SYNOPSIS

Title - Induction and Orientation

Objective – (i) Primary Objective – To study how to design induction

program and how to

Induct the employees in the

organization.

(ii)Secondary Objective – To analyze the various aspects

involved in the induction

Program.

-To gather inputs and suggestions

from the new entrants

And their immediate managers

at the end of the

Induction program.

-To provide suggestions for the

further improvisation.

Introduction – An induction program is the process used within many

businesses to welcome new employees to the company and prepare them
for their new role.

Induction training should include development and

practical skills, but also meet interaction needs that exist among the new
employees.

Research Methodology – The report is totally based on descriptive

data.
(I) Data Collection regarding induction program
(II) Data analysis
(III) Process analysis
(IV) Evaluation of induction program.

INTRODUCTION
Reasons for Corporate Governance failures

By

Ms. Shruti Mehta

Lecturer
Ms. Rachana Srivastavaare
Lecturer
Skyline Institute of Engineering & Technology
Greater Noida
Abstract:
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way
a corporation is directed, administered or controlled. Corporate governance also includes the relationships
among the many stakeholders involved and the goals for which the corporation is governed. The principal
stakeholders are the shareholders, management, and the board of directors. Other stakeholders include
labor(employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the
community at large.
This article reveals various reasons for failure of Corporate Governance, Corporate Governance conists of,
various examples of Corporate Governance Failures like Enron, Satyam, Cadbury, Wal-Mart, Xerox and
why Corporate Governance failed in such big organizations. Article also describes various mechanisms of
Corporate Governance like (1) Company's Act (2) Security law (3) Discipline of capital market (4)
Nominees on company board (5) Statutory audit (6) Codes of conduct etc. Some factors that influence the
Corporate Governance like Owernership structure, Structure of company board, Financial structure,
Institutional Environment etc. Various systematic problem in Corporate Governance and Recent Corporate
Governance failures.
Key words: Corporate Governance, Governance, Satyam, Enron, Wal-Mart, Mechanism,
Polly Peck and Coloroll

Corporate governance is a multi-faceted subject. An important theme of corporate governance is to

ensure the accountability of certain individuals in an organization through mechanisms that try to reduce
or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the
impact of a corporate governance system in economic efficiency, with a strong emphasis shareholders'
welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view
and the corporate governance models around the world.
There has been renewed interest in the corporate governance practices of modern corporations since
2001, particularly due to the high-profile collapses of a number of large U.S. firms such as Enron
Corporation and Worldcom. In 2002, the U.S. federal government passed the Sarbanes-Oxley Act,
intending to restore public confidence in corporate governance.
Factors influencing corporate governance
1. The ownership structure

The structure of ownership of a company determines, to a considerable extent, how a Corporation is

managed and controlled. The ownership structure can be dispersed among individual and institutional
shareholders as in the US and UK or can be concentrated in the hands of a few large shareholders as in
Germany and Japan. But the pattern of shareholding is not as simple as the above statement seeks to
convey. The pattern varies the across the globe.

Our corporate sector is characterized by the co-existence of state owned, private and multinational
Enterprises. The shares of these enterprises (except those belonging to a public sector) are held by
institutional as well as small investors. Specifically, the shares are held by

(1) The term-lending institutions

(2) Institutional investors, comprising government-owned mutual funds, Unit Trust of India and the
government owned insurance corporations
(3) Corporate bodies
(4) Directors and their relatives and
(5) Foreign investors. Apart from these block holdings, there is a sizable equity holding by small investors.
2. The structure of company boards

Along with the structure of ownership, the structure of company boards has considerable influence on the
way the companies are managed and controlled. The board of directors is responsible for establishing
corporate objectives, developing broad policies and selecting top-level executives to carry out those
objectives and policies.
3. The financial structure

Along with the notion that the structure of ownership matters in corporate governance is the notion that
the financial structure of the company, that is proportion between debt and equity, has implications for
the quality of governance.
4. The institutional environment

The legal, regulatory, and political environment within which a company operates determines in large
measure the quality of corporate governance. In fact, corporate governance mechanisms are economic
and legal institutions and often the outcome of political decisions. For example, the extent to which
shareholders can control the management depends on their voting right as defined in the Company Law,
the extent to which creditors will be able to exercise financial claims on a bankrupt unit will depend on
bankruptcy laws and procedures etc.
Mechanisms of corporate governance
In our country, their are six mechanisms to ensure corporate governance:
(1) Companies Act

Companies in our country are regulated by the companies Act, 1956, as amended up to date. The
companies Act is one of the biggest legislations with 658 sections and 14 schedules. The arms of the Act
are quite long and touch every aspect of a company's insistence. But to ensure corporate governance, the
Act confers legal rights to shareholders to

(1) Vote on every resolution placed before an annual general meeting;

