Click to play videoKaran Thapar: Hello and welcome to Devil's Advocate. Do we have a clearer idea of what happened at Satyam? What does the future of the company look like and beyond that, what are the lessons that we need to learn? Those are the three key issues that I shall explore today with one of the new directors of Satyam and former president of NASSCOM Mr Kiran Karnik. Mr Karnik, let's start at what happened at Satyam. From all that you have been able to discover, do you believe Ramalinga Raju's confession that the accounts were cooked to show that the company possessed 7,000 crore more than it had? Was some of the money siphoned out?
Kiran Karnik: I must tell you that we have not gone into the investigations that have been handled by the various arms of the government. We have not looked into the investigative part at all. We don't even have a firm picture from the balance sheets now because they have been put together. So, my frank answer to you at the moment would be - We don't know. The fact is that there is very little money at the moment in the company.
Karan Thapar: So you are saying to me that at this moment in time, two weeks after you became a director, you actually have no clear idea of what happened at Satyam?
Kiran Karnik: I would say, we don't. We just know the present position but we have no idea of what happened in the past. No clear idea, no definite idea.
Karan Thapar: If the profits made by Satyam were fictitious, then what about the rest of the company? Does it for instance, have 53,000 employees? Does it have 185 Fortune 500 customers?
Kiran Karnik: On the customer front, I can tell you with some sense of confidence that we have looked at it, we know many of the customers. The customers are well known and I have a sense of comfort. On all other aspects concerned with the financials, I would put a question mark behind every figure that is there. I would put a question mark on the employee number also because the verification on that is not yet done. These processes are underway, but as of today, there are only question marks.
Karan Thapar: But you are confident that the claim that it has 185 Fortune 500 customers is a reasonably accurate thing?
Kiran Karnik: I need to check with this (figure of) 185 but yes, the customer list that's there, the known and the big name customers are all there. There are a lot of smaller customers who we are yet to verify, if they are really there or not. But the big customers, both in terms of names and in terms of the size of their accounts, yes, there is comfort on that there is actual evidence of that. I personally spoke to a dozen or more in the last four or five days.
Karan Thapar: But you expressed your doubts about the employee numbers. How much less than 53,000 could they turn out to be? Could there be a big discrepancy or are we talking about a small discrepancy?
Kiran Karnik: The frank answer, Karan would be that I do not know. But it cannot be a large discrepancy because the size of the company in terms of the business we know that they are doing would demand a certain number. But whether it is 10 per cent less, who knows! We will know in the course of time as investigations go on and we put together those things in place where we have put.
Karan Thapar: You were good enough to begin by admitting that you haven't involved yourself into the investigations side right now. Nonetheless, you have been involved for two weeks, you have been looking into the state of affairs of the company. What's your feeling about Pricewaterhouse? Were they simply incompetent and negligent or could they also have been complicit?
Kiran Karnik: Again, the answer is that I do not know. But it is one of the two (possibilities) very clearly. Either there is great incompetence to have not been able to find this out or there could be complicity. One of this or the other because it just can't be that something of the scale, size and duration can just pass by a whole set of auditors over a long period of time.
Karan Thapar: So, there is 50 per cent chance at least that Pricewaterhouse were complicit?
Kiran Karnik: I would not say 50 per cent because it's necessarily half and half. But yes, there is some possibility of either incompetence or complicity; or maybe both together.
Karan Thapar: What about the banks? Do you feel that the Raju brothers may have forged documents to support their claim entirely on their own or is there again a chance that the banks were somehow involved in this conspiracy?
Kiran Karnik: The banks that they are dealing with, at least most of them are big name banks with good systems of their own systems of checks. This is not to say that they are fool-proof. But I would tend to think that it is unlikely for banks to have been directly involved because there are different and many people, there are many things up and down in the banks. So, it is more likely that the banks are not directly involved in this.
Karan Thapar: So, there are greater question marks about Pricewaterhouse and fewer, perhaps none at all about the banks?
Kiran Karnik: By my assessment, yes.
Karan Thapar: Let's ask a simple question. Could this conspiracy be wider and deeper than we know? In other words, can it be just to the two Raju brothers and the CFO or could there be other people as yet unidentified who must have been involved?
Kiran Karnik: Very hypothetical, Karan and I don't know who can answer it except the investigators. But just as a layman, if there is such a large amount involved over such a long period of time, (that to be pulled off) by only three people would be extremely difficult.
Karan Thapar: So, your gut instinct is that it must be wider and deeper but you cannot prove that, you certainly do not have evidence of that?
Kiran Karnik: Absolutely!
Karan Thapar: But that's your gut instinct?
Kiran Karnik: It would be and I guess it would be most people's. Just three people involved with a seven crore thousand rupee scam over seven years would be really stretching things and making it something extraordinarily exceptional.
