Mediocrity to Satyam Tragedy

Welcome to the new semester!

For some days was having many discussions with different group of students-mostly 2nd year, completing 3 semesters in IIT. Most of them are on their downhill journey because of the widespread 'peace maro' (take it easy) attitude - neglecting academics, leaving everything to the last two weeks before semester exam. and/or low/high level 'cheating'! It is worth reading Satyam's founder, ex-CEO, Ramalingam Raju's parting letter - "...The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly..."

Coming back to IIT student life, not only most of the students are suffering from this disease of indulging in mediocrity themselves they are also spreading these disease being a carrier like any other person affected with a contagious disease. And this is one of the reason why others have a say in the way a student (or for that matter, anybody) leads his your life and cannot say it is entirely a personal matter. Because an individual is not a system isolated, neither one can keep everything oneself entirely. As a corrupt person wants to make other corrupt, a person even after suffering himself from 'peace maro' attitude tries to propagate that idelogy to others. Satyam's Raju continues "...Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten..."

Back to IIT student life. The other issue that cannot be avoided is - a poor acad. record cannot make a student happy, however best he tries to hide this fact, often propagating false and a failed theory of mediocrity. A person cannot be happy remaining in a steady state. Life demands moving from one orbit to a higher orbit to become happy. Now, how does it matter if one chose to be not happy? An unhappy person radiates unhappiness - makes other, his family members, friends, neighbours unhappy. They in turn propagate unhappiness. And someday, after a time lag, it will reach you, me and everybody. That way each of us has a stake, has a role in seeing, making others happy. 

The point I want to make here - mediocrity make each of us operate in two modes  - as a sufferrer, as a carrier. While as a sufferer I am free to decide being a matured, adult, individual whether to continue to suffer; as a carrier I am not free in that sense and own a responsibility to the society. 

Why don't we move from this to a different culture which is more fulfilling? Let's enjoy life in its entirety. Life has many dimesions. Let's explore them. Let's divide the time appropriately among study, sports, travel (say, trekking), weekend bash, reading novels, watching movie (for some of you it could be some of that stuff too...which always made you inquisitive at this age...), social service, attending cultural evenings, visiting places of religious or social interest etc. etc. It helps you to diversify. Being unidimesional in life is like putting all your eggs in one basket. No intelligent person will do that. Without doing well in acad. can you really be at peace, forget about enjoying life?

Let's do our bit to arrest the spread of this disease called mediocrity. Let's see that the excellent input to the IIT system do not leave this place after 4 years being devalued to just ordinary. Yes, 10-15% of you really do justice to yourself and the institute in these 4 years of transformationals process. But such will happen in any probabilistic model. In any population 10-15% will be excellent. In our case, the population itself is the cream of the nation, the best of the bests. Any standard model should have generated 90-95% students as excellent products. 

The students admitted its because of the prevalent 'take it easy' culture. Senior students carry this to the juniors. IIT brand confirming a good job or only a good knowledge of programming language required for high paid job are not helping either. I hope the present recession and poor placement season of 2008-2009 will be an eye opener and bring some sanity. Still, it is not easy to change something as any new thing has to go through a phase of ridicule and then opposition before being accepted. But the IITians are among the best and the brightest in the country and they can always find a way if they want. 

Coming back to Satyam fraud (and other bubbles that put the skeletons out of the cupboard in international space in recent times) - it is worthwhile to take note of path taken by so called smart and educated people who uses dishonesty to outsmart others. 

It needs a Satyam (ironically, Satyam means the Truth) to see why we need to be honest. 

We need a Mumbai attack to make us feel patriotic. 

Why not before? Why not it is a part of our bringing up? 

This evening my daughter, studying in Class I, was going through one of her lessons which read like this. "Feel happy when your friends do well in something. If there is a running race, everyone cannot win. You will win in something else. .... Always be cheerful. When you are full of fun and cheer, you make your classmates happy too..... and so on."

But have we taken these lessons seriously or extrapolated in our day to day life?

Many students have given this feedback. The seniors have told them that having a certificate on social service work is useful for resume and gives better job opportunity. Accordingly, many of them are engaged in so called 'social work' through various groups that promises certificate. It sends a shiver down the spine to think of where mediocrity can lead to. IIT students are acknowledged as smart. But is there any limit? Isn't it riding on a tiger that Raju mentioned in his fax message.

When a big tree falls, everbody notices. But the process starts much earlier as Raju says that it started with a 'marginal gap'. Have such gaps crept in our life, our society too? Then what has happened to Satyam today can happen to me, my society tomorrow. We are today talking about corporate governance. Does it not it start from self-governance? Where is the effort to build character?

Satyam is a national tragedy. Let that not happen to you, me and anybody. Let us control our greed and lead a balanced, multi-dimensional life.

Let's not deceive ourselves. Let's act and now.

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The clippings : Satyam's Ex-Chairman's parting message and message of interim CEO immediately after assuming office

The chairman of Satyam Computer Services resigned on Wednesday, saying profits had been inflated over the last several years.

Following is the text of his letter, which was released by the Bombay Stock Exchange.

To the Board of Directors

Satyam Computer Services Ltd.