(2) To elect directors who are responsible for specifying objectives and laying down policies;
(3) Determine remuneration of directors and the CEO;
(4) Removal of directors and
(5) Take active part in the annual general meetings.
(2) Securities law

The primary securities law in our country is the SEBI Act. Since its setting up in 1992, the board has taken
a number of initiatives towards investor protection. One such initiative is to mandate information
disclosure both in prospectus and in annual accounts. While the companies Act it self mandates certain
standards of information disclosure, SEBI Act has added substantially to these requirements in an attempt
to make these documents more meaningful.
(3) Discipline of the capital market

Capital market itself has considerable impact on corporate governance. Here in lies the role the minority
shareholders can play effectively. They can refuse to subscribe to the capital of a company in the primary
market and in the secondary market; they can sell their shares, thus depressing the share prices. A
depressed share price makes the company an attractive takeover target.

(4) Nominees on company boards Development banks hold large blocks of shares in companies. These
are equally big debt holders too. Being equity holders, these investors have their nominees in the boards
of companies. These nominees can effectively block resolutions, which may be detrimental to their
interests. Unfortunately, the role of nominee directors has been passive, as has been pointed out by
several committees including the Bhagwati Committee on takeovers and the Omkar Goswami committee
on corporate governance.
(5) Statutory audit

Statutory audit is yet another mechanism directed to ensure good corporate governance. Auditors are the
conscious-keepers of shareholders, lenders and others who have financial stakes in companies.

Auditing enhances the credibility of financial reports prepared by any enterprise. The auditing process
ensures that financial statements are accurate and complete, thereby enhancing their reliability and
usefulness for making investment decisions.
(6) Codes of conduct

The mechanisms discussed till now are regulatory in approach. The are mandated by law and violation of
any provision invite penal action. But legal rules alone cannot ensure good corporate governance. What is
needed is self-regulation on the part of directors, besides of course, the mandatory provisions.
Systemic problems of corporate governance
• Demand for information: A barrier to shareholders using good information is the cost of processing
it, especially to a small shareholder. The traditional answer to this problem is the efficient market
hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are
efficient), which suggests that the shareholder will free ride on the judgements of larger
professional investors.
• Monitoring costs: In order to influence the directors, the shareholders must combine with others to
form a significant voting group which can pose a real threat of carrying resolutions or appointing
directors at a general meeting.
• Supply of accounting information: Financial accounts form a crucial link in enabling providers of
finance to monitor directors. Imperfections in the financial reporting process will cause
imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by
the working of the external auditing process.
Recent Corporate Governance failures
As we have discussed before, the creation of corporate regulation is often linked to perceived failures of
corporations and their management to behave in the way society expect them to. Corporate governance is
not an exception to this trend, and, as with accounting, different countries may well experience difficulties
at different times. For example, the development of British codes of best practice, which began with the
Cadbury Committee, can be related to governance scandals such as Polly Peck and Coloroll in the late
1980s and early 1990s. However, the wave of corporate scandals, mostly in the USA, at the turn of the
century has been marked not only by the number of cases but also by the effect they have had on
investor confidence and market values worldwide.
The combined impact of various US corporate scandals caused the Dow Jones Index to drop from a high
for 2002 of 10,632 on 19 March to 7,286 on 9 October, wiping out trillions of dollars in market value.
Investor confidence in the fairness of the system and the ability of corporations to act with integrity was
ebbing. According to a poll in July 2002, 73 per cent of respondents said that Chief Executive Officers
(CEOs) of large corporations could not be trusted (Conference Board, 2003). Amongst the many negative
effects of this was a worsening of the pension funding crisis caused by the dramatic drop in the value of
pension fund assets. It also increased the cost of capital and caused a virtual cessation in new securities
offerings. The International Federation of Accountants (IFAC) claims that while there has been a lot of
strategic guidance for business, there has been too little said about the need for good corporate
governance. These authors emphasize the fact that successful companies were visionary companies, with
a long track record of making a positive impact on the world. They did more than focus on profits; they
focused on continuous improvement. They took a long-term view and realised that they were members of
society with rights and responsibilities.
However, the long-term view is something of a rarity in many companies. A critical factor in many
corporate failures was:
• Poorly designed rewards package
• Including excessive use of share options (that distorted executive behaviour towards the short
term)
• The use of stock options, or rewards linked to short-term share price performance (led to
Aggressive earnings management to achieve target share prices)
• Trading did not deliver the earnings targets, aggressive or even fraudulent accounting tended to
occur. This was very apparent in the cases of Ahold, Enron, WorldCom and Xerox (IFAC, 2003).
Adelphia manipulated its earnings figures for every quarter between 1996 and 2002 to make it appear to
meet analysts' expectations. Some of the better known cases of financial irregularities are summarised in
following table.

