BUSINESS ETHICS AND GOVERNANCE

PRESENTED BY:

- MAITRI PUWAR -VINITA ROHRA

INTRODUCTION
It

was found in 1987 by Ramalinga Raju.

largest IT outsourcing company of India more than 53,000 people in India

Fourth

Employees High

global reputation services to more than 550 MNCs

Offers

In

1990s the Satyam Spark Solutions and Satyam Infoway (Sify) were the first Indian internet company to be listed on the NASDAQ.

WHAT WENT WRONG??

Satyam

scam Satyam Computers had on January,2009, announced that it will acquire two group firms 1. Maytas properties 2. Maytas Infra The Board Of Directors of Satyam had approved the founders proposal to buy 51 per cent stake in Maytas Infrastructure and 100 % in Maytas Properties. The company is run by the sons of Ramalinga Raju It was started in the late 1980s by Ramalinga Raju The main reason for the debacle of Maytas Infra is due to the debacle of Satyam

EFFECTS ON SHAREHOLDERS
AND STOCK EXCHANGE
Differences

of opinions between Board of Directors and the companys promoters. The companys stocks suffered severe mauling both at the Bombay Stock Exchange (BSE) and the New York Stock Exchange (NYSE). This resulted the unease and the anger of the investor community.

REASON FOR RAJUS CONFESSION SUDDENLY.

On 7th January 2009 Raju confessed to massive fraud leading to the companys stock crashing by more than 80% on a single day. Raju resigned as the chairman of Satyam. He was forced to make a confession as a result of whistle blowing by one of the cos former associates Raju also admitted that Satyam's profits were inflated over several years. And it was difficult for him to stop this fraud gap. He added, "It was like riding a tiger, not knowing how to get off without being eaten.

INVESTIGATION REPORT
According to the investigation report of SFIO (Serious Fraud Investigation Office), the falsification of the cos accounts began in the financial year 2001-02. The scope of falsification of accounts was around INR 2.34 billion in 2001-02, skyrocketed to INR 54.22 billion by 200708 and INR 73.33 billion by late September 2008. After the unearthing of several hidden records the CBI, by November 2009, pegged the figure at more than double the amount as shown in their additional charge sheet.

MODUS OPERANDI AND INSIDER TRADING

The modus operandi (working) of the Satyam fraud created false invoices to show inflated sales by SCSL. Raising fictitious bills for services that were never rendered. Raju and his associates have obtained unauthorized loans and advances to the tune of INR 12.2 billion . The promoters had indulged in insider trading of the companys shares to raise money for building a large land bank. Raju and his associates made an effort to showcase Satyam as a world leader in IT industry by inflating profits so that its share prices surged up. They invested the money earned by selling their shares to buy lands. The former CFO, Srinivas Vadlamani was also involved.

THE ROLE OF INDEPENDENT DIRECTORS

According to SEBI, independent directors are meant to protect the interest of the non-promoters shareholders and help promote the cause of corporate governance. At Satyam each directors had been allotted significant Stock options equivalent to at an unbelievable strike price of INR 2 per share and they also earned handsome commissions. Satyams scam is one more proof that the mere compliance of SEBIs rule of the minimum number of independent directors does not guarantee ethical practices.

AUDITING FAILURE
observers opined that Satyams scam is primarily due to audit failure . The choice of PwC (PricewaterhouseCoopers) as auditors for Satyam, proved themselves to be untrustworthy in the past both in USA and India. The statutory auditor did not verify the authenticity of the account books
Many

SATYAM OR ENRON ??????????????

SIMILAIRITIES Both the companies had a board with the required quota of independent directors Both has been the nexus, the heads of both the corporations established with political bigwigs mainly with the view to currying favours from them. DISSIMILAIRITIES Satyam is much bigger scandal than Enron Satyam scam adversely impacted its 53,000 employeeshigher than 40,000 Enron employees Enron fiasco was almost a stand alone incident while the Satyam swindle the entire IT industry badly

CONCLUSION

A casual observer of the Satyam Fiasco, enormity of the scandal is a great eye opener. The reach and impact that the Satyam scam had created is unparalleled in the corporate history of India.

Q1. TRACE THE GENESIS AND GROWTH OF SCSL.

Ans- SCSL was established on 24th June 1987 by Ramalinga Raju and his brother-in-law, D.V.S. Raju, and incorporated in 1991 as a public limited company. It became a leading global consulting and IT-service company spanning 55 countries. Ranked as Indias 4th largest software exporter after TCS, Infosys and Wipro. The company signed contracts with numerous international players such as Microsoft, Emirates, TRW and Ford. It acquired a 100% stake in the Singapore based Knowledge Dynamics and 75% stake in the London based Citisoft Plc. Satyam was a co. on a fast track to success and earned for itself a name in consulting in several key areas from strategy to implementing IT solution for customers.

Q2.WHAT WERE THE FACTORS THAT LED TO THE PHENOMENAL GROWTH OF SATYAM COMPUTERS? ALSO DISCUSS THE REASONS THAT HAD TO ITS DOWNFALL.
Ans. Factors for Success Alliance with Leading Technology Providers Satyam possesses a large base for providing expert solutions Satyam has alliances with companies such as Adobe, Microsoft, Oracle, etc.

Acquisition of Citisoft Satyam strengthened its presence by acquiring Citisoft. The acquisition not only adds to the brand, expertise of the company, but also complements its global delivery capacity. Satyam also decided to retain the brand of. This acquisition has helped the company to establish a foothold in the industry.

REASONS TO ITS DOWNFALL

Greed Ambitious corporate growth Lack of transparency Excessive interest in maintaining stock prices Executive incentives Stock market expectations Nature of accounting rules Audit failures Internal & External Weak Independent directors and Audit committee

Q3. CRITICS CLAIM THAT THE SATYAM SCAM HAS EXPOSED HUGE CRACKS IN INDIAS CORPORATE GOVERNANCE STRUCTURES AND THE REGULATION OF SATYAM THROUGH SEBI. DO YOU AGREE WITH THIS VIEW? IF IT IS SO, SUGGEST MEASURES TO REMEDY THE SITUATION.
Ans. Yes, we agree to this view. The Indian capital market regulator SEBI should follow 2 distinct approachesPreventive and Palliative. Palliative measures should aim at introducing new process and additional verification methods. These measures would help build investors confidence. Preventive measures are more important as they are likely to be more effective in the long run. (imprisonment and penalty) To set up a Board of Audit which is empowered to conduct surprise audit. An auditor should not be allowed to continue for more than 3 years with a company.