Corporate India has welcomed the confidence-building measures taken by the Indian government over the weekend.
Three new board members were appointed to beleaguered technology outsourcer Satyam Computer Services, saying the measures taken would restore the confidence of Satyam staff and clients and encourage investment inflows.
The media tries to catch a glimpse of Satyam founder B. Ramalinga Raju caught in a traffic jam on his way to the magistrate`s house in Hyderabad, India
On Friday, two days after Satyam's founder-chairman B. Ramalinga Raju resigned following an admission that he had faked the company's cash and bank balances to the tune of Rs.5040 crore, the government launched a crackdown on the company by arresting Ramalinga Raju and his brother and managing director B. Rama Raju.
The following day, Satyam CFO Vadlamani Srinivas was also arrested and the three were taken into judicial custody until January 23.
Meanwhile, the government also dissolved the existing Satyam board of directors, saying it would appoint a reconstituted ten-member board that would chart out a roadmap for restoring confidence among investors, clients and employees of the company. The government has already appointed Deepak Parekh, chairman of India's top mortgage lender Housing Development Finance Corporation (HDFC); Kiran Karnik, former president of the National Association of Software and Service Companies (NASSCOM), the consortium that serves as the apex body of the Indian IT and BPO industry; and C. Achutan, a former official of India's capital market regulator Securities and Exchange Board of India (SEBI), whose top priority would be to cooperate with the investigative teams and ensure continuity of business and boost confidence of clients, investors and employees.
The current three-member board is scheduled to convene on Monday.
We are confident that this will help to ensure business continuity, build confidence and protect the interest of all the stakeholders - the employees, customers and investors, said Som Mittal, president, NASSCOM.
By acting in this bold and coordinated manner, the government has sent the right signals to the global community and set an example of what governments can do to protect stakeholder interests while ensuring strict adherence to the rule of law, Mittal said.
The key priority at this time has been to ensure business continuity and protect the interests of employees, customers and shareholders. Towards this end, NASSCOM has engaged intensely over the last few days with its members, senior government officials, regulators and Satyam's interim management to focus on and communicate these priorities. We believe this is the best thing we can do at this time to help restore confidence amongst employees, customers and investors swiftly, he said.
NASSCOM has also advised its member companies to demonstrate transparent disclosures, to a degree greater than before with the upcoming quarterly results. NASSCOM advocates the highest standards of ethics for the industry and we will work with our membership to re-commit to maintaining the highest standards of governance and transparency, he added.
According to NASSCOM chairman Ganesh Natarajan, the appointment of Karnik, as one of the board members, reveals that the government has a serious intent of helping Satyam recover. He (Karnik) is still an active member of the the industry body. He has in-depth understanding of the industry. His experience as an industry insider will come in handy, Natarajan said.
According to Amit Mitra, secretary general of Federation of Indian Chambers of Commerce and Industry (FICCI), the new board has a heavy responsibility of restoring the confidence of global investors in India Inc.
We expect them to show the future path and leverage the experience of 53,000 IT professionals in the company. The move will restore confidence of global investors in India Inc., Mitra said.
The (government's) move will save the company from the collapse. It is a confidence-building measure not only for the employers and shareholders but the Indian business as a whole, said D.S. Rawat, secretary general of Associated Chambers of Commerce and Industry of India (ASSOCHAM).
Agrees Chandrajeet Banerjee, director general of Confederation of Indian Industry (CII). They (the newly appointed board members) have deep understanding of the corporate governance. I presume that more eminent people will be inducted in the board quickly, he said.
I am happy that such illustrious people has been appointed to the board. It is a well planned move (by the government) to restore confidence and assure customers that services will be restored, said T.V. Mohandas Pai, board member and head (HRD and Education & Research), India's IT bellwether Infosys Technologies.
I think it's a first good move towards restoring client confidence, said Sudin Apte, country head of market research firm Forrester. But we still have a long way to go. In an earlier report Forrester warned both clients and employees will desert Satyam as a result of competitive wooing.
Satyam welcomes this key development, which will ensure the company's continued operations, help maintain customer confidence and associate morale, and restore investor trust. The new members are eminent and accomplished leaders, recognized in India and around the world for their expertise in finance, law, administration and the IT services industry. Satyam's leadership team has complete confidence in them, and pledges to work closely and in full cooperation with the new board, the company said in a statement.
This is a vital stabilizing development for Satyam, and it marks the beginning of a new chapter in the company's history, a company spokeswoman said. It is the best news we've received in the past four weeks.
However, some analysts are skeptical about Satyam's future.
There's a big question mark over everything. We don't know what kind of business model they have now, said Amar Ambani, vice president (research) at brokerage India Infoline.
Raju's declaration says that at the operating level the margin was 3 percent, so at the net level it must have been a loss, which makes it extremely unviable. They have been borrowing to pay salaries, which means they have no cash at all, Ambani said.
Market is likely to remain weak as developments both in the foreign and home fronts are negative...investor confidence has been dampened because of Satyam and global markets are also falling, which may act as double-whammy for the domestic market, said Paras Bothra, research head of Ashika Stock Brokers.