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Corporate Governance Failure at Satyam
Transcript of Corporate Governance Failure at Satyam
Suspected Intention of Acquisition
Satyam is the India's fourth-largest software development and information technology(IT) consulting company. (2008)
2008 Financial Crisis
Maytas Infra and Maytas Properties were two real estate and property companies promoted by two sons of Satyam's Chairman.
The Corporate Governance Mechanisms Adopted by Satyam
Corporate Governance mechanisms:
1. Comprised by owners, managers and board
2. Separation of ownership and control
3. Lower the agency cost, not to interfere the operation, maximize the profits
Responsibility of Audit Committee, the Internal and External Auditors
An internal audit by the team headed by the CFO
An external audit, performed by PricewaterhouseCoopers(PwC)
The audit committee, headed by an independent board member
Loopholes of Government's Regulations and Laws
Characteristics of the board of directors
The right of appointment and removal
Vote down the falsification of financial statement
System of reward and penalties
Diversification of executive directors
Separation of supervision and management
Limitation of the time on supervision
Diversification of the board
The Scandal of Satyam
Satyam was India's fourth largest information technology group by revenue
Satyam won numerou award for innovation, governance, and corporate accountability.
Unfortunately, less than five months after winning the Global Peacock Award, Satyam became the centerpiece of a massive accounting fraud.
Result of the Scandal
A corporate scandal occurred in India in 2009.
Ramaliga Raju-Chairman created INR 71.36 billion in the financial statement.
From past 7 years accounting books were cooked:
1.Profits were inflated
2.Understated liability and overstated debts
4.The gaps in the balance sheet are due to the inflated profits