Thursday, December 18, 2008

Satyam Computers and Corporate Governance-N'ere The Twain Shall Meet

Update 9 p.m (EST): Few of Satyam's strategic clients are looking to re-evaluate their contracts with Satyam as "they are no longer satisfied with the intent and focus of the company."

India has been in the news a lot lately....unfortunately for all the wrong is one more...

Satyam Computers, an Indian computer services firm with ADR's listed on the NYSE, is facing a a severe governance fiasco. Satyam recently announced its decision to buy controlling stakes in two infrastructure companies in which the chairman and promoter of Satyam had sizable stakes. Founders of the Indian company Satyam held as much as 30 to 35% in the infrastructure companies - Maytas Infra inc and Maytas properties. According to analysts, the deal was not only overpriced (at $1.6 billion) but was also questionable on the grounds that the businesses (computer services and infrastructure) were not complementary by any stretch of imagination.

Satyam faced its shareholders' ire and saw its ADR price drop 55 % to a 52 week low of $5.70.
You can see the price fluctuation in the last 5 days for Satyam especially a sharp dip to the $5 levels.

Of course, seeing the market reaction, Satyam has abandoned its acquisition plans...but not without some beating to its reputation. Ironically, the company had recently been awarded the coveted Golden Peacock Global Award for Excellence in Corporate Governance for 2008. If this is the kind of governance measures that a "top governance" company practices what about the others? I shudder to think......
Satyam now faces an inquiry from India's Ministry of Corporate Affairs into the board decisions behind this acquisiton plan. The Ministry of Corporate Affairs has become more stringent on Indian companies, with a recent proposal that would require all companies, whether public or private, to have atleast a third of their directors to be independent.

Satyam has had a bad year October of this year, Satyam was banned from carrying out an offshore work for the World Bank after news one or more Satyam contractors were accused of installing a spy software at the World Bank workstations. Satyam had been the vendor of choice at the World Bank for a long time.

The Satyam governance debacle could possible be a culture issue specific to India and maybe other South Asian countries. A sizable number of large multinational corporations in India have started as family owned businesses. Even after these companies are made public, they continue to be governed at the whims and fancies of the promoter family. Personal relationships drive many business agreements....

A case in point is the ongoing battle between the Ambani brothers who run the Reliance group of companies. According to Forbes Magazine, both the Ambani brothers figure in the top 10 richest men in the world. Rich they maybe, but unfortunately, as far as corporate governance goes, they lag far behind. Their ongoing personal feud scuttled Reliance Communications' potential merger with South African MTN Communications.

Lack of governance measures maybe the norm in India but there are some notable exceptions too...on top of the list would be Infosys Technologies or the ICICI Bank ....maybe a few others. There aren't too many of them but hopefully Satyam's governance fiasco will prove a lesson to family owned businesses.

Keep checking back for updates on the Satyam story...

Monday, December 15, 2008

Mad(off) Money !!

It's almost as if the plague hit Wall Street...first the credit crisis ( which of course was preceded by the subprime mortgage mess and followed by the current recession)and along its heels comes a ponzi scheme the size of Godzilla!

Much has been and will be discussed about Bernard L.Madoff and his mad ponzi scheme.
By some accounts,the $50 billion ponzi scheme created by Madoff can be labeled as one of the costliest financial frauds ever created by an individual.

As details slowly trickle in on the operations behind Madoff's ponzi scheme, i thought it would be worthwhile to go over some 'Do's and Don'ts' for avoiding a Ponzi Scheme.
  • According to this one which is a little more specific, investors should be on red alert when an investment manager asks for checks to be made out to him or his company.
  • This is what the FBI has to say about ponzi schemes (scroll down on the FBI page till you reach 'ponzi schemes')- exercise due diligence and make sure you fully understand the investment before you invest the money.
  • Another nugget of advice from the Asset Protection Blog- Obtain independent advice and turn your back on "guaranteed" profits if they seem unrealistic. And of course, the common refrain that should be applied in everything: If it seems too good to be true—it probably isn't true.
Oh and by the way, in case you were wondering where the "Ponzi" in Ponzi scheme came from, here is the lowdown- (courtesy Wikipedia).

