A

Case Study
ON

Satyam computer
(Corporate governance issues at
stayam computer)
Prepared by

BADRAKIYA ANKIT A.
(M.B.A. SEMESTER-4)

Academic Year:-2016-2017
Enrollment No: - 147590592008
SHREE H.N.SHUKLA COLLEGE OF MANAGEMENT
STUDIES,
RAJKOT (IN-Gujarat)
Submitted to: Gujarat Technological University
Under the Guidance of
[ASST.PROF.MEGHA JASANI]
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SHREE H.N. SHUKLA COLLAGE OF MANAGEMENT STUDIES

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Abstract:
The case examines the corporate governance issues at the India
based IT services company, Satyam Computer Services Limited (Satyam).
In mid-December 2008, Satyam announced acquisition of two companies Maytas Properties and Maytas Infrastructure owned by the family
members of Satyam's founder and Chairman RamalingaRaju (Raju). Due
to adverse reaction from institutional investors and the stock markets, the
deal was withdrawn within 12 hours. Questions were raised on the
corporate governance practices of Satyam with analysts and investors
questioning the company's board on the reasons for giving consent for the
acquisition as it was a related party transaction.
After the deal was aborted, four of the prominent independent
directors resigned from the board of the company. In early January 2009,
Raju revealed that the revenue and profit figures of Satyam had been
inflated for past several years. The revelation further deepened concerns
about poor corporate governance practices at the company. The case
describes the corporate governance structure at Satyam, its code of
conduct, roles and responsibilities of different committees under the
board, whistle blower policy etc. It highlights the role played by the
independent directors of Satyam in approving the Maytas deal and
discusses their limitations.

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Issues:
Study the corporate governance structure that existed at Satyam
Computers.
Appreciate the importance of Code of Conduct and Whistleblower
policy of a company.
Examine the roles and responsibilities of a company's board and
independent directors.
Critically analyze the instances where the independent directors
failed to fulfill their responsibilities.
Understand the limitations of independent directors in Satyam's
case.

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CORPORATE GOVERNANCE
Corporate Governance is typically perceived as dealing with problems
thatresult from the separation of leadership & control.
Corporate Governance may be defined as holding a balance
betweeneconomic & social goals & between individual & commercial
goals.A good corporate governance is one where a firm commits &adopts
ethical practices across its entire value chain & in all of its dealing witha
wide group of stakeholders encompassing employee, customer, venders,
regulators & shareholders in both good and bad times

DESIDERATA OF CORPORATE GOVERNANCE

Right of Shareholders:
The right of shareholders are namely as below:
They should secure ownership of their shares.
They have voting rights.
They have right to full disclosure of information.
They can participate in decision on sale or any other change in
corporate assets& new shares

Equitable treatment of shareholders:

All the shareholders including minorityand foreign shareholders should get
equal treatment.

Disclosure & Transparency:

The disclosure and dissemination of keyinformation about the company to
all those entitled for such information.

Responsibilities of the Board:

The functions of the board include
shareholders & all its other stakeholders.

protecting

SHREE H.N. SHUKLA COLLAGE OF MANAGEMENT STUDIES

the

company,

its

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Thefunctions would include concerns about corporate strategy, risk,

executive compensation& performance, accounting & reporting system,
monitoring effectiveness& changing them, if needed.

ISSUES IN CORPORATE GOVERNANCE

Distinguishing the roles of Board & Management:
The functions of the board include the below
Select, decide the remuneration & evaluate on a regular basis, andif
necessary, change the CEO
Oversee the conduct of the companys business
Review
&
where
necessary
approve
the
companys
financialobjectives & major corporate plans & objectives.
Provide advice & counsel to top management.
Select & recommend candidate to shareholders for electing them to
board of directors
Review any other functions to be performed by law.

Separation of the roles of the CEO & the Chairman:

The roles of theCEO and the Chairman are different. The CEO takes care of
the senior management whereas the chairman takes care of the board.

Appointment to the board & reappointment:

The board or its speciallyappointed committee selects & appoints the
prospective director and getsthe person formally elected by the
shareholders at the ensuring AnnualGeneral Body Meeting.

Directors and Executives Remuneration:

This is one of the mixed &vexed issues of corporate governance that first
came to the center stage. The keyissues would include
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 Transparency
Justifiability of the pay in the context of performance
The process adopted in determining it
Severance payments
Non-executive directors pensions

Protection of Shareholders rights & their executives:

1) There are a number of questions relating to this issue as
2) Should companies adhere to 1 share 1 vote principle always?
3) Should companies retain voting by a show of hands or by poll?
4) Can shareholders resolution be bundled?
5) Should shareholders approval be required for all major transactions?