Karan Thapar: From your vantage point, are you satisfied with the way the investigation is going? Is it making progress? Are they looking at all the right leads? Are they pursuing them effectively?
Kiran Karnik: As I said in the beginning, we are not directly in confluence or in touch with the investigation. So I do not know exactly what is happening there in detail. It's going on, there is more than one agency of the government involved. At the moment, we are treating it as a separate process. We have got in two accounting firms to help us with restating and recasting of the accounts. We are focussing at the moment really on the business side of things, and not the investigative side.
Karan Thapar: Alright, let us come to the business side of things. Let me ask you, today you are one of the six on the board of directors of Satyam apart from the original three. What do you identify as your primary task when you are putting Satyam back in order?
Kiran Karnik: I would say that the over arching task for us would be ensuring continuity and sustainability for customers and employees. The two are obviously in synergy and you cannot have one without the other. And that is important, not just with Satyam, but in regards to the signals that we send out in regards to the Indian IT industry's capability, irrespective of crisis and problems, to continue its service to customers who are doing mission critical work in the country, without a break and with the highest quality. I would say that really, this is the highest priority. The rest follows from that but this is really the over arching one above all that.
Karan Thapar: So, one and two are retaining customers and securing jobs?
Kiran Karnik: Yes, that's correct.
Karan Thapar: Your colleague, Deepak Parekh has gone on record to say that Satyam doesn't need bail but several newspapers have repeatedly quoted Ram Mynampati that the company needs 150 crore to meet insurance, health liabilities of US employees. But let me ask you bluntly. Does Satyam need government money or not?
Kiran Karnik: In my assessment, no. We do not need the government money. At the moment any money is welcome. But I am not in favour of taking government money directly because it sends a very wrong signal to the market, to the customers and to the end-to-end employees. Government money always seems to imply that you are a sinking ship and the subsidy is being pumped in to keep it artificially alive. That is not true. This is a viable, going concern. There is a serious cash flow concern because money seems to have been sucked out. And if we can take care of that over the next two or three months, then the business is enough to sustain itself as long as we can retain the customers and employees.
Karan Thapar: You say that there is a serious cash flow problem. How confident are you that the banks will give you the money to bridge the cash flow?
Kiran Karnik: We have got a bit of a catch there. The banks see this as a viable business proposition but they do not have the documentation because they do not have the balance sheet. We have to find immediately, as in the next few days, ways of getting enough money without enough documentation. That is a huge challenge. The plus point though is that the company has huge fixed assets. It has random buildings, and most banks will be happy to lend against that sort of physical 'touch and feel' asset.
Karan Thapar: In the absence of documents and if you really need the money you need in the next few days, you are asking the banks to trust you?
Kiran Karnik: No. As I said, we have physical assets which are large and expansive.
Karan Thapar: You are prepared to pledge them?
Kiran Karnik: Yes!
Karan Thapar: Are you even ready to mortgage them?
Kiran Karnik: We will have to look into the modalities, but that is possible.
Karan Thapar: Have you actually spoken to one of the banks to get a specific indication of their response or are you speaking from a position of generality?
Kiran Karnik: The discussions are on and I would not want to say more than this at the moment. But discussions are on to making the finances available, including pledging, mortgaging or using as collaterals, the real estate that the company owns.
Karan Thapar: A moment ago, you referred to Satyam as a viable company. Are you so confident that the company can continue in business?
Kiran Karnik: I am absolutely confident. If we can see it through this difficult period of cash flow crisis, the company will not only survive, it can also do well.
Karan Thapar: And as you look at the difficult period, are you confident? Do you see yourself there?
Kiran Karnik: I think it is a combination of optimism and hope. But yes, I do feel that with co-operation from customers and bank, its a very short period that we are looking at, two and a half months. We are looking at a large amount of money in absolute terms, not in terms of the company's strength. We do need that money. If we can get that money upto March end, I am sure we will find the company getting on its feet. I am sure that the customers will get the confidence and so will the employees.
Karan Thapar: This seems a slightly unfair question. You have used the term - if we can get that money for the next two and a half months to bridge us through the crisis, we will survive. So do you have a fifty per cent chance of getting it? Or higher, lower?
Kiran Karnik: I think higher, much higher. I would in fact modify the if to when.
Karan Thapar: So you are confident of that?
Kiran Karnik: I am confident of that.
Karan Thapar: Satyam has suffered a terrible knock, perhaps the most terrible knock to its reputation. How confident are you that you can retain, most (leave aside all) of its customer base?
Kiran Karnik: You know, I have spoken to a dozen of the biggest customers and I get a sense from them based on the work that they are getting that they would like to stay on if (this time I use the word if, advisably), they have confidence that this is going to be a growing concern.