Company Country What went wrong

Ahold NL earnings overstated

Enron USA inflated earnings, hid debt in SPEs

Parmalat Italy false transactions recorded

Tyco USA looting by CEO, improper share deals, evidence of tampering and
falsifying business records

WorldCom USA expenses booked as capital expenditure

Xerox USA accelerated revenue recognition

In terms of corporate governance issues, Ahold, Enron and WorldCom all suffered from
• Questionable ethics
• Behaviour at the top
• Aggressive earnings management
• Weak internal control
• Risk management
• Shortcomings in accounting and reporting
Corporate governance failure at Enron
EVERY time you turn a stone, another worm creeps out. That seems to be the story of the Enron debacle.
Not a day goes by without a new expose of wrong doing in the company that one begins to wonder if
there is anything in our systems and structure of an enterprise that can prevent such a catastrophe.
Enron is an excellent example where those at the top allowed a culture to flourish in which secrecy, rule-
breaking and fraudulent behaviour were acceptable. It appears that performance incentives created a
climate where employees sought to generate profit at the expense of the company's stated standards of
ethics and strategic goals (IFAC, 2003). Enron had all the structures and mechanisms for good corporate
governance. In addition, it had a corporate social responsibility task force and a code of conduct on
security, human rights, social investment and public engagement. Yet no one followed the code. The
board of directors allowed the management openly to violate the code, particularly when it allowed the
CFO to serve in the special purpose entities (SPEs); the audit committee allowed suspect accounting
practices and made no attempt to examine the SPE transactions; the auditors failed to prevent
questionable accounting.
The use of questionable accounting and disclosure practices, their approval by the board and their
verification by the auditors arose from a variety of forces, including:
• Pressure to meet quarterly earnings projections and maintain stock prices after the expansion of
the 1990s
• Executive compensation practices
• Outdated and rules-based accounting standards
complex corporate financial arrangements designed to minimise taxes and hide the true state of the
companies, and the compromised independence of public accounting firms.
Corporate governance failure at Wal-Mart
It has co-filed a shareholder proposal over concerns that Wal-Mart Stores Inc, the US supermarket group,
is failing to comply with its own governance standards. Karina Litvack, head of governance and
sustainable investment.
• Despite strong policies on paper, Wal-Mart has struggled to implement its standards across its US
business.
• 'Weaknesses in internal controls have eroded the company's reputation as an attractive employer
and are adding fuel to the fires of Wal-Mart's critics.
• Its failure to deliver on these policy commitments is inhibiting Wal-Mart's ability to expand into new
domestic markets.
• Over 'the past several years', it has become increasingly concerned by signs of failure in internal
controls that have led to government investigations and class action lawsuits by employees.
• Allegations include requiring employees to 'work off the clock' -- during breaks and after shifts --
systematic discrimination against women, and alleged questionable tactics to prevent workers from
voting for union representation.
• It got off to a promising start in 2005 with expectations of a dialogue with the independent
directors on the audit committee. But when this simply withered on the vine, Wal-mart had little
choice but to bring concerns about internal controls, labour violations and the erosion of the
company's reputation to fellow shareholders.
• Company was not interested in engaging in a productive discussion about how it builds and
supports a compliance culture and, as a result, they have joined an international group of large
filers led by the New York City Employees' Retirement System to file a shareholder proposal.
Corporate Governance failure at Satyam
It is one of Corporate India's worst unfolding chapters, What could be the reason behind such a huge
collapse? The top level management failed to estimate the intensity of the gangrene in the organization.
Questions also arise on the role of the auditors,and how such a magnitude of financial fraud could have
gone unnoticed. Corporate governance is a field which constantly investigates how to secure and motivate
efficient management of corporations. It has began as a corporate governance issue back in December
has now turned into a major financial scandal for the ages in India. The shares of Satyam Computer
Services has plummeted more than 90% in trading at the NYSE today, a stark reminder that investors
must always cover their backs or else get racked even by the big names in the industry. NYSE today
halted trading in Satyam Computer at its bourses in the US as well as in Europe after the Chairman
disclosed financial bungling at the Indian IT major.
A business will always have two sides, its not necessary to gain profits everytime, but to sustain in the
market the integrity is vital. Every day in some or the other place there is a merger or an acquisition
happening, but due to the projected image the co-players in the market are dropping out their plans of
taking over Satyam.
Undoubtedly there will be intense focus directed at the other Indian IT Services companies as well.The
Satyam corporate governance failure may also make its competitors bolder in terms of acquiring market
share created by its fallout, provided the indutsry can regain the trust of the same investors that Satyam
has deceived.
From this necessarily brief review of the evidence, and particularly of the sources of failure in financial
firms, draw some tentative conclusions. It is important to recognise, however, the evidence base for firm
recommendations on corporate governance in financial institutions is thinner than one would like, and
certainly not robust enough to offer a standardised set of recommendations valid at all times and in all
places.
Principal conclusions are:
• First, that people are more important than processes. Many of the failed firms, or near failed firms
which we have encountered, had Boards with the prescribed mix of executives and non-executives,
with socially acceptable levels of diversity, with directors appointed through impeccably
independent processes, yet where the individuals concerned were either not skilled enough for, or
not temperamentally suited to, the challenge role that came to be required when the business ran
into difficulty.
• Secondly, and in spite of first conclusion, there are some good practice processes worth having.
Properly constituted audit committees, and Board risk committees can play an important role, as
long as they are prepared to listen carefully to sources of advice from outside the firm.
• Third, and this is a foundation stone of the FSA's approach, a regulatory regime built on senior
management responsibilities is absolutely essential. In some of the cases we have wrestled with,
senior management did not consider themselves to be responsible for the control environment and
indeed, in the old pre FSA regime, were able successfully to claim that they were not responsible
even if the business failed. So our regulation is built on a carefully articulated set of responsibilities
up and down the business. It is important that they are not unrealistic. We do not expect the CEO
to check in the bottom drawers of each of his traders for unbooked deal tickets. But we do expect
the CEO to ensure that there is a risk management structure and a control framework throughout