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MAJOR THRUST AREAS OF CORPORATE

GOVERNANCE
The six major thrust areas of corporate governance are as bellows:
1) They call upon government to put in place an effective
institutionaland legal framework to support good corporate
governance practices.
2) They call for a corporate governance framework that protects
andfacilitates the exercise of shareholders rights
3) They
strongly
support
equitable
treatment
shareholdersincluding minority & foreign shareholders.

of

all

accurate

and

4) They recognize the importance of the role of stakeholders

5) They
stress
the
importance
transparentdisclosure mechanism.

of

timely,

6) They deal with the board structures & responsibilities.

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RELEVANCE TO THE PRESENT SCENARIO

Satyam scam was not an easy issue. It has its own complexities as it
involved14000 crore scam. Satyam scam had been the example for
following poor governancePractices. It had failed to show good relation
with the shareholders and employees.So as to throw a light on the poor
governance practice at one of the major ITgiants, the need to study such
case is made important. Taking this scam as a rolemodel, it could be
suggested that there is a need to frame up good governance rulesand see
to the proper implementation of it.

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INTRODUCTION TO SATYAMCOMPUTER CONSULTANCY

LIMITED
SATYAM COMPUTER CONSULTANCY LIMITED was established on June 24
1987. The founder of such organization was Mr.RamalingaRaju.Chief
executive officer at the time of the scam was Mr.RamMynampatiAnd chief
financial officer of such was MrValdamaniSrinivas.Non executivedirectors
were Krishna Palepu&Vinod.K.Dham. satyam computer consultancylimited
has its headquarter at Hyderabad.
Satyam computer services limited has its several subsidiaries:
Satyam BPO
Citisoft
CA Satyam
STI
Bridge Consultancy
The various services offered by the satyam compute consultancy
limitedIncluded:
Application Software
Business process outsourcing
Business value enhancement
Consulting and Enterprise Solution
Infrastructure Management Service
Integrated Engineering Solution
Product and Application Testing
Six Sigma Consulting
Offices of satyam computer consultancy limited are located global atAmerica,
Europe, Middle East Africa.SCS had achieved several awards and achievements
for its meritorious work.To name a few:
1)UK trade and Investment India business award for CORPORATESOCIAL
RESPONSIBILITY
2) Ranked No.1 in American society for and development bestaward 2007.
After the scam of rs.14000 crore came into light, the board of members
wereReplaced temporarily by experts. Several board members retired
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voluntarily.Even the auditing company, named KPMG was penalized. Several

biddingtook place for acquiring satyam by several companies. The final three
biddersforsatyam were L&T, Spice group and tech mahindra.
After the successful bidding, Tech mahindra acquired satyam and thenew chief
executive officer is Mr. C.P. Gurnani.
The two independentdirectors are C.Achuthan and T.N.Manoharan. working
directors includedMr. C.P.Gurnani and MR.VineetNayyar.

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DETAILS OF THE CASE STUDY SATYAM SCAM

the case examines the corporate governance issues at the India
based ITservices company, Satyam Computer Services Limited (Satyam).
In mid-December 2008, Satyam announced acquisition of two companies Maytas Properties andMaytas Infrastructure owned by the family members
of Satyam's founder andChairman RamalingaRaju (Raju). It planned to
acquire 100% and 50% stakes inMaytas property and infra for $1.6B. Due
to adverse reaction from institutionalinvestors and the stock markets, the
deal was withdrawn within 12 hours. Questionswere raised on the
corporate governance practices of Satyam with analystsandinvestors
questioning the company's board on the reasons for giving consent for
theacquisition as it was a related party transaction.
After the deal was aborted, four of the prominent independent
directorsresigned from the board of the company. In early January 2009,
Rajurevealed that the revenue and profit figures of Satyam had been
inflated for past several years. The following were the inflated figures:
Inflated cash and bank balance Rs.5040cr
Nonexistent accrued interest Rs376cr
Understated liability of Rs.1230cr
Overstated Debtor position of Rs.490cr
Inflated staff by 12000 ( Actual were 40000)
Revenue of Rs.2700cr (Actual were Rs.2112cr)
Operating margin to be 6494 cr ( Actual were 61cr)
INDIAS LARGEST FRAUD- Rs.7800crore (now estimated as 14000crore)

As per the definition of corporate governance discussed above,A good

corporate governance is one where a firm commits &adoptsethical
practices across its entire value chain & in all of its dealing witha wide
group of stakeholders encompassing employee, customer,vendors,
regulators & shareholders in both good and bad times.Corporate
governance includes various parties:
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1)
2)
3)
4)
5)

