BUSINESS ETHICS AND

GOVERNANCE

THE SATYAM SCANDAL

INTRODUCTION
 Company Profile

 Set up in the year 1987 by

B.Ramalinga Raju.
 India’s 4th biggest software
company.
 On 26th August, 1991 it was
converted into a Public
Limited Company and went
for PUBLIC ISSUE in 1992.
 BSE IPO oversubscribed 17
times when made public.
 Company Profile

 It is listed in BSE, NSE,

NYSE and Euronext
(Amsterdam).
 The company employs
53,000 IT professionals across
development centers in 6
continents.
 It serves over 654 global
companies, 185 of which
are Fortune 500
corporations.  
 B. Ramalinga Raju
Founder & Chairman, Satyam Computers
Ltd.

B. Rama Raju
Promoter & CEO, Satyam Computers Ltd.
 What is CSR?

 CSR also known as corporate citizenship, is a

form of corporate self-regulation integrated into
a business model.
 Ideally, CSR policy functions as a built-in, self-
regulating mechanism allowing business to
monitor and ensure its adherence to law, ethical
standards, and international norms.
 Business would embrace responsibility for the
impact of their activities on its various
stakeholders.
 CSR at Satyam

 Byrraju Foundation, a non governmental

organisation dedicated to social transformation
in rural areas.
 Satyam won the Asian Corporate Social
Responsibilty Award under poverty alleviation
category through the GramIT project ( a rural
BPO program) – an initiative by Byrraju
Foundation.
 CSR at Satyam

EMRI (Emergency Management and Research

Institute)
 EMRI is an initiative of byrraju foundation which
was initiated in August 2005
  The only professional Emergency Service
Provider in India today.
  It handles medical, police and fire emergencies
through the 1-0-8 emergency service.
 
 Corporate Governance

 Corporate governance is the set

of processes, customs, policies, laws,
and institutions affecting the way
a corporation (or company) is directed,
administered or controlled. Corporate
governance also includes the relationships
among the many stakeholders involved and
the goals for which the corporation is
governed.
Corporate Governance Of Satyam

 Vision Statement
“ To leverage information, knowledge and technology to
enhance human endeavor”

 Core values of Satyam:

I. Belief in People
II. Entrepreneurship
III. Customer Orientation
IV. Pursuit of Excellence...
 Controversies
 Maytas acquisition
 World Bank
Upaid lawsuit
Accounting scandal of 2009
 World Bank Fiasco
 The World Bank had banned
Satyam from doing business with it
for 8 years due to inappropriate
payments to the World Bank's staff.
 The World Bank accused Satyam of
giving improper benefits to its (the
Bank's) staff and of failing to
maintain documentation to
support fees charged for its
subcontractors. However, it
clarified that Satyam was not
involved in incidences of data theft
or malicious attacks that had been
made on the Bank's information
systems. 
 Upaid Lawsuit
 UK mobile payments company
Upaid Systems is suing Satyam
for over 1 billion US dollars on
complaints of fraud, forgery
and   breach of contract. On 9-
December-2009 Satyam has
settled the lawsuit with UPAID
for $70MM, of which $45MM is
payable upon regulatory
approval, and the remaining
$25MM is payable a year after
the initial payment.
Maytas Takeover Controversy
 Maytas Infrastructure
 Raju’s hold 36.64 per cent while
institutional holding is 10.92 per
cent
 The company had raised Rs 327.45
crore through IPO.
 It had a turnover of Rs 1,660 crore Mr. Teja Raju(VC)
and net profit of Rs 100 crore in the
last financial year
 Satyam planned to acquire 51 per
cent stake for Rs 1, 440 crore or
$0.3 billion
 Maytas Properties
 Raju’s family owns 35% of Maytas
properties
 Founded in 2005, it has a land bank
of 6,800 acres
 It has clearances for three IT SEZs
based on 148 acres
B. Rama Raju Jr. (VC)
 An undisclosed stake is held by
Infinite India Investment
Management, a realty fund jointly
promoted by JM Financial and US-
based SRM Investments, which
invested Rs 600 crore in February
 Satyam’s justification for Maytas buyout
deal

