A Conversation …Posted: January 13, 2009
You must all be following the news, and all the goings-on at Satyam. Again, i am not a management expert, so better for all that i dont comment on that and expose my ignorance. Having said that, i would say that equating this to large-scale corruption in Indian industry would be quite similar to speculating about large-scale corruption in American industry in the wake of Enron. Which, to my mind, is not something which is reasonable.
Coming now to the point of this post … a few days back, Satyam stock was seeing quite a bit of fluctuations in trades on the stock exchange. I was having a talk with my friend, Arvind Dixit, and was asking him who are the people who are buying Satyam at this stage. I wont write here about his hypothesis, but an interesting thing that he mentioned … something to the effect that if it was a brick-and-mortar company, it would have been easy to figure out what should be the fair value of the Satyam stock, but because the nature of Satyam’s business is knowledge-based, its very difficult to determine the fair value of Satyam stock.
I would see this based on two considerations:
1. It is inherently very difficult to determine fair value based on intangibles.
2. Since knowledge is the main ingredient of the business, and this knowledge is inherently carried by people, it becomes all the more difficult to determine the fair value, because as people leave, they take away a large part of the resources of the organization with them.
And this is what i wanted to write about … the fact that it is very difficult to determine the value of knowledge to the organization, or to society at large. However, it would not be correct to assume from this that there is no value (nobody would agree even if you said that), but the fact is, while there are exhaustive mechanisms for valuing tangibles, there is still little to value intangibles. One could estimate value based on the projected revenues which could be generated based on this knowledge, but this at most a proxy measure.