the business which ought to identify aberrant behaviour, or at least prevent it going on unchecked
for any length of time.
• One consequence of this senior management regime, fourth point, is that regulators must focus
attention on the top level of management in the firm. For the major firms we regulate we insist
that our supervisors have direct access to the Board, and that they present to the Board their own
unvarnished view of the risks the firm is running, and of how good the control systems are by
comparison with the best of breed in their sector. Unfortunately, we find some resistance to this
approach. The management of some of our firms want to negotiate the regulators assessment, so
that when it reaches the Board it is an agreed paper and sufficiently bland to cause no debate.
Well-structured Board, and a confident management, should welcome an independent view, even
expressed at the Board level, which they may challenge and contest if they wish. And non-
executive directors should find it helpful to see a knowledgeable view of the institution which does
not come from or through its own senior management.
• Fifth and penultimate point may not be a popular one. Boards should take more interest in the
nature of the incentive structure within the organisation. I am not talking solely about the pay of
the CEO, important though that is to get right - as some firms in Britain have recently discovered.
Talking about ensuring that the incentives within the firm, and pay is a very powerful one, are
 aligned with its risk appetite. A number of our most problematic cases have their roots in a
misalignment of incentives.
• Lastly, no corporate governance system will work well unless there is some engagement on the
part of shareholders. Boards are responsible to shareholders. That is the received wisdom in Anglo-
American capitalism, at least. But if those shareholders are not prepared to vote their shares, and
show little interest in business strategy, then that accountability is somewhat notional, and unlikely
to be effective. Certainly regulators cannot hope to substitute for concerned and challenging
shareholders, though in some senses they may complement them.
Corporate Governance Failure at Cadbury
Adrian Cadbury, successor to and chairman of the Cadbury Schweppes confectionary group
Mr. Cadbury's visit and interactions with Indian industry triggered the first serious discussions on the
subject of corporate governance. All in all, it seemed like a promising new way of looking at the evil that
was single promoter-run firms in India then, who, among other things, ran their companies like fiefdoms
and were loath to give up control even if their shareholdings were low.
Recognise that it was a not so competitive environment, the grip of the license raj was still fairly firm and
companies and their promoter/founders could pretty much do what they wanted, with public money. The
real pain of liberalisation was yet to set in and the Infosys way of boardroom discipline was some way
from making its presence felt.
History it seems is repeating itself. Indian companies have exposed themselves to billions of dollars worth
of forex derivative contracts over the last few years. Precise numbers are hard to come by and will
perhaps never will. What is clear is that companies have taken financial risks they could or should have
avoided.
What is clearer is that there was no compelling reason to take these risks. And to that extent, it's a failure
of corporate governance and must be treated and then addressed as such. There is of course the other
issue of how the Institute of Chartered Accountants or the accounting regulator figuring out how to treat
derivative losses as they stand on scores of balance sheets today.
How did it happen? Companies have been steadily stepping up their exposure to currency swaps and the
like for at least four years now. Over time, as the stock markets (which bolster sentiment) have held their
own and the prospect of any downside risk appeared more and more distant with every passing day, chief
financial officers (CFOs) of companies have got braver.
If a company entered into, let's say, a transaction to convert a local currency borrowing into the Japanese
yen or Swiss franc borrowing through the swap route, then the company is inducing a risk into the system
where there is not. No two ways about that.
Managements ought to have, in the interests of corporate governance, clearly informed their boards of all
foreign exchange exposures, the risks arising out of that and the measures to mitigate them were
something to go wrong.
Moreover, under the relevant Securities & Exchange Board of India regulations, in the absence of an
applicable standard in India for derivatives, the companies' Audit Committees should have examined
international standards and disclosed the losses in the Governance report and indicated that these would
have been provided for had the country adopted international standards as applicable.
Its possible many companies did keep their boards informed and made the appropriate references in their
balance sheets. Though this does seem unlikely, even if they did, no one was watching. It's also possible
that some companies are in violation of law. Either way, shareholders must perhaps shoulder some part of
the blame.
To conclude is another Enron waiting in the wings? Not quite but it does raise some fundamental questions
on what companies do with their shareholders' funds. It's also about how when the good times roll,
everyone forgets to look at the figures closely. There is something in the original Cadbury committee
definition of corporate governance. "Corporate governance is the system by which companies are directed
and controlled."
Getting down to the details of governance, we can focus on five issues
Chairman and CEO: It is considered good practice to separate the roles of the Chairman of the Board
and that of the CEO. The Chairman is head of the Board and the CEO heads the management. If the same
individual occupies both the positions, there is too much concentration of power, and the possibility of the
board supervising the management gets diluted.
Audit Committee: Boards work through sub-committees and the audit committee is one of the most
important. It not only oversees the work of the auditors but is also expected to independently inquire into
the workings of the organisation and bring lapse to the attention of the full board.
Independence and conflicts of interest: Good governance requires that outside directors maintain
their independence and do not benefit from their board membership other than remuneration. Otherwise,
it can create conflicts of interest. By having a majority of outside directors on its Board.
Flow of information: A board needs to be provided with important information in a timely manner to
enable it to perform its roles. A governance guideline of General Motors, for instance, specifically allows
directors to contact individuals in the management if they feel the need to know more about operations
than what they are being told.
Too many directorships: Being a director of a company takes time and effort. Although a board might
meet only four or five times a year, the director needs to have the time to read and reflect over all the
material provided and make informed decisions. Good governance, therefore, suggests that an individual
sitting on too many boards looks upon it only as a sinecure for he or she will not have the time to do a
good job.
Reference:
1. For a good overview of the different theoretical perspectives on corporate governance see Chapter 15
of Dignam, A and Lowry, J (2006) Company Law, Oxford University Press ISBN-13: 978-0-19-928936-3

