Satyam faces risk of losing governance award

Satyam Computer Services, the Indian IT outsourcer reeling from an aborted $1.6bn acquisitions deal, faces further embarrassment after the London-based World Council for Corporate Governance said it was considering stripping the company of a prestigious corporate governance award.

India's fourth-largest software outsourcer received heavy criticism after it last month attempted to acquire Maytas Properties and Maytas Infra - real estate and infrastructure companies that are controlled by the family of Satyam's chairman.

There was heavy criticism after it emerged that the deal - planned by Ramalinga Raju, Satyam's chairman - had not received shareholder approval.

According to calculations from Mumbai-based brokerage IIFL, the deal also valued Maytas Properties at $1.3bn, even though it had a net worth of only $225m.

The acquisitions would have reversed Satyam's net cash position of more than $1bn to one of net debt worth about $400m.

Satyam was forced to abort the acquisitions hours after their announcement to the New York and Bombay stock exchanges, after an unprecedented revolt by its shareholders who had not been consulted on the bid.

Four independent board members were forced to resign over the matter and Satyam shares have since fallen nearly 30 per cent after several profit downgrades by foreign banks.

Just days later, the World Bank barred Satyam from doing business with it for eight years for providing "improper benefits to bank staff" in exchange for contracts and providing a "lack of documentation" on invoices.

Yesterday, the WCCG, which awarded Satyam a Golden Peacock last year, said it would seek legal advice to understand the mechanics of the aborted takeovers, as part of its effort to re-assess whether Satyam still deserved the award. Manoj K Raut, an India representative for WCCG, said the organisation feared that its name might be tainted if Satyam continued to use the Golden Peacock logo in its marketing.

"We have to reconsider and rethink our decision as the company [Satyam] can use our logo for the next three years. . . If we find out that they are not following the necessary corporate governance rules that we have awarded them for then they will have to stop [using our logo]."

Mr Raut said the Golden Peacock was "the holy grail of corporate governance, as we follow stringent standards to assess companies, with a crème de la crème jury." Ola Ullsten, former prime minister of Sweden, and James McHugh, former chairman of British Gas, are among the members of the Golden Peacock Awards jury.

"We have not received any communication to this effect from Golden Peacock," a Satyam spokesperson told the Financial Times.

Premchand Palety, director of the Centre for Forecasting and Research consultancy in Delhi, said: "The independent board members were supposed to defend the shareholders' interests, but they clearly didn't, in fact it seems they were looking after the chairman's interests."

The local press has also hit hard at the IT service group, over fears that Satyam's actions could taint India's corporate reputation.

source: http://www.ft.com