" The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted later investors' money to support payments to earlier investors and Ponzi's personal wealth."

Wednesday, December 10, 2008

Yahoo's 'Extreme Makeover'- Change in its Contentious Severance Plan

One of the primary criticism leveled against Yahoo, that had many shareholders up in arms during the Microsoft debacle was the fact that the company had a rock solid severance package in place to deter any potential takeover.

According to Yahoo's old severance plan, if an eligible employee’s employment with the Company is terminated by the Company without “cause” or by the employee for “good reason” within two years after a change in control of the Company, the employee would be eligible to receive severance benefits.

The benefits under the old plan related to medical, dental coverage, accelerated vesting of stock options and RSU’s, continuation of base salary for a limited period of time (maximum period of 24 months) etc.

After getting sued by angry investors over the protective nature of its severance plan, Yahoo has finally been forced to make changes to its current severance plan. In an 8-K filing yesterday,
Yahoo has sought to make some fundamental changes to its severance plans.

At the basic level, it takes away the Board’s ability to declare that a change of control event has occurred. Secondly, a Yahoo employee needs to show a material diminution in his/her salary or duties to claim severance benefits. Thirdly, a change in the Board composition will not constitute a change of control event.

A detailed reading of Yahoo's amended severance plan, revealed a very key statement that is hidden deep in Appendix B. It directly addresses the potential takeover of the company’s search business. In defining a Change of Control, the document states that , a sale of the Company’s search business shall not constitute a Change in Control ……. What this statement essentially means is that in in case of a takeover of Yahoo’s search business, severance benefits related to a change in control situation will not automatically kick in.
This is a brand new statement inserted into the severance plan, seemingly to smooth the way for Microsoft to takeover all of Yahoo’s search business.

In effect, there seems to be an almost inevitable quality to the likelihood of a possible takeover of Yahoo’s search business. What do you think?

Saturday, December 6, 2008

Note to Mr.CEO- "Do Unto Others As You Would Have Them Do Unto You"

The big economy news this past week was the total number of job losses in the economy- 1.9 million jobs lost year to date out of which 533,000 jobs were lost in November alone. (See graph below)

To make matters worse, there have been reports of accelerated layoffs at companies in preparation for a bleak 2009.

The most obvious objective for such aggressive job cuts is cost reduction and a quick return to
profitability. But why are companies not looking at senior management job cuts or paycuts as a show of solidarity? The Europeans seem to have beaten the US to it. (UBS, Deutsche Bank and Barclays PLC have either pulled bonuses for top executives, or executives there have voluntarily forfeited them.)

At invESGuard, we pulled up a list of companies that have announced layoffs and analyzed any CEO paycut or salary review at the same company. Here's what we found:

1. Out of the 24 companies on our list, CEO's of only 3 out 24 companies (12.5%) announced a paycut. This does not include Citigroup CEO who has yet to announce the full extent of his paycut, or the Detroit Three who have outlined a conditional $1 salary for 2009 (contingent on being granted a Government loan).

2. The CEO of Hartford financial was given a $3.25 million bonus as part of a non equity incentive plan compensation.

3.Legg Mason CEO compensation includes a $1.9 million bonus.

4. Boeing CEO's base salary actually increased by $50,000.

Morgan Stanley CEO is one of the 3 out of 24 CEO's who has received a lower compensation during 2007 given the dismal company performance. However, a close look at the salaries of senior management at Morgan Stanley, reveals a different picture :
Mr.Scully (Co-President) made over $15 million
Former Chief Financial Officer, Mr. Sidwell was granted $14.61 million (including a cash bonus of $12.7 million owing to he retirement).
The new Chief Financial Officer, Mr.Kellheler made $21 million including a bonus of $6.9 million. Mr.Nides (Chief Admin Officer) made $6.33 million.
The total bonus paid to the 5 senior executives for 2007 totaled a whopping $35 million.
So much for the CEO pay cut!

