VZCZCXRO0416
PP RUEHAST RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHBI #0346/01 2371037
ZNR UUUUU ZZH
P 251037Z AUG 09
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 7411
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBI/AMCONSUL MUMBAI PRIORITY 2639
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 8639
RUEHCG/AMCONSUL CHENNAI PRIORITY 2096
RUEHCI/AMCONSUL KOLKATA PRIORITY 1884
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 MUMBAI 000346 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV SOCI IN
SUBJECT: MINISTER FOR CORPORATE AND MINORITY AFFAIRS PROMOTES 
CORPORATE GOVERNANCE AND AFFIRMATIVE ACTION; MAHINDRA CONTINUES TO 
DIGEST" SATYAM 
 
MUMBAI 00000346  001.2 OF 003 
 
 
¶1.   (SBU)  Summary:  In a recent talk in Mumbai, Salman 
Khurshid, Union Minister of State for Corporate Affairs and 
Minority Affairs, promised a "hands off" attitude towards the 
state's role in corporate governance.  He praised the effective 
handling of the Satyam scandal, but called for further 
government efforts on establishing auditing and corporate social 
responsibility policies.  In his "Minority Affairs" role, 
Khurshid renewed the call for reservations in the private sector 
for disadvantaged groups, a stance which the corporate world has 
consistently opposed.  In a separate conversation, the new 
owners of Satyam, Mahindra & Mahindra, expressed confidence in 
their turn-around of the company, but acknowledged that 
intellectual property right disputes and class action suits in 
the U.S. could pose a serious financial risk.  End Summary. 
 
 
 
Corporate Affairs Minister Promises "Light Touch" 
 
--------------------------------------------- 
 
 
 
¶2.   (U) ConGenOff attended an address by Salman Khurshid, the 
Union Minster of State for Corporate Affairs and Minority 
Affairs.  This talk, sponsored by the All-India Industries 
Association of India, was part of Khurshid's first trip out of 
New Delhi since taking office late May.  In his presentation, 
Khurshid laid out his "hands off" approach towards corporations, 
stating that the government should not micromanage corporations 
and that shareholders, not the government, should determine 
basic elements of corporate governance and reporting.  Khurshid 
reminded the audience that their primary investor and customer 
is the "aam admi," or common man, and that government's 
challenge is to demystify the "corporation" for him.  He agreed 
with his predecessor's decision to change the ministry's name 
from the Ministry of Companies to the Ministry of Corporate 
Affairs, believing that "company" has a narrow legalistic 
definition, whereas "corporate" is broader and includes issues 
such as management and social responsibility. 
 
 
 
¶3. (U) In addressing the Satyam crisis, where the Ministry of 
Corporate Affairs intervened to appoint a management board to 
control, restructure, and sell the company after its owners 
admitted to a multi-billion dollar fraud, Khurshid claimed that 
the company's near-collapse was a remarkable opportunity snapped 
from the jaws of crisis.  He favorably compared the Indian 
government's approach to the crisis, where talented business 
leaders were sent in to resurrect the company, to the U.S. 
government's large financial bailouts for banks.  He suggested 
that the Indian government will follow this model in the future 
for failing companies, if necessary.  Noting that current 
regulations allow for an individual to serve as a director on up 
to 15 corporate boards, Khurshid asserted that only a "Super 
CEO" would be able to provide the needed oversight to execute 
their responsibilities diligently.  (Note:  The number of board 
memberships allowed has recently been reduced from 20 to 15, and 
many, like Khurshid, argue it should be reduced further still. 
End Note.)  Khurshid also stated that regularly changing a 
corporation's auditors - for instance, every three years - could 
promote greater corporate responsibility and avoid situations 
like Satyam in the future. 
 
¶4.  (U) Swapping hats to his "Minority Affairs" role, Khurshid 
extolled "affirmative action" by corporations for scheduled and 
backward castes.  (Note:  "Scheduled castes" is the official 
term for untouchables, or dalits.  End Note.)  Khurshid said he 
would like to see "affirmative action" expanded to not only 
include lower castes, but also other disadvantaged groups such 
as women, the poor, and the handicapped.  (Comment:  This 
directly echoes statements made by Prime Minister Singh in his 
2007 "Ten Point Social Charter," in which he stated that 
"industry must be proactive in offering employment to the less 
privileged, at all levels of the job ladder," and praised the 
Confederation of Indian Industries "Report on Affirmative 
Action," which called for aggressive steps on the part of 
industry to hire and retain these type of employees.  End 
Comment.)  According to Khurshid, the Indian government needs to 
be more proactive in developing a code of Corporate Social 
Responsibility (CSR).  He suggested that "social credits," 
 
MUMBAI 00000346  002.2 OF 003 
 
 
similar to "carbon credits," would provide corporations the 
incentives they need to take on greater responsibility. 
 