 De-risk the core business

 the integrated
organization would be
stronger and more
diversified to deal with the
uncertainty of the market.
 feeling that in the recent
times it is difficult to make
a strategic deal with other
IT companies.
 Reaction of Investors
 The shareholders realised that the buyout was
not profitable for them. Satyam using the
reserve cash to purchase Maytas Infra and
Maytas Properties was a big risk.
 Result of Investor’s
Reaction
 It results that part of investors succeeded to
thwart an attempt by the minority-
shareholding promoters to use the firm’s cash
reserves to buy out two companies owned by
them — Maytas Properties and Maytas Infra.
 That aborted attempt at expansion precipitated
a collapse in the price of the company’s stock
and a shocking confession of financial
manipulation and fraud from its chairman, B.
Ramalinga Raju
 The promoters decided to inflate the revenue and profit
figures of Satyam. In the event, the company had a huge
hole in its balance sheet, consisting of non-existent assets
and cash reserves that have been recorded and liabilities
that are unrecorded.
Accounting Scam
 Satyam faced is the biggest fraud in India's corporate
history.
 The company management, mainly disgraced chairman
B Ramalinga Raju, kept everyone in the dark for a
decade.
 The Scam…
 On 7 January 2009, company’s previous Chairman Ramalinga
Raju resigned after notifying board members and the Securities
and Exchange Board of India (SEBI) that Satyam's accounts had
been falsified.
Raju confessed that Satyam's balance sheet of 30 September 2008
contained:
1. Inflated figures for cash and bank balances of Rs 5,040 crores as
against Rs 5,361 crore reflected in the books.

2. An accrued interest of Rs. 376 crore which was non-existent.

3. An understated liability of Rs. 1,230 crore on account of funds

was arranged by himself.

4. An overstated debtors' position of Rs. 490 crore (as against

Rs. 2,651 crore in the books.
 ACTUAL DEBT
WAS 2161.
OVERSTATED
490 CRORES.

ACTUAL CASH
IN BANK WAS
321 CRORES,
NO ACCRUED INFLATED
INTEREST 5040 CR.
376.34 CR.
 UNDERSTATED
LIABILITY 1230
Cr. Which was
ARRANGED BY
MR.RAJU

5,040 + 376
Rs. 1,230 Cr
Rs. 7,136
+ 490 (Rs.
Cr)
Cr
The guilty
The promoters
 Since the promoters, in
this case, held only
about 8 percent shares,
their idea to push
through the Maytas
acquisition deal was
defeated by an angry lot
of shareholders.
Directors and independent directors

 The Satyam board, including its five

independent directors had approved
the founder's proposal to buy 51 per
cent stake in Maytas Infrastructure
and all of Maytas Properties, owned by
the family members of Satyam
chairman B Ramalinga Raju.
 Despite the shareholders not being
taken into confidence, the directors
went ahead with the management's
decision.
 The decision of acquisition was,
however, reversed 12 hours later after
investors dumped Satyam's stock and
threatened action against the
management.
Other company bigwigs

 Satyam's CFO Srinivas

Vadlamani has already
been arrested.
 But could only two or three
people have managed to
cook the books for years of
a company so large? Highly
unlikely.
 Satyam’s auditors
 So what were the auditing company,Pricewater
houseCoopers, doing?
 PwC has written a letter to the BOD of Satyam that its
audit may be rendered "inaccurate and unreliable" due
to the disclosures made by Satyam's (ex) Chairman..
 Is it real? How could Auditors miss the
gaping hole when –

 Auditors do bank reconciliation to check

whether the money has indeed come or not.
 They check bank statements and certificates.
 So was this a total lapse in supervision or
were the bank statements forged?
The bankers

 If the auditors were

conned, it means that
either the bank
statement and
certificates were forged
 Satyam's banks -- ICICI
Bank, HDFC Bank, Bank
of Baroda, etc
The SEBI

 The SEBI had in

December given a clean
chit to Satyam in the
probe on violation of
corporate governance
law.
Investment Bankers
 Investment banker DSP Merrill Lynch was
appointed by Satyam to look for a partner
or buyer for the company.

 DSP Merrill terminated its engagement

with the company soon after it found
financial irregularities.

 Merrill Lynch also sent the information

and the reason for their termination of the
contract to the Bombay Stock Exchange,
SEBI and even the New York Stock
Exchange.