From B. Ramalinga Raju

Chairman, Satyam Computer Services Ltd. January 7, 2009

Dear Board Members,

It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The Balance Sheet carries as of September 30, 2008

a. Inflated (non-existent) cash and bank balances of 50.40 billion rupees ($1.04 billion) (as against 53.61 billion reflected in the books).

b. An accrued interest of 3.76 billion rupees which is non-existent.

c. An understated liability of 12.30 billion rupees on account of funds arranged by me.

d. An overstated debtors position of 4.90 billion rupees (as against 26.51 billion reflected in the books)

2. For the September quarter (Q2) we reported a revenue of 27.00 billion rupees and an operating margin of 6.49 billion rupees (24 pct of revenues) as against the actual revenues of 21.12 billion rupees and an actual operating margin of 610 million rupees (3 percent of revenues). This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in Q2 alone.

The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualized revenue run rate of 112.76 billion rupees in the September quarter, 2008, and official reserves of 83.92 billion rupees). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations -- thereby significantly increasing the costs.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas' investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam's problem was solved, it was hoped that Maytas' payments can be delayed. But that was not to be. What followed in the last several days is common knowledge. I would like the Board to know:

1. That neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years -- excepting for a small proportion declared and sold for philanthropic purposes.

2. That in the last two years a net amount of 12.30 billion rupees was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.

3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results.

4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as, Ram Mynampati, Subu D, T.R. Anand, Keshab Panda, Virender Agarwal, A.S. Murthy, Hari T, S.V. Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagiola, Ravindra Penumetsa; Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or Managing Director's immediate or extended family members has any idea about these issues.

Having put these facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:

1. A Task Force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam:, Subu D, T.R. Anand, Keshab Panda and Virender Agarwal, representing business functions, and A.S. Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this Task Force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.

2. Merrill Lynch can be entrusted with the task of quickly exploring some Merger opportunities.

3. You may have a restatement of accounts' prepared by the auditors in light of the facts that I have placed before you.

I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has established an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders, who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.

In light of the above, I fervently appeal to the board to hold together to take some important steps. Mr. T.R. Prasad is well placed to mobilize support from the government at this crucial time. With the hope that members of the Task Force and the financial advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.

Under the circumstances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible.

l am now prepared to subject myself to the laws of the land and face consequences thereof.

(B. Ramalinga Raju)

Copies marked to:

1. Chairman SEBI

2. Stock Exchanges

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The interim CEO's damage control exercise is worth reading.

Dear colleagues,

I write this mail to update you on some critical Board and Leadership level changes in our company, effective immediately. A series of extremely unfortunate events led to this, which I am sure you have seen covered in the media over the past few hours.

A SWAT team consisting of senior leaders has been formed. Many of them are Satyam veterans with a minimum of ten years experience in our company and more than twenty years in the industry. I have been requested to play the role of an Interim CEO and this team will support me, as we steer Satyam through this challenging phase. These are the leaders on the ground and have always had the final call on most customer and associate related matters in the company, so far.

This team has committed to work together, to make it happen. The SWAT team represents all Customer Facing units, key Horizontal Competency Units and critical Support Units. Over the past twenty one years, with your passion and commitment we have built significant customer assets, formidable service offerings, excellent delivery processes and scalable support systems.

Satyam has been consistently acknowledged for our leadership bandwidth and has a demonstrated reputation for collaborative functioning. Our renowned Full Life Cycle (FLC) model encouraged ‘Distributed and Empowered’ leadership and prepared us for all situations.

This is the time when we have to apply it in real life. What we have been trained for, we will now put to work. Let us continue to handle our respective areas with total autonomy, freedom and control. This is as good a time, as any, to remind ourselves that we have been acknowledged as being amongst the top three Best Employers in India by Hewitt and Mercer in independent surveys in 2007 and American Society of Training & Development (ASTD) named us as the best globally, for our Learning practices – the first company outside USA to be ever awarded this honor. Satyam continues to have everything that is fundamentally required for its success – a strong customer base and a committed universe of approx 53,000 associates.

What we are confronted with is the challenge of continuing our business operations, seamlessly. We will need your involvement and ideas to make it happen. This might involve even more effort at every level, in the near term. This is the time to prove to the world that we are united and will succeed in overcoming the challenges.

This quarter will be tumultuous for us. Rumors will abound and it would be fair to assume that competition will try and leverage it to their advantage. As a proactive measure, we have formed fully empowered Cross Functional Teams, headed by seasoned leaders in the respective areas, to address pan-organizational issues like Delivery Excellence, Customer & Associate Retention, Pipeline Management, Cost Controls, Collections etc. You have helped to build Satyam to be what it is today - and we believe that this cannot be allowed to fail, at any cost. I am confident that I can count on your continued support as I commit to our customers that we will ensure deliverables and commitments are serviced.

On behalf of our new leadership team, I apologize to you for the uncertainty and inconvenience that this incident has caused to you and your families. I assure you that we will emerge stronger, because of this. Increased focus on transparency at all levels, integrity and ethical functioning will be ensured. I want you to stand confidently in front of your families and friends and say that we will now be a better company and that we shall soon be a successful case study of how organizations have turned over a new leaf.

We will be conducting “U Speak” (our Meet-the-Leadership sessions) in each city in India starting next week and will have numerous Webinars to address associates in various countries.

We will be meeting many of our customers in person over the next two weeks and will meet those of you onsite, at that time. In these sessions, we will explain to you what happened and articulate the actions that are being taken to retain your confidence in our company.

Let us fight this battle together. I am confident that we will emerge stronger, TOGETHER.

Ram Mynampat