Corporate Governance failure in Satyam makes scam possible. A bird\'s eye view

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
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5. PwC
Satyam
M.
M.
325
Prop
Infra
Co
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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
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15. Thank You
Copyright©: IAME - 2009 15