Mahindra Pleased with Satyam Buy, Despite Legal Problems 
 
--------------------------------------------- ----------- 
 
 
 
¶5.  (SBU) In a separate conversation, Bharat Doshi, the Chief 
Financial Officer of Mahindra & Mahindra, told CongGenOff that 
the company was pleased with its purchase of Satyam.  (Note: 
After the company was restructured, the Indian government 
auctioned Satyam to the highest bidder, which was TechMahindra, 
a relatively smaller IT company.  American investment bankers 
Goldman Sachs brokered the sale and described Mahindra's bid as 
a "surprise winner," in that TechMahindra was the smallest of 
the bidding companies, yet its bid was significantly greater 
than the next highest. After their winning bid, the company 
struggled to line up the financing; Goldman Sachs characterized 
their bid as "a far reach that almost didn't get there."  End 
Note.)  Doshi admitted that Mahindra has found a few more 
financial problems in Satyam - which was expected - but expects 
resolution soon.  According to Doshi, TechMahindra worked 
quickly to stave off the loss of customers, which was crucial in 
preserving the health of the company.  They were forced to put 
8,000 workers on 40 percent pay, but have reinstated 1,000 
workers at full pay since then, and expect to hire more in the 
next few months.  Doshi added that since TechMahindra was 
considerably smaller than Satyam, there will continue to be 
"digestion" problems. 
 
 
 
¶6.  (SBU) Referring to those "digestion problems," a senior 
executive from Cognizant, a rival firm, told Congenoff in 
Chennai that Satyam is struggling to maintain its clients.  He 
acknowledged that while Satyam is retaining a good number of 
clients for whom it is too difficult to extract themselves from 
Satyam (i.e. they rely on Satyam for complicated, core IT 
systems), the company is not getting any new business.  Those 
legacy clients are looking to other IT partners for any new 
projects, fearing further entanglement with Satyam.  He also 
noted that Satyam's staff has been picked over by its 
competitors - many of the strong employees have been drawn to 
other companies, leaving Satyam with particularly weak middle 
management. 
 
 
 
¶7.  (SBU)  Doshi's biggest concern is the two legal cases in the 
U.S. against Satyam, which TechMahindra has inherited.  The 
first is an intellectual property rights (IPR) case in Texas, 
which predates the scandal, and the second is a class action 
suit prompted by shareholders in New York.  Doshi stated that 
the plaintiff in the IPR suit is asking for damages of $1 
billion, "even though the company had never had revenues more 
than $20 million in its history."  Doshi claims that the case is 
being heard in a jurisdiction notoriously sympathetic to 
plaintiffs, and fears that TechMahindra will be seen as a 
"foreign outsider" by the jury.  The company is taking no 
chances, and is advertizing its local investments - Mahindra has 
a tractor factory in Texas - and has become a NASCAR sponsor. 
Doshi is more worried about the class action suit, where 
plaintiffs are suing Satyam for fraud (Note:  Satyam was listed 
on the New York Stock Exchange.  End Note.)  Doshi expects 
settlements in both cases; Mahindra weighed the risks of class 
action suits before buying, and has calculated that if the 
amounts do not exceed $300 million overall, the purchase will 
have been worthwhile. 
 
 
 
¶8.  (SBU)  Comment:  Khurshid's call for reservations in the 
private sector, if serious, will raise concerns among 
corporations, which have long opposed such a move.  His calls to 
reform some corporate governance rules, however, will likely be 
welcomed.  Many believe that too many boards are packed with 
independent directors who aren't independent, or who are on too 
many boards to provide responsible oversight.  With the Indian 
corporate landscape dominated by family-owned companies, 
however, the composition of most boards are unlikely to make too 
 
MUMBAI 00000346  003.2 OF 003 
 
 
much of a difference.  As for Satyam, Mahindra's turnaround 
efforts will be complicated by the legacy risks of Satyam, with 
the U.S. courts now the center of activity.  As these cases go 
to trial, we should expect negative publicity to follow.  End 
Comment. 
FOLMSBEE