2. Corporate Governance International Journal, "A Board Culture of Corporate Governance, Vol 6 Issue 3
(2003)

3. Crawford, Curtis J. (2007). The Reform of Corporate Governance: Major Trends in the U.S. Corporate
Boardroom, 1977-1997. doctoral dissertation, Capella University.

4. SSRN-Good Corporate Governance: An Instrument for Wealth Maximisation by Vrajlal Sapovadia

5. Bhagat & Black, "The Uncertain Relationship Between Board Composition and Firm Performance", 54
Business Lawyer)

6. National Association of Corporate Directors (NACD) – Directors Monthly, "Enlightened Boards: Action
Beyond Obligation", Vol. 31Number 12 (2007), Pg 13.

7. Theyrule.net

8. Hovey, M. and T. Naughton (2007), A Survey of Enterprise Reforms in China: The Way Forward.
Economic Systems, 31 (2): 138-156.

9. Business for Development: Fostering the Private Sector . OECD Development Centre. Paris: OECD
Publications, 2007 (149-152).

10. Nicolas Meisel, Governance Culture and Development (Paris: OECD Publishing, 2004) SourceOECD, 27
July 2007

11. Corporate Governance in Development: The Experiences of Brazil, Chile, India, and South Africa. ed.
Charles P. Oman. OECD Development Centre and CIPE, 2006.

12. Nicolas Meisel, Governance Culture and Development (Paris: OECD Publishing, 2004) SourceOECD, 27
July 2007

13. The Disney Decision of 2005 and the precedent it sets for corporate governance and fiduciary
responsibility, Kuckreja, Akin Gump, Aug 2005

14. TD/B/COM.2/ISAR/31

15. "International Standards of Accounting and Reporting, Corporate Governance Disclosure". UNCTAD.

Ms. Shruti Mehta

Lecturer
Ms. Rachana Srivastavaare
Lecturer
Skyline Institute of Engineering & Technology
Greater Noida

Source: E-mail March 18, 2009

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S
ATYAM FRAUD; A FAILURE
OF CORPORATE
GOVERNANCE
OM PRAKASH YADAV
MONOLITH STATUE OF BUDHA AT HYDERABAD, THE HQ OF SATYAM