One question that repeatedly comes to mind is- Do they even understand the true meaning of a bonus payout and the way that this is supposed to work?

The complete disregard with which CEO's refuse to even consider a paycut while the middle and lower management not just face paycuts but in most cases lose jobs, is completely ridiculous.

Even the Big Three Auto Industry Chiefs who have been before the Congress begging bowl in hand, have announced only conditional paycuts. That is, in return for the loans from the government, will they will accept a $1 salary for 2009.

Rep.Kanjorski rightly pointed out during the hearing, 'Instead of $1 salary for 2009, you should not be getting a greater salary that any of the successful Japanese auto executives as long as you are indebted to the United States. Until that time you should not be getting more than 20 times the salary of successful Japanese executives.'
Honestly, without the government's help, at least 2 of these auto companies would be broke and then the possibility of even earning that $1 would not exist. How ironical that no sweeping management concessions have been announced by GM when according to one news report, GM is not even replacing the batteries in its wall clocks!

Depressing as this news maybe, there have been a few bright spots:

1.In July of this year, the CEO of Midwest Air Group Inc. says he’s taking a 40% pay cut as part of the company’s restructuring, a plan that includes demands for even deeper pay cuts from union pilots and flight attendants.
2. The new AIG CEO accept ed a 1$ salary in return for government help.
3.Ky based Ashland's CEO has accepted a paycut for 2008.

If you know of any other companies that have made positive changes to Senior management compensation, drop me a line at

Friday, December 5, 2008

Auto Hearing Live Blogging- Detroit Three Hearing December 5.

9.48 a.m.
Mr. Michael:

"Doubt that financial institutions would want to lend (to automotive industry)"
We have to worry about oversight and accountability"

Mr. Waters
Concerned about plan submitted, how will it affect jobs?
What impact will the reduction of dealerships will have on jobs in the regions where these dealers are present.

Mr. King
If we knew where the money is going, there would be reasonable assurance that the plan might just work.
What are the chances that this plan will work?

Mr. Watt
Talked to various dealers and feels there is a serious problem for example that one man did not sell a single car in October of this year.

Mr. Manzullo
The plan should address how will the Detroit Three will try to increase customer demand for cars. None of the plans address this critical issue.

Mr. Biggert
"We don't know whether granting your request, means you will not be back here in a few months time."

10.02 a.m.
Mr. Sherman
"We need to put tough standards in the bill." In order to minimize the number of executives from other industries to come to the Congress for money.
"...needs to provide the assurance that you cannot close plants without approval from the" (administration)

Mr. Scott
The Senator has raised an issue that was addressed many times yesterday which is the potential merger of GM and Chrysler.
According to Senator Scott, "Look carefully at merging your (GM+ Chrysler) operations."

10.11 a.m.
Mrs. Brown-Waite
Crisis comes from lack of foresight, governance....."GM and Chrysler ignored their liquidity problems..."

Mr. Green
Can we afford to put out of 2 million people out of work?"

Mr. McCotter (michigan)

" You have put up a very viable restructuring plan"

10.21 a.m.
Opening statements by UAW President (Mr. Gettelfinger)- Basically Mr. Gettelfinger's opening statement is no different from what he presented yesterday. Ditto for Mr.Ford Mulally and Mr. GM Wagoner.

10.42 a.m.
Ramifications in dollar terms on the failure of dealerships.
Nardelli- "240 dealer gone bankrupt since last Saturday"

Center for Automotive Research: 3 million people could lose their jobs and out of this 240000 relate to the Big Three.
Mr.Wagoner- "We have been dealing with a record number of dealer restructuring"

Senators asking more questions specifically related to the plan. Questions around what happens if the plan does not work, can failure of the suppliers bring down the whole industry including suppliers etc.

