Sucheta Dalal :Independence Day
Sucheta Dalal

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Independence Day  

January 3, 2009

 The “independent” directors of Satyam resigned after being part of the meeting at which the decision to support the promoter, was passed “unanimously”. Why this sudden change of mind? The only answer which comes to my mind is “complacency” accompanied by “cowardice”. The three gentlemen, who seem to have had a bout of conscience after being literally caught with their pants down reflects badly on their capabilities for being on any board. Several questions beg an answer:

i)  When did they first know about the plan to use the company’s cash to buy a company belonging to the promoter? Surely, it would have been part of the agenda, which ought to have been circulated at least a week in advance. If the agenda was merely tabled at the meeting, then shame on them for “unanimously” agreeing to such a proposal.
ii)  A major decision to buy a company at a fixed price was agreed upon. Was there any kind of valuation done? The media reported that one of the “big four” had apparently done the same “according to some official of the company”. This was roundly denied by the commonly known “big four”. So, who did the valuation and how did the independent directors (some of whom have considerable experience in buying of companies) agree at a meeting that would have lasted just a few hours?
iii)  A major diversification that would have almost dwarfed the present business line was decided upon at a brief meeting. Don’t the independent directors have a responsibility to the non-promoter shareholders (who own approximately 92% of the company) in terms of accountability?
iv)  Why are they putting in their papers, before the next board meeting? Why do they not give any reason? The pretext of the promoter pledging his shares is flimsy. How does it matter what the promoter does in terms of personal finance?
v)  Two of them are US based and should be familiar with the concept of corporate governance, especially after the Sarbanes Oxley rules. Why is it that they have ditched the shareholders, whose guardians they were, without an explanation?
Many questions arise. The inadequacy of our regulations with respect to diversifications by a company is also thrown in to sharp focus. While there is a need for maintaining secrecy on acquisitions, the process has to extend beyond a single board meeting. Surely, the independent directors can be taken in to confidence, before the matter is brought up in to the agenda.
It would also be useful, if the law mandates at least 75% shareholder approval for any acquisition or diversification where more than, say, 10% of the net worth of a company is involved. This would perhaps be the best approach. This way, the shareholders can actually block undesirable family-led transactions. While I mention this, I am also reasonably sure that the industry lobby will never let this happen, since it cuts in to their prerogative of “what is good for me, is good for other shareholders”.
As regards the “independent” directors who resigned, there should be immediate initiation of regulatory action for “dereliction of duty” apart from barring these persons from ever being on the board of any Indian company. No punishment is too small for these guys, who came with such a “halo” and have turned out to be irresponsible cowards of the highest order.
R. Balakrishnan
January 1st, 2009.


-- Sucheta Dalal