We in India are justly proud to have once discovered the Zero, which arose, as far as I recall, from a philosophical notion of possible Nothingness (Shunya), though of course there is a long history that came to follow in Indian mathematics.
The Government of India’s Company Law Board (and the pompous honchos they have gone about appointing here and there) may need to be reminded that by any system of mathematics, 51% of Zero still remains, uhmmmm, Zero.
Bankrupt companies get sold for nominal prices like Rs 100 or perhaps $2. But of course it is not impossible a notorious Government contractor or two will pump money in as a backdoor public subsidy aimed at creating a zombie.
Life imitates art or rather Hollywood again as young Kasab, the misguided primary-school dropout Pakistani mass-murdering terrorist caught by Indian police after the Mumbai massacres, becomes a kind of Jason-Bourne/Enemy-of-the-State character who is said to be being targeted now by Pakistan’s terrorist masterminds for not being dead already! There have been all kinds of weird assassinations by and of government agents using poisoned umbrellas and radioactive pills etc in real life, and who is to say that young Kasab is not going to be given a small cyanide capsule along with a letter of farewell from his parents when His Excellency the High Commissioner’s consular agents receive access to him?
Shortly after Kasab’s remorseful confessions (which flowed from his natural gratitude at having survived and having been treated humanely by Mumbai’s police), I said here that if I was the judge trying him, I would send him to an Indian prison for 20 or 30 years (given his 20 or 30 murder victims), but I would add that he should be occasionally, say once a year, permitted to offer namaz at India’s grandest mosques. He could become a model prisoner, possibly a potent weapon against Pakistan’s terrorist masterminds who have ruined his life and now wish him dead.
(Message to Matt Damon, Will Smith and assorted Hollywood cinematic personalities: there is a confessed, remorseful mass-murdering 20-year old Pakistani terrorist in an Indian prison who is being targeted by the very people who sent him on his vile mission.)
In present circumstances, young Kasab needs to seek political asylum in the Indian Republic as his life in his own Pakistan Republic is as good as over for political reasons. He would become the first person ever in history to receive political asylum in a country that he attacked despite being a confessed terrorist mass-murderer. But Mahatma Gandhi would have approved and smiled at the irony of it all! Ahimsa paramo dharmaha in practice.
Satyam may be able to summarily solve the problems caused by its high-level corporate fraud by transforming itself into a “Labour-Managed Firm”.
One of the new Government-appointed board members has stated publicly today that the company has little or no debt. If this is true it would be interesting because not only were the vast cash-assets non-existent, the liabilities-side of the balance-sheet also may be small, which could mean the company was simply far smaller in terms of value than it had made itself out to be. In a bankrupt firm, the remaining assets normally come to belong to the creditors but what if the main creditors happen to be the work-force? If that is in fact the situation in this case, Satyam may be a prime candidate to be transformed into a “Labour-Managed Firm” of the sort discussed by Jaroslav Vanek (The General Theory of Labour Managed Firms and Market Economies, 1970) and James Meade (The theory of the labour-managed firm and profit-sharing, Economic Journal 1972), and surveyed by e.g. Louis Putterman in the New Palgrave Dictionary and by Martin Ricketts in The Economics of Business Enterprise 2003.
As I had briefly mentioned earlier here, the transition could be made by Satyam’s existing technical and other staff being allowed to participate (with their personal savings and claims to future income) in any auction of the “works-in-progress” that constitute the client contracts the company presently has around the world and which constitute its major intangible asset. This may be the single best way to preserve the firm’s value as well as the income-streams of its staff.
The staff would have to make a transition from being employees to becoming self-managers which may not be easy in practice, although in theory the information-technology industry may be well-suited to labour-managed firms given the peculiarly intangible nature of their products. The marginal cost of production of (true) information is typically very high but the marginal cost of dissemination of information is near- zero.
If this happened and a corrupt bankrupt Satyam-I transformed itself into a viable Labour-Managed Satyam-II, the newly appointed board would become redundant even more quickly than it would have done otherwise — though this board may be even less likely to know of Vanek and Meade than to be familiar with modern corporate finance. Time perhaps to hit the textbooks, gentlemen, and burn that midnight candle! Is that something we can expect from some of the key lobbyists of India’s organized business sector?
Postscript 1 : Of course if the asset-side has been fraudulently exaggerated while the liabilities-side has been small, the fraud has been directly perpetrated on equity-holders who held stock that was overvalued by the market as a direct result of the fraud.