 However, despite the fact that DSP Merrill

Lynch blew the whistle, it is not yet clear
why it took such a long time to inform the
authorities, and why it did not let the
public know of Satyam's misdeeds.
The government
 The government too is
equally guilty in not
having managed to save
the shareholders, the
employees and some
clients of the company
from losing heavily.
Stakeholders affected
Stakeholders Model

Shareholders

Public Directors

SATYAM

Competitors Customers

Employees
 Employees
It is nights and heartburns for the over 53,000
employees of Satyam Computers as they
conjure up worst case scenarios like non-
payment of salaries, project
cancellations , layoffs and equally bleak
prospects outside.
As the company's management tries to
reassure shocked employees, jobs sites
have got flooded from resumes of
hundreds of Satyam employees.
Job consultants believe that in the current
economic climate , Satyam employees
might have to settle for lower salaries
outside.
It is an employers' market.
 Shareholders

An accounting fraud was the last thing

investors in India would have
imagined as a trigger for a reversal
in investor sentiment.
This scam is likely to affect the image
of Indian companies among
foreign portfolio investors.
The share prices of Satyam saw a
sharp fall after Raju’s confession.
The share prices fell down from
190 to 30 (approximately) in a
matter of a day.
 Clients
Satyam Computers’ clients include
General Electric, Nissan Motors and
General Motors.
The debacle may force the clients to
review their contracts and look at
other offshore suppliers.
Australian telecom company Telstra,
had already decided to split a new
contract worth $200 million among
three Indian vendors.
Another partner and customer of the
company, Cisco Systems said that a
proposed investment in Satyam
Global Lifenet could be in jeopardy.
 Public
 The incident has hurt public
perception of Corporate India
and is likely to hurt
shareholders' confidence in
India Inc.
 It resulted in incalculable and
unjustifiable damage to Brand
India and Brand IT in particular.
 It is likely to dent the public
credibility about the concepts
of corporate governance in
India
 Directors

 Satyam's CFO
Srinivas Vadlamani –
already arrested.
 Many others after this
scam, mainly due to
their own mistakes of
not actively
participating in the
management of the
organisation.
 Competitors

 The competitors were

mainly benefited positively
from this scam.
 The Satyam Scam was also
lesson to learn for the other
organisations in the IT
sector
 NEW BOARD APPONTED..

 On 11 January 2009, the government

nominated noted banker Deepak Parekh,
former NASSCOM chief Kiran Karnik and
former SEBI member C Achuthan to Satyam's
board.
The Takeover Of Satyam
 Mahindra Satyam
 Tech Mahindra paid Rs1757 Crore
for a 31% stake in the company, at Rs
58 per share.

Satyam Computer Services zoomed

15% to Rs 54.20 ahead of the
announcement of the highest bidder
for the company on April 13, 2009.

In India this moment was full of

praise for the manner and speed with
which the reconstituted board of
Satyam Computer Services found a
strategic investor .
 Mahindra Satyam core values
 Core Values
 Involving People: Volunteers,
Community, Civilians,  NGOs and
Government
 Applying Knowledge: Leveraging the
core competencies of Satyam -
Technology, Process and Managerial
competency
 Making Things Happen: All initiatives
are outcome-oriented, scalability driven
and capable of execution.
 They have five chapters in India located
at Hyderabad, Pune, Bengaluru,
Bhubaneshwar and Chennai. The
Foundation focuses its activities in the
core areas of Education, Livelihoods,
Health, Environment and
Empowerment for Persons with
Disability.
 New policies

 1.1 Compliance with Laws, Rules and

Regulations.
 2.1 Legal, Honest and Ethical Conduct.
 2.4 Suspected Fraudulent behavior.
Conclusion
 Has India learnt?

 Satyam was a wakeup call for India to clean

up its act. But did India Inc wake up? Experts
and industry watchers remain divided in the
aftermath. While there is a set of people who
believe that Satyam definitely made
promoters sit up and make alterations, there
is an equally strong lobby that says nothing
has changed in the real sense of the term. 
 Has India learnt?

 One of the main factors that is prompting independent

directors to sit up and take active interest is the fear of
punitive action, like the one that Satyam’s independent
directors faced after promoter Ramalinga Raju owned up
to his fraud.  There has certainly been a bit of a change in
the last few months in the way boards are functioning.
Audit committees are being more careful to ensure that
the external auditors perform their role more diligently.
We also find that the chairman of the board and members
of the audit committee are being more careful and
thorough in their questioning. Boards, too, are taking care
to ensure that there are no slip-ups at their end.
 Mahindra Satyam………...

 Mahindra Satyam has tried immensely hard

not to go down the same road that Satyam
went. The company does not have a fixed
vision and mission statement, but they do
have a set of well formulated rules and
regulations covering almost every aspect
including fraud. We see that Mahindra
Satyam is definitely one company which has
learnt from the Satyam Scandal.
 Bibliography

 www.wikipedia.com
 www.reportjunction.com
 www.mahindrasatyam.com
 Presented by:

 Smriti Gupta 115

 Sammohana Malik 93
 Harshal Agrawal 70
 Saunik Udani 104
 Dhaval Kothari 71
 Lavin Mirchandani 82