Satyam fraud is unfolding and so are the inherent

weaknesses of Corporate Governance in India. Ramalinga Raju, once a posture
boy of India’s growing software sector who could find a seat beside Bill Clinton
1
on the dais, has become a villain in the corporate world
for valid reasons.
His emotionally charged four and half page letter of startling revelations shook
the entire corporate world when he admitted of cooking the account and
inflating the figure by Rupees 5040 crores. He committed this fraud and tried to
hush up it by an abortive bid to purchase Maytas infra, a company created by
him and run by his son Teja Raju. The move was opposed by some of the
directors and thus last attempt of Raju to cover up the scam was thwarted. This
is the story in brief which all of us know.
This scam is being equated with Enron of USA because here also the scam was
orchestrated by its Auditor, Arthur Anderson, in Satyam, Price Waterhouse
cooper.
WHY DID RAJU UNFOLD THE SCAM HIMSELF-
There are two sets of serious questions which still desperately require answers.
Why did Raju, the mastermind of the entire fraud, accept the guilt? Why did he
choose to surrender before Police and not run away from India, which he could
have easily done? Why was this fudging done and for what? Secondly, what
were regulators and watch dogs like SEBI, ICAI, and independent directors
doing?
The question remained unanswered that whether this fraud shook the conscience
of Raju and he unravelled the truth out of sagacity, or he was simply unable to
hush up the matter which was increasing day by day assuming insurmountable
proportions?
2

No, simply not. It was a well calculated, well strategized blended with legal
opinion and well thought move to unfold the story and surrender before the
police.
Mahabharata, the Great War was caused due to Dhritarastra’s obsession for his
son Duryodhana. The lust of kingdom and its geographical expansion had led
many wars across the world.
 Like many fathers, Raju too wanted to create two separate empires
for his sons, Teja Raju and Rama Raju jr. He subsequently formed Maytas infra
and Maytas info for Teja and Rama respectively. By the end of the 20th century,
Satyam computers had made a name for itself on the globe and had emerged as
the 4th largest software in the country. The meteoric rise of the company can be
substantiated by the fact that it was established in 1987 as private company and
got listed by BSE in 1991. In 2001 its share was listed in NYSE and in 2004 it
made its place in European stock market. According to company’s statement, its
revenue exceeds to 2 bn USD in 2008.
Similarly Raju’s son’s companies also were moving with leaps and bound.
Maytas infra got the ambitious Metro projects and bagged many tenders
including one of construction of Technology Park.
It is in this perspective, the question that everyone is willing to ask is that when
everything was fit and fine then why did Raju fudge the account of the company
and commit countries biggest fraud.
The fudging of account had started when the Maytas
were formed. Raju started diverting the cash from
3

Satyam into Maytas and many other companies which he had formed either in
his own name or benami like Godavari bio, Godavari agro etc. In fact such
practices are very common and prevalent in many Indian companies and it
would not be a matter of surprise it similar frauds are unravelled more in future.
They do it for simple reasons, to help establish their kiths and kin. This ‘drain of
wealth theory’ is substantiated by the fact that the share of Promoters in the
company which was 25.6% in 2001, diminished to 3.6% in January, 2009.
Similarly by 2008 Raju had pledged almost all his shares and had thus siphoned
off most of his shares. In fact according to information retrieved from NSE, not
only Raju but CFO V.Srinivas, A.S.Murthy, V. Murli etc has sold shares of
3,6500, 3,14,000, 1,83,000 respectively. Raju inflated the account for increasing
the price of shares so that he and his accomplices get maximum profits, in
which he succeeded also. The day this news broke, the Satyam’s share was
soaring. He wanted to hush up the matter in December, 2008, when he made a
desperate but unsuccessful bid to purchase his son’s Maytas. It was vehemently
opposed by one of the independent directors Mangalam Srinivas, he
subsequently resigned. Thus the entire game plan of Raju was shattered. He, by
now had come to know that he is not going to succeed in his plan. He therefore,
wrote an emotional letter and confessed him fraud.
How did he do it? - As per the accounting practise,
the Bank accounts are presented before the Auditors of the company by the
CFO after its verification. It seems that the fraud was initially connived by Raju
and CFO
4

vadalamani srinivas. Later this nexus might have widened after possible
inclusion of auditors and the Bankers. The continuous inflating and cooking of
accounts, that too on such a big scale was going unnoticed and unchecked by
the auditors and the Bankers sounds absurd, therefore, the possibility of a
connivance of bankers and the auditors cannot be ruled out. CID has claimed
that Raju had inflated the numbers of the employees also, if it goes true, the
involvement of Banks would be proved beyond a shadow of doubt.
WHY DID RAJU SURRENDER AND NOT ESCAPE?-a
very pertinent question arises but surprisingly a very few is asking as to if Raju
was aware of the magnitude of his crime as well as quantum of its punishment
then why did he not escape and choose to surrender before the police.
Reasons are not far to search. The crime he has
committed
would
attract
sections
406,409,420,465,471, etc of IPC and section 628 of Company Act, 1956 and
can undergo imprisonment up to more than 7 years. He was fully aware of it but
at the same time he also knew that he would be sued in USA under provisions of
Security and Exchange Commission Regulation rule 10-5 B. These suits are
called Class law suits and the compensation awarded under this is huge. Raju
knew it and thought that his entire earnings and his family would be taken away
and would be left with naught. One the other hand, he fully understood the
loopholes in the Indian Criminal Justice system which hardly punishes white
collar criminals. Ketan Parikh
5