Postscript 2: I find (grotesquely) amusing the new found emphasis on “Independent Directors” in view of the obvious fraud in the advertised biographies of some rather notorious Independent Directors in the IT-business and other sectors of corporate India and the higher bureaucracy! There seems in fact to have been a wild hyperinflation of reputations generally, especially in Delhi, Mumbai, Bangalore, Pune and other such hip with-it places — people claiming to have earned PhDs when they have none, people calling themselves “Dr” on the basis of some defunct Soviet management institute having once paid them off, people claiming to be Harvard postgraduates on the basis of some outsourced executive development programme of a few weeks’ duration, people claiming academic publications and academic affiliations which are non-existent, etc etc. All that for another day! (But any former students of mine who may find the above pertinent to themselves may please know their old prof is cross with them! Tsk tsk!) (And then there was the one of the senior government economic planner who told his astrologer on the telephone his correct date of birth but had lied to the Government of India by a couple of years…. clearly he did not want to get his own Ptolomaic horoscope wrong even if his plans for India in the Copernican world went awry!)
The old Satyam, call it Satyam-I, is dead. It was a “Limited Liability” company which means its ordinary shareholders can walk away with zero value and not be personally liable to pay the creditors and preferred shareholders (who are and ought to be considered its new owners). “Satyam” as a brand name, a logo and a trademark might be salvageable after a reconstitution in due course.
Besides physical plant, fixed assets and other similar tangible things, the main assets of Satyam-I consist of “works-in-progress”, namely all the existing ongoing contracts around the world. What should happen is that all these contracts — while maintaining client confidentiality (e.g. by using generic terminology) — should be auctioned off to other similar IT companies, big or small.
Satyam-I’s existing technical staff associated with these ongoing contracts can go with them to the new buyers (with the new buyers negotiating individual wage contracts).
Alternatively, existing staff can offer to participate too in such auctions themselves as buyers and use their personal savings to buy off old Satyam contracts.
All the proceeds from such auctions should go to a trust fund that Satyam-I’s liquidator should use to pay off the creditors, or at least come to an agreement with creditors about a future structure of payments. If assets have been siphoned off or misused or embezzled by the previous owners and management, then these need to be pursued and located and retrieved to the extent possible. (Some reports say there has been some transmutation into real estate and some transfers abroad).
If all this happened, there might be a Satyam-II or New Satyam some years down the road which can use the same brand-name and logo and trademark comfortably again.
But not much of this seems likely to happen. The best thing this Minister could have done was to have turned in his papers saying that the problem was beyond his intellectual capacity as he had never done a course in Corporate Finance. Instead he has appointed three persons whom he considers “eminent”. One has been involved with the software lobby and another with the real estate business (and associated with the idea of using India’s forex reserves for “infrastructure”, not realizing forex reserves are hardly like tax revenues). As things stand presently, this Board, themselves unfamiliar with standard modern textbook Corporate Finance, and far too close to the previous Board, is unlikely to take the right decisions because such decisions will require more intellectual and moral effort than may be forthcoming.
Instead they will probably lobby hard for a vast public subsidy to be injected into the financial corpse that is Satyam-I, so that a zombie company can attempt to be resurrected (we in India have many such zombies walking around in the organised business sector).
The PM who is also now his own Finance Minister has, in his long career as a top economic bureaucrat and a politician, never met a public subsidy he did not like or approve of. So watch out for a billion or two dollars of public money in India injected into the corpse, adding to India’s vast and growing public debt. Parliament will hardly disapprove when the PM and his acolytes soon announce it in unison.
Ask yourself then how such a vast public subsidy can possibly benefit ordinary Indian people who live in, say, Imphal, Agartala, Ajmer, Lalitpur or Balasore, or even Guntur and Telengana. The answer is that it won’t — it will hurt them and their succeeding generations for decades. Such has been the pattern of economic-policy making in India whether under this political party or that; it is organised lobbies, especially organized business as represented on this new Board, that call the shots. The relatively few people who can convert Indian rupees into forex do so with impunity while the vast unknowing masses continue to use a currency damaged by waste, fraud and abuse.
Jail terms for the Rajus and their friends? Hmmmm. Perhaps the few weeks or months that are due to wealthy criminals.
Somebody in Delhi yesterday apparently told the visiting Cambridge Vice Chancellor that Kolkata “does not count”; to the contrary, it is New Delhi that remains entirely bankrupt intellectually and morally, and that bankruptcy will continue to be revealed in coping with Satyam’s bankruptcy.
Postcript: The above was written and published here before the new Board’s press-meet. Nothing the Board said has given reason to alter the opinion above. Rather, the Board seemed exceptionally dull in failing to see that once the new accountants have done their work, it seems likely if not inevitable that Satyam’s balance-sheet calls for “winding up” in the Indian term, i.e. declaring bankruptcy. The news that the Government of Inda would also likely subsidise Satyam with public resources also confirms the dismal state of economic policy-making described above. SR., 1830 hrs, Jan 12.