. “The power of youth is going to make the change, questioning seniors, interacting freely with them. Earlier, only the founder and a few people knew what was happening. This had to change,” he says. And at the shop-floor level, Gurnani would like to be called the Chief Happiness Officer! Pragnya Seth, head of performance management in the HR division and a team leader, who has been with the company for seven years, says it is always better to “over communicate” than “under communicate”.
 
Several employees BW spoke to say this was lacking earlier as Raju himself was an introvert. Even crucial communication was not always forthcoming. Senior executives learnt of the 7 January disclosure from outside. Even the 16 December 2008 decision to buy Maytas came from one top executive. Thereafter, the decision to put it on hold came from another.
Back In Business
There is huge speculation over what the size of Satyam’s business will be when auditors announce the restated accounts this June. Some executives put the number at $1.5 billion, as against $2.1 billion in April 2008. But these still remain back of the envelope calculations of intrigued executives. One event is inevitable though. Mahindra Satyam will merge with Tech Mahindra. Down the road, once the legal baggage is sorted, the company may even be delisted from NYSE, sources say.
Meanwhile, in November 2009, the Central Bureau of Investigation reportedly noted that the scam was not Rs 7,100 crore, but close to Rs 14,000 crore, almost $2 billion higher. Despite this unpalatable news, Satyam, it seems, is back in business. “Raju had built a company with competent delivery mechanisms,” admits Mahindra. “I had personal conversations with some of their clients before bidding. They confirmed this was a company with a real business model.”
 
 
SHAKEN BUT NOT STIRRED: A senior executive with Satyam, Venkat R. Gajjala — he has been in Satyam for over 13 years — felt betrayed when he heard about the scam
Gurnani says Mahindra Satyam has added 35 new clients since the takeover, taking the total number to over 400 now. The company had lost 125 clients between December 2008 and April 2009. Emboldened by better prospects, Mahindra Satyam has started poaching from rivals such as Infosys and Wipro. Reports of a stronger Mahindra Satyam is strengthening the company’s stock — it has risen from Rs 49 on 13 April 2009 to Rs 108 on 7 January 2010.
“But the share market is not the best bellwether” and the company’s growth should not be assessed on “speculation”, says Harish Bijoor, CEO of Harish Bijoor Consultants. The second part of Anand Mahindra’s two-pronged strategy has been the spotlight on bottom lines through a profit-centric approach, cutting costs and getting more bang from the same buck. Team leaders who are travelling are expected to garner more business from every penny spent. Gurnani is also driving home the need for mining existing clients far more aggressively. “If clients earlier were provided embedded technology solutions, now mine the client for work in engineering. Make the client stick to you,” says Gajjala. 
“After the Raju disclosure, we have been very positively inclined towards the company. Mahindra Satyam has hardly lost any of the big clients. Rather, in the past six months, they have added quite a few clients. The firm is slowly standing on its own feet,” says Diptarup Chakraborti, principal research analyst at IT research firm Gartner. Mahindra himself is giving a personal touch to this makeover. “I want Mahindra Satyam to have the first crack of my visits abroad,” says Mahindra. The idea is to bring in new clients and even win back those such as World Bank and Caterpillar who walked away. “Mahindra has managed the trauma well. Satyam has risen like a phoenix from the ashes,” says Bijoor.
According to Sudarshan Chakrapani, assistant vice-president for corporate planning, the motto now is to use the depth of Tech Mahindra and width of Satyam to build on the business. “Very often, our competitors such as Tata Consultancy Services were better placed, while dealing with clients because they brought added value to the table due to their background in businesses such as steel and automobiles,” says Gajjala. “Now with Tech Mahindra, it is different because of Mahindra & Mahindra’s expertise in a wide range of businesses that include aerospace and even auto sectors,” concurs Padma Parthasarthy, head of special initiatives at Mahindra Satyam. Thanks to this depth, in coming months, Mahindra Satyam will be rebranded as an EICT (engineering, information, communication and technology) company rather than an IT company.
Beyond business, employees have learnt to relax at events such as rock shows, or a family day when they bring children over to work. “For the first time, we had a Christmas retro bash,” says Seth. These team bonding events were rare in the Raju era, but are now a necessity under the management of Tech Mahindra. Employees can gain confidence that the process of appraisals has begun.
The journey under the new management, it seems, has just begun. Anand Mahindra cautions it may be premature to declare victory. But Satyam for him is not a “win some, lose some” game. “If I have to spend the rest of my life turning it around, I am prepared to do that,” he underscores.
kandula(dot)subramaniam(at)abp(dot)in
(This story was published in Businessworld Issue Dated 18-01-2010)