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Corporate Governance Failure at Satyam

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by

Yuhang Tao

on 24 June 2015

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Transcript of Corporate Governance Failure at Satyam

Falsify Financial Statement to Embezzle the Company's Profit—Satyam's Failure
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
Company Background
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
Accounting 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
3.Accrued interests
4.The gaps in the balance sheet are due to the inflated profits
Full transcript