scam still is sub-Judice and is expected to go years and years. It is this scam
which ruined hundreds of Cooperative Banks across Nation and plummeted
Unit- 64 a popular mutual fund scheme of the UTI, India’s largest mutual fund
company. Harshad Mehta died without being finally convicted. Global trust
Bank scam is still under the labyrinth of law. Examples are many, results are
same. He therefore preferred to surrender than to face class law suits in USA.
IS CORPORATE GOVERNANCE IN INDIA NOT
WORLD CLASS? - Interestingly Satyam has bagged
Golden Peacock award for best corporate governance by World Council for
Corporate Governance only a few years ago. The scam has raised many doubts
about the class of corporate governance in India. While speaking at a seminar on
corporate governance organised by CII, Ministry of Company affairs and
National foundation of corporate governance, C.B.Bhave, the chairman of SEBI
said on 6th
February, 2009 that the corporate governance is an ongoing
process. There is a retrospection everywhere that some concrete steps with
respect to it should be done.
There are few importance elements of corporate governance namely Auditing,
Independent Directors, Regulators and Finally the Board including CEO itself.
If we examine these constituents one by one, it would be crystal clear that all the
constituents either failed or did not act as was required.
The role of Price waterhouse Coopers(PwC), the Auditing firm of Satyam has
been dealt. Institute of Chartered Accountants of India (ICAI) constituted under
6

Charter Accountants Act, 1949 is the regulatory body of all the accounting and
auditing firms across the countries. According to a report there is acute shortage
of qualified chartered accountants and auditors in India and around the world
also. The number of CAs passing every year is hopelessly small. It is
apprehended therefore that the auditing firms out source unqualified or semi-
qualified commerce graduates of Post graduates to do the auditing in the
companies. The prestigious firms get the assignment by virtue of their name and
fame which they recklessly sell in the market by out sourcing the auditors at a
very low remuneration. In case of Satyam, the man who was supposed to do
audit was incidentally executive member in ICAI.
In a startling revelation, the auditors say that they approved the accounts
because of Raju’s ‘towering presence’ suggests how ridiculously the auditing
was being done.
Thus if Scam occurred, the onus would undoubtedly go on the firm. The kind of
attitude which is adopted here in India in doing auditing is certainly not in
congruent with the standard of world class corporate governance.In fact if we
look at the functioning of institutions like ICAI, we would come to know that
they are in a way hijacked by a group of people. They have the vast statutory
powers but without any responsibilities.
 Over a period of time so many extra constitutional authorities
have come up in India and have taken up the State’s role and act as per their
own framed regulations. This needs to be changed. This is the need of hour.
Secondly, the independent directors have also failed to discharge their
duties properly. Section 49 of SEBI Act and section 229 A of Company Act,
1956
7

provides for appointment of Independent Directors in the Companies for

protecting the rights of public at large in general and shareholders in particular.
In the case of satyam T.R.Prasad, the retired Cabinet Secretary Govt of India
was one of the directors. It speaks a lot about the procedure of appointment of
independent directors. What kinds of people are being appointed in the
company? Moreover, they are appointed by the Companies themselves and pay
hefty salaries and perks for virtually doing nothing. Under this circumstance is it
thinkable that these Independent directors would dare to peep into the affairs of
the company against the wishes of the CEOs?
There are only two possibilities in Satyam with respect to Independent directors.
Either they connive with Raju and knew everything that was going on, or they
did not know. In both the cases they failed miserably to discharge their duties.
What is the need of such Independent Directors if they cannot do anything in
this matter? One unpalatable justification is given that the Independent Directors
participate in the meeting and are not concerned with autonomy of the company.
It should be bone in mind the Enron scam was exposed by Sherron Watkins, a
women independent director.
Thirdly, the SEBI and Ministry of Company Affairs too
have failed in their assigned jobs. SEBI is the highest regulator and keeps eagle
eye on the activities of the capital markets. When the profits of this company
were registering abnormal growth, thereby the prices of the shares were soaring,
what were these guys doing? There has been a lot of hue and cry with respect to
insider trading; a howl SEBI failed to listen to and it inflicted heavily on
Satyam. Raju had pledged almost all his shares so did many of the promoters.
The newly appointed CEO Murthy is also said to have sold about
8

