How Satyam cleaned up its act

Chief executive CP Gurnani tells Angelica Mari why Tech Mahindra opted to keep the Satyam brand after it bought the scandal-hit services firm, and explains what the deal means for existing and prospective customers

Gurnani: This is one of the most interesting jobs in the world

When Indian IT services supplier Tech Mahindra completed the purchase of rival Satyam last month, the company hoped to close the book on recent financial scandals.

Satyam came near to collapse in January after former chairman Ramalinga Raju admitted to inflating company profits by 50.4bn rupees (£640m) over seven years, causing shares to plummet by more than 60 per cent.

The company has been rebranded as Mahindra Satyam, and former Tech Mahindra head of global operations, CP Gurnani, appointed chief executive. He talked exclusively to Computing about the challenges ahead.

Why did you decide to retain the Satyam brand? Some might say it is damaged goods.

The brand question was also faced by chief executives at companies such as Computer Associates, Converse and Xerox – you have to look at the positives.

Companies are made of people, and even if others may think there have been 10 people involved in the fraud and this means that the whole company has been damaged, in our opinion it has not. We asked customers and employees and some of the prospective clients on their views of the Satyam brand and almost 99 per cent said it is a great company, with a good delivery engine and good people.

We are intelligent enough to know the fraud was localised this is a good company. At the same time there is the issue on delivery and trust and that is why we requested Mahindra if they would allow the augmentation of Satyam’s brand with their name. To us, this was a very critical part where Mahindra became a more resonant part of the new company and we didn’t have to abandon what is good about Satyam.

You bought Satyam without a full examination of the accounts – how did you arrive at a fair value for the company?

We didn’t go into it blindly. There was a fair amount of due diligence done before we acquired the company, with the data that was made available to us. We also met with the employees and did a thorough market survey and appointed an external firm to help us in the process. The acquisition also had to be cleared by three boards - Mahindra, Tech Mahindra and BT Group, which owns a controlling stake of Tech Mahindra.

As far as we are concerned, we knew what the customer and employee assets were, made a projection of what the revenue is likely to be, and took as common sense that there is a fair amount of reconstruction and re-energising to be done. While this will take an effort from our end, we know what this company is really worth.

BT owns more than a third of Tech Mahindra and some observers believe it wants to divest that ownership. Was the Satyam buyout designed to expand the group’s client base in the event BT withdraws its backing- and client relationships – from this joint venture?
Tech Mahindra has already diversified its client base and was also very conscious that BT may divest at some stage and that could create a high-risk perception for some investors, so the majority of the contracts with BT are designed as multi-year deals. All I can say is that this was not the main driver.

The main motivation was that we were very focused on telecom services, which is becoming a integral part of enterprises. Digital convergence is a reality and we do want to offer our services to enterprises, so we believe that Satyam is very complementary to us. We now have an advantage of synergy and collaboration, with no conflict on the customer base. Moreover, Satyam has some incredible differentiators to offer to IT decision makers, such as its business intelligence, engineering services, SAP and Oracle groups, so you need to consider those factors too.

Why not just let Satyam die and cherrypick its clients as all the other major suppliers were doing?

How much can they cherrypick anyway? Since the company has become Tech Mahindra, I haven’t lost any business – in fact, we have added new clients to our portfolio. It is not that rivals picked the clients, it is that Satyam just lost them. Certain companies started getting worried about the governance and the financials of the company.

The customers know the governance is coming and that is being done in many levels, by educating employees and management, as well as creating a feedback mechanism and appointing new external auditors and making sure they do not stay in the same job and are rotated. When auditors and the board becomes friendly, chances are that they will do something dodgy.

Should the Indian government have got involved in a corporate scandal in the way it did?

It is a great thing the government stepped in. This company had no choice and no cash in its balance sheets and the funds were fictitious. There was also no board because they all had to be fired.

That was a transparent and open process led by the brightest and the best in the industry, who should be applauded and become a case study on how governance can be used constructively to allow a company to recover.

If you look back in the results the international people are happy this has been done. The government did not put in money, it just brought in external management and ran the process under the supervision of the supreme court justice to find a new buyer who has the reputation to manage a company this size. It is important to remember that the government had to worry about people’s jobs and the reputation of a firm based out of India and providing services to more than 400 companies worldwide.

What is happening to the FIFA 2010 World Cup contract - recent reports suggested that the technology for the tournament was far from ready?
There are discussions taking place about whether we should go ahead with the 2010 sponsorship or not. FIFA has not approached us formally and we didn’t approach them either. Our belief is that they need all the software that we agreed for them and in terms of branding we still haven’t taken a call on whether we will continue or go back to them and try to renegotiate some of the terms. All IT project delivery is happening as per schedule and FIFA is a delighted customer.

Does the Satyam eight-year ban imposed in December 2008 on IT work for the World Bank carry though to the new entity?

We have been advised to put together a request for the lifting of that sanction. The [argument supporting it] is that we have new owners and new management, which clearly demonstrates we are a new company. We have also reassured the World Bank that the fraudulent people are no longer part of the system and we have meetings planned with them in the next couple of weeks and hopefully they will reconsider our request.

If that request is denied, how will you be able to pitch for work with major bodies when organisations such as the World Bank refuse to work with you?

The point is that corporate frauds are not new. As a company, we were tainted because of certain individuals, who are no longer there, so we are not tainted anymore. Last week, we won a contract with a large European bank and a speciality chemicals firm. It is true that we need to work harder to build the confidence and trust, but I don’t think the World Bank discussion, which is localise,d is impacting the company in any way.

Regardless of the scandal, how has Satyam fared during the recession – like most suppliers, you work with a significant number of financial service companies?

Business has been affacted, not only due to the recession but in the customer losses that we had. However, we have started to win new business and thanks to our consulting resources, customers in the financial services industry understand they get a lot of value from us. Despite the economic recession and the January to April losses, we are still doing alright.

Are you still hiring?

We are not hiring, unless we need any niche skills. We have placed people on a “virtual pool programme”, whereby some of our employees can work from home and as and when we get projects, we call them back to work for us.

Has employee morale dropped as a consequence of the difficult times that Satyam experienced recently?

The spirit of our people is what kept us going. We didn’t really have a future – this was a company that was losing customers, employees and people did not receive salaries. But crisis brings out the best in many people, and that was there and you could see it. We have staff support – they are doing very well and our clients give us really positive soundbites about employee integrity and enthusiasm, even during those tough times.

Will you look to bring in Indian staff into the UK as part of your contracts with clients?

I am able to take a job in a location where a customer is happy that is delivered from. The best interest for the customer is when they believe in a global delivery model, where you pick the delivery centres that are most effective from a process technology and cost perspective. But chances are that IT leaders will prefer using delivery centres in Malaysia or India.

What do you expect to be your main leadership challenges in the years to come?

This is one of the most interesting jobs in the world right now. This was a fraud-ridden company, which panicked and lost a few customers and key employees and now needs to confront the reality and come back and stage a recovery. I am enjoying every minute of this job and am supported by one of the best leadership teams in the industry. And I believe that this company is going to come back as a real shining star.

My focus is to bring our financials in line with the best in the industry. We also need to make our workplaces the happiest and best to work. And it is important that our customers don’t just only view us as the people they have supported through those five months of turmoil, but as a long-term partner able to deliver a value proposition which address some of their own challenges and explore opportunities. If you can compare governance with hygiene, I can assure that we are now clean.