10.53 a.m.
Mr. Wilson

We should have wording that covers using funds (if given) to prop up suppliers in the auto bailout plan.

Mr.Gettelfinger- 'Men and women of the UAW should be given recognition for the sacrifices made'.

Wagoner- Short Term Financing and Oversight Board as a mechanism to force all the parties to negotiate.

11 a.m.
Mr. Klein

The Big Three should work as a Joint Enterprise,in the technology sector.They should take some money out of what they might receive from Congress and collaborate together on technology, best concepts for future development and commercialization.

Mr Nardelli agrees
Wagoner- Yes
lady nodding vigorously in the background of Mr.Wagoner.
Mr.Mulally- Yes doing it with suppliers.

Rep Hodes to Detroit Three, "Two weeks back you were simply in another universe"
What amount of money do you put on the need of the credit companies?
Chrysler- 4 to 5 billion
Ford- $12 billion (accessed already $4 billion out $16 billion from short term asset backed federal reserve loan)
GM- no exact amount

What percentage of money lent to these auto credit companies should go towards auto loans versus other purposes?-
Unadressed question.

GM- Overseas business have been profitable.
Mr.Wagoner reiterates, 'We have paid $103 billion in the last 15 years in pension and medical insurance payouts.'

Why would auto industry want to start commercial banks? "Your job is to make cars" .Mr Manzullo feels that financing cars should be left to community banks.
Manzullo to Ford- Are we going to lose more industries and jobs because Ford manufactures and will continue to manufacture tool and dye equipment in China?
Ford- bet (after a great deal of evasiveness)

11.34 a.m.
Mr. Hensarling

"If we say yes to you then who do we say no to?"
'Should it be only the small businesses that supply to the Auto Industry that should be helped?'
According to a CBS resport, $50 million paid by
the Detroit Three on lobbying efforts. How much of this money has gone into lobbying to receive money under this bailout hearing.

One of the representatives from California had a very relevant question, 'Can you meet fuel economy standards by 2015?'
Great question but none of the participants were allowed to answer because of an administrative issue with time alloted to the Representative who asked the question.
Honestly, if this is the way the Congress takes its decisions, then how can we expect any rational decision?

Rep Kanjorski
Representative to Detroit Three.

"Instead of $1 a year salary, you should not be getting a greater salary that any of the successful Japanese auto executives as long as you are indebted to the United States. Until that time you should not be getting more than 20 times the salary of successful Japanese executives."

This statement by Rep Kanjorski is quite ironical if you look at Japanese companies and their struggle with bringing their CEO pay at par with their global counterparts.(

Rep Maloney (New York)
Will you cease all legal and lobbying efforts to block California greenhouse standards for cars that have been adopted in New York and many other states?

Why can't you meet standards of fuel efficiency of other countries?
That may be the only way to export more cars?

Thursday, December 4, 2008

Live Blogging- Automobile Industry Senate Hearing Panel 2.

We are live blogging the Dec 5th auto hearing here .

Refer to the post below for Panel 1 that included questions posed by the Senate to the Comptroller General of Government Accoutability Office (GAO) on the potential bailout of the Auto Industry.

Senator Dodd introducing the second Panel.

Panel 2 consisting of :

1. President of the UAW
2. Chairman CEO of Chrysler
3. CEO-General Motors
4. CEO-Ford
5. President Automotive Retailers Association
6. President COO-Johnson Controls Inc
7 Chief Economist and founder of Moody'

Mr Wagoner Chairman & CEO General Motors:
Ironically, 2008 is GM's centennial year. According to Mr Wagoner, the restructuring plan almost creates a new blueprint for the revival of the company. Believes the plan is achievable. He requests $2 billion in short term loans and $6bil in line of credit. Repayment will begin as early as 2011 and complete by 2020. He wants a federal Oversight Board.