Karan Thapar: Where does that confidence come from? The directors, the banks or who?
Kiran Karnik: At the moment the confidence comes from the financial things because they know the people will stay if there is money to make sure that there are salaries and things are going on. They hear this from the teams that work with them that we are happy to stay and work but we need salaries.
Karan Thapar: But you must have seen extensive reports in the Economic Times and the Hindu that say that several large customers, many of who have been with Satyam for the last ten years and more, who have given a notice of quitting. There is an estimate in the papers that if this happens, you could lose up to 25 per cent of your revenue. Are those reports accurate or are they misleading?
Kiran Karnik: I think most of them are speculative. It is true that customers like any sensible person have a plan B and there are talking of it in a what-if way. But the customers I have spoken to, I would we have a reasonably large customer, in fact two who have given a notice of quitting, But the others are there. And many of them have indicated to me of not leaving and in fact expanding contracts if (and I again say if) they see us beyond this coming period of two weeks, which they realise is a critical period that the company faces.
Karan Thapar: But you said a very important thing. You have had just two customers who have given the notice of leaving.
Kiran Karnik: Two of the large ones that we are dealing with. There are many smaller customers about whom I practically do not even know the state they are in. But among the large ones who account for the bulk of business, you know 50 or 60 or 70 per cent of the business, we have so far had only two leaving till now. Things have started happening, not two weeks but since eight days ago, that is ever since we came on board.
Karan Thapar: Are you in danger of your customers being poached by your rivals?
Kiran Karnik: Yes, very much so. There is a move made by NASSCOM. It has taken a lead and spoken to the industry people. They are all very sensitive and want to help. They say they will not proactively poach employees or customers. But at the end of the day, I am very pragmatic. I know business is business and you can cheat under any other name. You can say that I am not proactively going to someone but if someone is coming to me, there is a real possibility of customers moving to other vendors or vendors speaking to other customers.
Karan Thapar: One of the tests, or perhaps the first test you are going to have to deal with is paying employees the salaries for the month of January. Come the 31st of this month, will you be able to meet the salary bill or not?
Kiran Karnik: That is part of the financial problem that we have. We had one before, just a few days ago in the US as you said, when we were able to pay the salaries and the insurance. We are hopeful that in the next few days we can get the money to pay off the January salaries. I have a strong sense of confidence that we will be able to do it. But that is definitely a milestone which customers, investors, employees are all watching. And we are working hard over the next few days as a Board to make sure that this actually happens.
Karan Thapar: You say that with a strong sense of confidence. Do you put it at somewhere near 70 or 75 per cent?
Kiran Karnik: It is difficult to quantify but yes, I am confident of it being that high.
Karan Thapar: Now, the market is waiting for you to appoint a new management team, what steps are you taking to put in place a CEO and a CFO?
Kiran Karnik: This is important because we need leadership quickly. We have initiated steps to look into this quickly. We have a number of suggestions and names and we have ourselves looked into who we might get. We will in the next few days put into motion a process of finally narrow down and then speak to people and request them, persuade them to come on board as quickly as possible.
Karan Thapar: But as I understand, you are just starting, you are nowhere near completing it. You have not identified the candidate that you would like to have.
Kiran Karnik: We have not even identified the candidates, I would like to say we have been on board for just eight days and the process has just started. We may have to look at interim arrangements and we are looking at those possibilities too.
Karan Thapar: The newspapers report that the board is also looking for buyers for Satyam. Is that how you see the long term future of the company?
Kiran Karnik: You know, again I would be hesitant to make a specific comment but I would say that in general we are keeping all options open. One of the options certainly is looking for people who are interested in acquiring or buying Satyam.
Karan Thapar: One of your colleagues Tarun Das said on Tuesday that you do have offers to buy Satyam, from both Indian and international companies. Is that really the case?
Kiran Karnik: Many people have talked to many of us, mostly informally. Clearly there is interest and as I said, I repeat, there would definitely be interest because it is a company that has done well, it has a marquee list of customers and it has excellent employees and it would most certainly be a buyer's pride.
Karan Thapar: So these are loose, informal conversations and not proper offers?
Kiran Karnik: At this stage we have not gone looking for offers. We'll do that in the next board meeting. We will have some discussions. There will be some informal discussions, but there will also be definite discussions as we move ahead.
Karan Thapar: The company of course faces some 12 lost interest law suits in America and perhaps you could face more. The damage you could incredibly large and you could be stunned at the end of the day. Do you really think you can find buyers in this situation?
