Satyam Computers Saga – Ramalinga Raju to step down?

Posted on Dec 29, 2008

With four independent board members resigning, the Satyam board may not be in a position to take any major decision during its January.

Independent directors Mangalam Srinivasan, Vinod Dham, M Rammohan Rao and Krishan G Palepu have resigned from the board. Therefore, the number of independent directors on the board has declined below the requirements under the listing agreements.

As four independent board members of the total nine members have resigned, the source said that the board should meet to appoint independent members first and only after that it should take other decisions. However, in case of some urgent matters, he said, the company can seek exemption from stock exchanges.

According to the listing agreement of stock exchanges, if a company has an executive chairman, then at least half the members on the company’s board should be independent. In Satyam’s case, Ramalinga Raju is the chairman of the board. DCA is looking into the development closely but has not acted in the matter so far. It seems they are hoping that the issues would be resolved at the board level, as per law.

Corporate governance issues, like the maintenance of the adequate number of independent directors on the board, is being monitored by the stock exchanges and regulator Securities and Exchange Board of India (Sebi) as well.

In another news it seems Rajus have pledged their shares at a whopping Rs. 800 per share at a time when markets were going high. They invested the money out of this in Real estate. Now the same shares are trading at 100-140 – the lenders are giving them bad time. And this was the reason of the events which have happened recently regarding Maytas merger. The lending institutions are supposed to liquidate the pledged shares.

The source also said that the present board, after the exit of the independent members, should not decide on the issues which would affect shareholders of the company financially. In the next meeting, the board is also likely to discuss issues arising from dilution of promoter stake in the company.

However, the dilution of Raju’s stake in the company will not affect his position till a majority of the shareholders in the company does not decide to replace him. Shareholders having 10% of the voting rights can move a resolution to challenge his position in the company. In that situation, Raju will have to face the general body of shareholders, where he can defend his position as chairman with the support of majority votes.

Alternatively, he can be voted out in the board itself if the majority of directors decide so. But, as most of the directors are appointed by the chairman, such a situation normally does not arise in India.

Tags: Business, ramalinga raju, satyam computers