President UAW
opening statement

believes GM and
Chrysler could run out of funds. Wants funds to be given to GM, Chrysler and Ford. With labor cost renegotiations, any differences in such costs as compared to international labor costs would be negligible.
Chapter 11 bankruptcy "simply not viable" neither is a pre-packaged bankruptcy.

CEO Ford

Ford has a "laser focus" on the Blue Oval. Reduced investment in Mazda. Matching production to customer demand. Higher focus on smaller cars, fuel efficiency. "We are really focused."
Wants $9 billion in bridge financing may not use it, use this money for aggressive transformation.

Mr Nardelli
CEO Chairman Chrysler
requests $7 billion loan for continue restructuring, manufacturing fuel efficient trucks and cars, begin repayment in 2012. Wants immediate assistance from TARP.

Mr. Fleming
President Automotive Retailers Association
The Auto Industry failure will not just be a Ripple effect but a "Tsunami" (that word again!)
"Consider the human side"

Johnson Controls-President and COO
Largest supplier of automotive batteries to the auto manufacturers.
Vast majority of minority and women owned suppliers can potentially fail .
Over 35% of their suppliers are financially distressed on the verge of bankruptcy.

Chief Economist of Moody's

Loans requested by Auto Companies is insufficient. They will come back for more.


Senator Dodd
1. Would you be willing to accept similar arrangement/model that had been used during Chrysler's 1979 financing.- Yes by all.
2. Cerebrus purchased Chrysler for $7 billion which is exactly the figure that Chrysler is asking the Congress for. What does that indicate?-Nardelli thinks there is no connection.
3. In view of the potential ramping up of mass transit, the big Three believe they can use their current brands to take advantage of this ramp up.
4. Mr Dodd wonders if management continuation at GM is the right way to go- Mr.Wagoner responds "I serve at the pleasure of the board"

Senator Shelby
1. Will the big Three provide full proforma financial statements for the next three years?-Yes from all.

Senator Menendez
1. Do the big Three refute the claim that they will be back for more money soon?
-GM, Ford believe their assumptions are conservative so indirectly they don't believe they will be back.

1.27 p.m.
Senator Crapo:
Congress might be able to provide the Oversight Board with the authority to impose restructuring conditions on all stakeholders.

Big Three
GM needs $4 billion immediately to tide matters over till end January 2009.
Ford just needs approval for funding if they should need it going forward.
Chrysler needs $4billion out of $7billion immediately.

"We want to see the conditions before we give you the money"
Big Three has no leverage, not even threatening to go bankrupt will work. As Mr. Crapo put it, it is like saying "I will cut my nose to spite my face"


The President of the UAW is pushing for protecting the domestic industry versus promoting foreign competition.
Senator Schumer asks for an oral committment from all participants that they will abide by any arrangement covenants and make necessary sacrifices to make things work.

1.55 p.m.
Senator Corker to Chrysler " can date somebody and hopefully get married soon before you run out of money".
Chrysler Board member (representing the single major investor in Chrysler) to Senator Corker "there is no way that we are willing to make additional investments in the Auto Industry."

2.01 p.m.
Senator Corker, "Less public money (will be used) if the two of you (GM + Chrysler) consolidated"
Q to Mr.Wagoner "Why did you drop the plans to consolidate with Chrysler?"
Mr Wagoner blames liquidity issues for dropping the plan to merge with Chrysler.
Senator Corker- Would the UAW convert obligations into equity in GM?
UAW President- Cannot answer without "expert advice" (Lazard helping UAW.)

2.16 p.m
Senator Casey to Detroit Three- would you be willing to make monthly reporting and making government assistance as the most senior debt?
Yes to the first one
Maybe to the second one(after discussions with current secured creditors)
Senator Tester- Will you be back for more?
Detroit Three- Chrysler- we will get through 2009
Ford- We might be asking for the bridge loan.
GM- We might have to cut costs or require more funding

Big commotion!! Protest, Shouting

Senator Tester- Needs assurance that no dollars given would be used for mergers either domestic or international.

