Satyam Computers

Satyam Computers Services Ltd

Presentation Layout

• Company Introduction
• 4 Aspects to their downfall
• Corporate Governance & Ownership Functions
• Accounting & Financial Reporting
• Other Regulations
• Regulators & Credit Rating Agencies
• Conclusion

Satyam Computers Services Ltd

Cherdass Dunamos

Fakruddin Chisty

Phillip Ling

• Founded by Ramalinga Raju in 1987.
• Headquarters in Hyderabad.
• Consist of software development, system maintenance, packaged software integration and engineering design services.

Satyam - Continued

• 2008 - Over 40000 IT professionals working in development centers across India and other major countries.
• Operated in 60 countries spanning 6 continents.
• Over 650 global companies.

Byrraju Ramalinga Raju

• Founder-Chairman of Satyam until 2009.

Mahindra Satyam

• Satyam was taken over by Mahindra Group on April 2009.
• Merged with Tech Mahindra on June 2013.

Current Situation

Conclusion

KPMG and Deloitte & touche Tohmatsu has been jointly appointed auditing companies.

Government elected new directors.

• The case study on Satyam presents a collective failure of all systems related to CG.
• It shows how those from independent directors, auditors, regulators, banks and rating agencies have contributed their parts in this company's CG failure.
• Scandals such as this can be avoided if auditing firms are honest and statutory plays a more active role.

Corporate Governance &

Ownership Functions

Other Regulations

Regulators & Credit Rating Agency

Accounting & Financial Reporting

Corporate governance is a set of laws, rules and procedures that influence a company's operations and the decisions the managers make (Brigham & Ehrardt, 2008).

CG Overview in India

Rishi & Singh, 2011

• Protection of shareholders' rights observed
• Board is responsible for transparent practices - not the managers
• Company's promoters are in complete control

Reporting in India

Regulations in India

Regulators in India

Major Corporate Governance Concerns in India

KPMG, 2009

• Annual reports of companies to be sent to shareholders, stock exchange, DCA (Department of Company Affairs) and ROC (Registrar of Companies).
• Content of annual report is monitored by law and quality of financial disclosure is judged by DCA, SEBI and ICAI.

• Insider trading and self dealing of abusive nature is prohibited
• Stakeholders can access information relating to corporate governance
• Non-compliance towards CG practices has to be revealed to the chairman, BOD or the audit committee

Security Exchange Board of India (SEBI) established in 1998 and Govt. given "power of statutory" on 12 April, 1992

Role of SEBI:

Improve CG standards around;

• Risk management
• Auditing standards and
• Compensation of directors

• Generally are family-owned businesses - lack of transparency in governance
• Conflict between management and owner - owners are the dominant group
• Weak monitoring system and management override
• appointment of independent directors is decided by promoters

CG Failure

Reporting Failure

Regulation Failure

SEBI

"It was like, riding a tiger, not knowing how to get off without being eaten."

• 3 major CG failures observed in the Satyam case
• poor governance
• unethical code of conduct
• failure of the board

• No action was immediately taken by SEBI in regards to World Bank's decision.
• Upaid sued the company due to fraudulent acts.
• Maytas acquisition.

• "Insider trading" questions the ethical CG practices in India, when,
• In 2008, high ranking executives in Satyam sold their share before the scam was made public
• Six million shareholders affected for this insider trading

• Raju manipulated the balance sheet in order to blow up the profits.
• Accomplices - Brother (B. Rama Raju) & CFO (Srinivas Vadlamani).
• Attempted to acquire Maytas Properties & Maytas Infrastructures but failed as Satyam's falsified account balance made known.

CG Failure - Poor Governance

• World Bank bans Satyam from any business relations with the bank for 8 years.
• 'give improper benefits to staff'
• 'conduct malicious attacks on bank's information system'

This reflects poor governance or control by the management and authority of the company.

Reporting Failure

CG Failure - Ethics

• PWC reported that Satyam has $1.04 billion cash in their reserves although the actual amount was $78 million.
• PWC who audited the company were paid in access by Satyam.

Raju's shares are released from 15.67% in 2005 to 2.3% in 2009

• Ramalinga Raju and Rama Raju
• use revenue from the company to purchase lands
• Family members use insider knowledge to trade shares of the company
• Months before the confession, CEO and senior executives sold shares of the company.

CG Failure - Board Failure

• Independent directors often overlook what the CEO decides
• Do not question the decision to purchase Maytas companies
• Do not realize the accounts were being altered

"must be competent, knowledgeable and bring fresh perspective to the company" - Iyer, 2009