Kiran Karnik: That is going to be a challenge. There are of course some very clever legal ways of taking care of this that have been done in the past. So, there are examples of how to do this. There may be buyers who may want to take this on. There may be buyers who want a legal formulation or legal restructuring before they do this. And that is why I said that options are open about how we go about doing this. There is also I want to stress the distinct possibility that the company is revived and takes off on its own with a new management.
Karan Thapar: So you may not even need buyers>
Kiran Karnik: Yes, we may not even need buyers, that is distinctly possible.
Karan Thapar: Mr Karnik, let us broaden the discussion. You have been the president of NASSCOM. What impact will the scandal at Satyam have on the Indian IT industry?
Kiran Karnik: You know, frankly I think none!
Karan Thapar: Literally none?
Kiran Karnik: None.
Karan Thapar: Do you mean that?
Kiran Karnik: I mean that. There have been scams around the world. The Indian IT industry is known for good governance and I do not see one bad apple, however big and large it is, whatever the aberration is, as in any way tainting the entire Indian IT industry.
Karan Thapar: Alright. Satyam happened in the wake of the Mumbai terrorist strikes, in the wake of the international liquidity meltdown and just weeks before a seminal election in India, the outcome of which is not just uncertain, but many people believe could leave India with a fragmented, unstable government. What impact do you think will Satyam therefore have on the investment into India?
Kiran Karnik: The good sign is the way it has been handled so far. This gives investor confidence. Infact, I see this as a very positive thing that the fact that when these rare things that happen all over the world, we can handle, we can take care and we make sure that work continues. I think it will bring greater investor confidence and not less.
Karan Thapar: So, you are saying that it is not Satyam which counts but the speed and efficiency with which it is being handled that will give investors the confidence?
Kiran Karnik: Absolutely.
Karan Thapar: But is it being handled with the sort of efficiency that you talk about? Many people say that there are too many agencies, too many cooks. There was a delay in arresting the Rajus, for 48 hours they were not arrested. After that there is a strange silence from the government that is not reassuring. So is that efficiency there?
Kiran Karnik: That is not the signal I am getting from the outside world, Karan. I think the outside world is taking this as being handled well, quickly and decisively.
Karan Thapar: What about something else? Does Satyam suggest that Indian corporate governance and regulation failed at every level, not just management, not just auditors, but even banks, possibly SEBI's oversight? Perhaps, even the government. Won't that put people off India?
Kiran Karnik: No, I do not think so, because I do not agree that the systems have failed. I agree there were loopholes, but I think the systems are there, the checks and balances are there. If there has been a collusion, if there has been a problem, that would then that would be a problem. But otherwise, the kind of systems that exist, the checks that are there are strong and I think that they are good. We may have to tie up some of them, but overall, we have a strong and robust system in place, both internally within the companies and through SEBI and the government.
Karan Thapar: Does to speak about the things that Satyam suggests, is it that India needs new rules and regulations or is does it suggest that we have enough rules and regulations, we need better enforcement?
Kiran Karnik: We need better enforcement, we need better ethics.
Karan Thapar: Better ethics?
Kiran Karnik: Absolutely!
Karan Thapar: In other words, you are suggesting that people in position in corporate power behave unethically, sometimes?
Kiran Karnik: Absolutely. Some of them do, sometimes. That may be very few people very few times, but yes!
Karan Thapar: Is the reason why we need better enforcement, the point you just made: some people in power behave unethically. Or is it wider issues, that is the relationship between corporate and political India? Or the fact that family run businesses tend to be plural or the fact that the regulators themselves are weak and often inexperienced?
Kiran Karnik: I think our regulators have been doing a great job, particularly in the financial area. We have to look at other dimensions of this, part of it is pervasive corruption in our society. This particular case may not relate directly to that. But I think that the atmosphere of corruption is strong and needs to be tackled very seriously, whether it is in relation to corporate governance or in relation to terrorism.
Karan Thapar: What about family run businesses? Do they have to make a conscious effort to behave along professional corporate lines?
Kiran Karnik: You know, that is necessary, but I do not think that is related to this specific issue. But yes, as a broader issue, I do think that family run businesses do need look into the need to bring in more professionals and for the family to step back a bit.
Karan Thapar: My last question. Let me quote from the Financial Times. It says that in the future, Indian companies will have to go that extra mile to show that they are above board. Would you agree?
Kiran Karnik: No, I don't.
Karan Thapar: You don't?
Kiran Karnik: I think that in the IT world already they (Indian IT industry) are that extra mile ahead.
Karan Thapar: In other words, the Indian corporate sector does not have to sit back and fear Satyam? They do not have to really worry! Satyam can take care of itself, they are not affected?
Kiran Karnik: Yes, they need to try and be better always, but they are not seriously affected. No.
Karan Thapar: Mr Karnik, a pleasure talking to you.
Kiran Karnik: Thank you. Thank you.
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