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Satyam Scam & Corporate Governance
- 1. SATYAM SCAM
&
CORPORATE GOVERNANCE
Anand Choudhary
International Academy of Management & Entrepreneurship
Copyright©: IAME - 2009 1
- 2. A Bird’s eye view
Corporate Governance
About Satyam
Core of Scam
Stake of Promoters
Hidden Facts & Sad Results
Reboot Satyam
Copyright©: IAME - 2009 2
- 3. Corporate Governance
“A system by which a company is controlled and directed”
Purpose: maximise the long run interests of the various
stakeholder groups and resolve the conflict in their
mutual interests
Good Corporate Governance:
Maximise long run corporate value
Transparent and effective
Prevent corporate crimes
Flexible and dynamic, capable of adjusting to the changing
context and times
Copyright©: IAME - 2009 3
- 4. Before 7th January: About Satyam
A leading global consulting and IT services company
Nearly 55,000 employees
Business is spread over 55 countries
Serves over 558 global companies, including over 185 Fortune
500 corporations
Satyam Infoway is the first Indian Internet company to be
listed on NASDAQ
Copyright©: IAME - 2009 4
- 5. PwC
Satyam
M.
M.
325
Prop
Infra
Co
Copyright©: IAME - 2009 5
- 6. Core of Scam
• Who was behind? – Chairman Ramalinga Raju, MD B Rama
Raju, CFO V Srinivas, Cost Accountant G Ramakrishna
• Reason: Raju and his family held below 10% of the company’s
equity
• Raju allegedly used accounts opened in the names of relatives
to divert money and carry out insider trading
• Siphoning off funds from Satyam into Maytas Infra, Maytas
Properties and various 325 firms floated by Mr. B Ramalinga
Raju
• Diversion of Rs 1,700 crore from an overseas bank account
Copyright©: IAME - 2009 6
- 7. Stake of Promoters in Satyam
Percent of equity
25.6
22.26
20.74
17.35
15.67
14.02
8.79 8.65
5.13
2001 2002 2003 2004 2005 2006 2007 2008 03/Jan/09
Source: The Hindu 14-Jan-2009
Copyright©: IAME - 2009 7
- 8. Hidden Facts
• Two auditors of Satyam Computer, appointed by PwC, were
not partners of the audit firm at that time
• Those auditors had no role in fraud as they were given forged
documents by the company
• CFO of Satyam mislead directors: Luthra & Luthra – a Delhi-
based law firm – has done the due diligence for Maytas
Properties
Copyright©: IAME - 2009 8
- 9. Impact
Karnataka Govt. decided to review airport projects in Maytas
hands
Satyam lost Cisco joint venture
E&Y snapped ties with Maytas projects
National Australia Bank, Qantas, Telstra and Caterpillar
realised the harsh realities of offshore outsourcing
ICAI comes under pressure to come out with guidelines to
make auditor rotation compulsory
Copyright©: IAME - 2009 9
- 10. Sad Results
• Satyam employees face a bleak future
• Satyam employees were told that there is no assurance if they
will receive salaries beyond January
• US-based employees of SCS lose health cover, credit cards
• Over 400 SCS professionals were stranded in
Bloomington, Illinois, US after State Farm Companies canceled
a multiyear contract
• 200 SCS employees in Japan were told to rush back to India
Copyright©: IAME - 2009 10
- 11. Reboot Satyam
Tech Mahindra wins Satyam Computers Services
Tech M Stock shot up 12%
Winning Bid: Rs. 58 per share (i.e. Rs 2,889 crore)
Copyright©: IAME - 2009 11
- 12. Conclusion
Irrespective of 9% stake, a man could do a scam. A complete
failure of Corporate Governance. To avoid this, a company needs
to strictly follow a proper system of corporate governance and
rotating the auditors for every couple of years
Copyright©: IAME - 2009 12