Shareholders
Employees
Management
Bankers
Government

Governance issue at Satyam arose because of nonfulfillment of obligation

of the company towards the various stakeholders. It proved a poor
relationship with all the stakeholders.
It is well known that a shareholder has a right to get information from
theorganization, such information could be with respect to the merger and
acquisition.
Shareholders
expect
transparent
dealing
in
an
organization.They even have right to get the financial reporting and
records.
In the case of satyam, the above obligations were never fulfilled.
Theacquiuisition of maytas infrastructure and properties were
announced,without the consent of shareholders. They were even provided
with falseinflated financial reports. The shareholders were cheated.
It is well known that the collapse of any organizations reputation has
adiect impact on the employees job. As per the case, employees
wereshown with a inflated figure. The excess of employees in the
organizationwere kept under VIRTUAL POOL who received just 60% of their
salaries and several were removed.
The entire scam had its impact on management. Questions were
raisedover the credibility of management.
Any organization has its obligation towards the Government by means of
timely payment of taxes and abiding by the rules and laws framed up
bythe Government. As per the case with satyam, the company did not
payadvance tax for the financial year 2009. As per the rule, the advance
taxis to be paid 4 times a year; such was not fulfilled by them.
Finally the satyam computer consultancy limited didnt have
goodrelationshipiwtbak too. SCS was blacklisted by world Bank over
charges of Bribery.It was declared ineligible for contracts to providing:
1) Improper benefit to bankstaff.
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2)Failing to maintain documentation to support fees.

The
revelation
further
deepened
concerns
about
poor
corporategovernance practices at the company. The case describes the
corporategovernance structure at Satyam, its code of conduct, roles
andresponsibilities of different committees under the board, whistle
blower policy etc. It highlights the role played by the independent
directors of Satyam in approving the Maytas deal and discusses their
limitations.

CONCLSION
As earlier stated that corporate governance consist of four parties. In case
of satyam fraud, board is unable to fulfill its role & responsibilities.
Now we discuss the responsibilities that should be followed ethically by
board and what is actually did
Ethical responsibilities:
Governing the organization by establishing broad policies and
objectives
Selecting, appointing, supporting and reviewing the performance of
the chief executive
Ensuring the availability of adequate financial resources
Approving annual budgets
Accounting to the stakeholders for the organization's performance.

Actual scenario:
Despite the shareholders not being taken into confidence, the
directorswent ahead with the management's decision.
The government too is equally guilty in not having managed to
savethe shareholders, the employees and some clients of the
companyfrom losing heavily.
Simple manipulation of revenues and earnings

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 To show superior rperformance

Raising fictitious bills for services that were never rendered.
To increase the Cash & bank balance correspondingly.
Operating profits were artificially boosted from the actual Rs 61
croretoRs 649 crore.Its financial statements for years were totally
false, cooked up and...
Never had Rs 5064 crores (US$ 1.05 Billion) shown as cash for
several years.
Its liability was understated by $ 1.23 Billion.
The Debtors were overstated by 400 million plus.
The interest accrued and receivable by 376 Million never existed.So
when the case came in light following are the actions that has
beentaken:
Nasscum sets up panel to avoid satyam like case in future- formed
acorporate Governance & ethics committee, chaired by
N.R.NarayanaMurthy (chairman and chief mentor of Infosys.)
Hinduja Global chalks out 100 day plan for satyam.
8 Year ban on satyam to be reviewed.
Govt. orders CBI to probe fraud ( concerned about 52000
employees)
Agencies (3 month time to probe)1) Serious fraud investigation office(SFIO)
2) Market regulation SEBI,
3) Institute of chartered accountancy India (ICAI)
4) Andhra police

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The Sebi had in December given a clean chit to Satyam in the probe
onviolation of corporate governance law. The government has realized the
need of code of conduct & whistle blower policy, now we will discuss what
is these terms and how they played animportant role.

CODE OF CONDUCT:
This Code of Business Conduct covers a wide range of business practices
andprocedures. It does not cover every issue that may arise, but it sets
out basicprinciples to guide all employees and officers of the Company.
Those who violatethe standards in this Code will be subject to disciplinary
action,
Including possibledismissal Furthermore, violations of this Code may also
be violations of the lawand may result in civil or criminal penalties for you,
your supervisors and/or theCompany. The basic principles discussed in
this Code are subject to anyCompany policies covering the same issues:
Compliance with laws, rules, and regulations
Conflicts of interest
Corporate opportunities
Competition and fair dealing
Political contibutions
Discrimination and harassment
Health and safety
Confidentiality
Protection and power use of company asset

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BIBLIOGRAPHY

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