Senator Bennett,
"everything i have seen...a merger between Chrysler and GM is a good thing"

Mr Wagoner, "We would be willing to look at it (GM+ Chrysler)" (after talking with UAW)

3.20 p.m.
Senator Corker- "We are really here because of GM."
Senator Corker received an email from Senator Biden who runs the 136 financing plan, their applications have not been rejected but have been sent back for more information.
Senator Corker- "If we put money in GM,"....bondholders would be unwilling to take a haircut. This is a potential problem. They would want more now that GM has money.

Senator Corker to GM ,between a choice of accepting an arrangement from the Government with stipulations to be completed by Mar 31 or filing Chapter 11 bankruptcy, what would GM choose?
GM- Accept financing from government even if it has restrictive stipulations.

3.40 p.m.
Senator Dodd- "Inaction is unacceptable but we are not just going to write a check either". "We are looking at a death sentence."
Sit down over the next 24-48 hours and decide what to do next.

Committee adjourned at 3.42 p.m.

Live Blogging- Automobile Industry Senate Hearing Panel 1.

We are live blogging the Dec 5th auto hearing here .

We are live blogging panel 2 (Detroit 3 on the witness stand) right now!!

Invesguard will bring you live updates from the Senate Hearing as it happens...
Keep checking back for frequent updates..

The hearing has just started... Senator Dodd thanking outgoing senators....

Senator Dodd's opening statements:
According to the Senator, he asked Mr Bernancke if there was anything preventing the Fed from providing financing to the automobile industry. The treasury and Fed representatives were invited to the hearing but declined. He believes that failure of the Auto Industry would have ramifications far beyond manufacturing and pensions" and would "worsen the crisis".
Most of his opening statement was spent on explaining the ramifications of the failure of th auto industry.
Bottomline, he supports bankrolling the auto industry. He believes that conditions levied on Auto Industry companies for getting financing should also be levied on companies from the Financial Industry who have participated in TARP.

Senator Shelby opening statements:
He intends to oppose the bailout of the Auto Industry...
The "price tag" for the bailout increased from $25 billion to $34 billion 2 weeks. What changed?

First Witness:
Gene Dodaro
Acting Comptroller General of Government Accountability Office (GAO)

Before financing is provided, there is a need to understand if auto industry crisis is national economic crisis, if there is an exit strategy, companies are willing to make concessions , the federal government must be put in a first lien holder position, there should be controls over management, clear and consistent federal controls and monitoring over disbursement and use of funds.
There should be a rigorous board to oversee the administration of monies. This board has to be established if the decision is made to go forward with financing.
Financing could be provided through short term and long term loans in view of the urgency of the crisis.
He believes that TARP legislation is broad enough to provide such financing. But Board oversight should be included because current TARP legislation does not include critical management oversight.
UPDATE: Mr. Dodaro insists that the Congress should receive collateral for the loan indicating that he may not be trusting the assumptions on which the Auto Industry has based its potential repayment schedule.

Senator Bennett

Suggests providing financing to financial companies to provide funds to Auto companies. Such financing could be through equity participation by financial institutions in such auto companies. In such a way, financial companies will ensure the success of the auto companies and provide oversight of the disbursement of the funds as well.

Senator Schumer

Does not trust the Auto Industry enough to give them the money. Needs greater oversight and cooperation from various stakeholders for the Auto Industry bailout work.

Gary Kepplinger
General Counsel to the GAO

He is providing inputs from the Chrysler government financing (from a few years back) to provide similar controlling tools here.

Senator Brown

Points out that most of these questions surrounding accountability and transparency were never posed to banks that participated in TARP. I guess the Congress is a quick learner :-) Better late than never!!

Wednesday, December 3, 2008

List of Banks Participating in TARP- Refer to the sidebar of this blog for the latest list.

as of November 25th 2008.
Source: The Wall Street Journal
You will find the latest list under the second to last item of "My Blog List" on the sidebar of this blog.