World Bank Bans Satyam Computer Services for Eight Years Over Data Theft and Bribery
The World Bank confirmed on Tuesday that it has debarred Satyam Computer Services from conducting business with the institution for eight years, effective September 2008. This action follows allegations of data theft and bribery of World Bank staff.
Lack of Transparency within Satyam's Board
Interestingly, it appears that Satyam's independent directors might have been kept in the dark regarding these serious accusations. Two independent directors stated that the Satyam management merely informed the board about the termination of their contract with the World Bank, omitting the crucial detail of the eight-year ban. The World Bank represented a significant client for Satyam, India’s fourth-largest software exporter, with a contract valued at $100 million annually.
"The World Bank had never complained or informed us… Satyam’s contract with the World Bank had come up for discussions in an earlier board meeting. We were told that as a matter of policy, the World Bank does not renew contracts with the same vendor for more than five years," explained TR Prasad, an independent director on the Satyam Board. This statement was corroborated by another independent board member, VS Raju.
Sudip Mazumder, spokesperson for the World Bank, confirmed the ban, stating, “Yes, we have banned Satyam from doing business with us”. He further corroborated a Fox News report, which revealed the eight-year ban—the harshest penalty imposed on any company since 2004.
In October 2008, Ram Mynampati, Satyam's president of commercial and healthcare business and a board member, similarly attributed the contract’s non-renewal to a purported World Bank policy. Attempts to contact other directors, Vinod Dham and Krishna Palepu, for comment proved unsuccessful at the time of writing.
Satyam's Role and Subsequent Share Plunge
Since 2003, Satyam had been responsible for developing and maintaining all software for the World Bank globally, encompassing backend office systems. Following the news of the ban and subsequently denied rumors of Chairman B Ramalinga Raju's resignation, Satyam’s shares plummeted by as much as fourteen percent, closing at Rs 140.40 on Tuesday. “I have not received any message or intimation from the promoter,” added independent director TR Prasad, regarding the resignation rumors.
World Bank's Internal Investigation and Satyam's Continued Involvement
According to Fox News, in 2005, the World Bank's Chief Information Officer, Mohamed Muhsin, was dismissed following allegations of improperly acquiring preferential stock options from Satyam while simultaneously awarding substantial contracts to the firm. After an internal investigation, Muhsin received a permanent ban from the World Bank in January 2007. However, Satyam maintained control of the Bank’s information network until early October 2008, as reported by Fox News.
The Maytas Acquisition Controversy and Ongoing Investigations
This latest revelation from the World Bank adds further fuel to the fire for Satyam, already engulfed in controversy surrounding its failed attempt to acquire two companies connected to its promoter, B Ramalinga Raju. Mr. Raju, who holds an 8.5% stake in Satyam, faced significant shareholder backlash the previous week after announcing the $1.6 billion acquisition plan for Maytas Infra and Maytas Properties. Although initially endorsed by the board, the deal was swiftly withdrawn within hours. The company, however, has remained silent on critical questions surrounding the valuation of the real estate firm.
The registrar of companies in Andhra Pradesh has launched an investigation into the proposed Maytas acquisition. Meanwhile, a company official, speaking on condition of anonymity, confirmed that Satyam has not received any communication from the Securities and Exchange Board of India (SEBI) or the U.S. Securities and Exchange Commission (SEC). Key institutional investors, including the Life Insurance Corporation's investment committee, Aberdeen, and Reliance Mutual Fund, are demanding clarification from Satyam's promoters regarding the aborted Maytas deal. These investors hold a substantial stake—almost sixty percent—in the company.