3.14 lakhs shares including 40,000 in December itself belonging to him and his
family members. These are the insider trading. Although insider trading per se is
not illegal but it is unethical, moreover when Company’s high official who were
on share selling spree must had the idea of what was going in the company. All
such transactions are needed to be probed.
As a matter of fact the tax holidays for the IT-BPO companies also needs to be
said goodbye. Had Raju to pay the I.Tax according to the profits shown in the
accounts, he would not have fudged it to this scale. The ministry of Finance
must deliberate upon the entire gamut of issues related to tax heaven provisions.
INVESTIGATIONS, THE TASK AHEAD- the breaking of
news lead to reflexes in all the concerned, the SEBI,
ROC, State government and above all MOC.
The Ministry of Company Affairs (MOC) came into action and asked ROC in
Hyderabad to conduct preliminary inquiry. SEBI and state govt all jumped in
the fray. The state govt ordered CB CID inquiry and filed an FIR against Raju
and others by themselves as no one came to file a formal complaint against this
fraud.
After receiving the inquiry report from ROC, MOC order inquiry by Serious
Fraud Investigation Office (SFIO). Raju was remanded to judicial custody in
Chachalguda Jail and formal inquiry set in.
INQUIRY BY CID-CID made some commendable
headway and arrested CFO and others. They made a startling revelation by
saying that Raju had about 13000 ghost employees and had been drawing their
salaries for years. If it is true, the involvement of Banks in the entire gamut of
scam is beyond any doubt. It has also identified many Bank accounts of Raju as
well as CFO and other accused. Large amount of wealth in terms of Bank
account, real estates, false companies
9

etc have been traced. The investigation is still going on. Well the investigation
is limited to the provisions of IPC only. The CID must also look into the
possible nexus of Raju and politicians and bureaucrats, because the kind of
meteoric rise that Maytas made smacks of existence of such nexus. The bagging
of Metro project by Maytas infra must be brought to the ambit of investigation
because this project was awarded to Maytas in spite of Sreedharan’s opposition,
a man of impeccable reputation and whose knowledge about Metro is simply
unparallel.
SFIO AND SEBI- both of them have started the probe
in their own style. The SFIO has later been asked to cover as many as 325
public and private sector companies and 25 individuals under its enquiry by the
MOC. SFIO have seized some computers, documents and software of the
company in order to find out the roots of the scam. But due to the widening of
its inquiry, the result of this, probe is likely to be delayed by few more months.
Till date SFIO has not been able to procure remand from the court to grill Raju.
SEBI on the other hand has come out with a series of
new and so called stiffer guidelines for the listed companies. The promoters will
have to inform to it and the share market within 7 days about its pledging of
shares. Strict vigil is sought to be kept to check inside trading. But it seems that
still it has not understood the symptom of the disease. Experts in this field enlist
symptoms and prescribe prescriptions. There is, of course, no denying the fact
that prescription in retrospection is easy, but at the same time ‘prevention is
better than cure’. It is said that if a company suddenly changes the field and
diversify in a completely different are; it is harbinger of tragedy, as it
10

happened in Satyam. No one could foresee that why a premiere software

company started diversification in real estate (Maytas infra is a real estate
company).
Similarly, when a company’s growth is meteoric in terms of profits, it should
smell some rat. This is done in order to increase the value of share and once it is
achieved, the inside trading takes place. SEBI has rightly formulated that peers
accounting shall be done, it would minimise the chances of fudging the
accounts. SEBI must concentrate on the modalities of this scam so that the
offenders are brought to book and at the same time corrective measures are
taken.
Many experts suggest that if there is a sudden spurt in insider trading in any
company, the regulator should sound alarm bell. In this case the SEBI failed to
discharge this job and could not trace when it was going in Satyam.
PROBLEMS IN INVESTIGATION AND COVICTION-
The inquiry and investigation are being conducted by a number of agencies; it
therefore, is always a possibility of conflicting and intermingling of actions. To
avoid this there is need to evolve a mechanism so that a more coordinated and
concerted actions are taken and this investigation reaches to a logical
conclusion.
With respect to the preparation and submission of charge sheet against the
culprits including Raju u/s 173 of CrPC, utmost caution is required to be taken.
We should not forget that Raju has amassed huge wealth through this scam and
the investigating agencies have so far been unable to unearth his treasures. He is
capable of hiring the best legal brains available in the world that can tatter the
prosecution’s case due to a slightest loop holes.
11

The simplest theory in the criminal justice system is that the crimes including
white collar crimes are inherent part of the society, but the quantum of
punishments and pace of dispensation of justice are very important and serves as
deterrents.
USA enacted SARBANES OXLEY ACT, 2002, one of the toughest
penal laws with respect Corporate and Capital market crimes after Enron scam.
Chapter IX and SECTION 901. of this Act SHORT
TITLED ‘‘White-Collar Crime Penalty Enhancement Act
of 2002’’ provides for the penalty for such crimes. In fact section 906 of this
Act provides for 20 years of imprisonment, whereas in India, the Company’s
Act, Section 628 provides for 2 years imprisonment only. It is perhaps due to
this fact that sufficient deterrent is conspicuously absent in India and fraud after
fraud are taking place. The govt will have to come up with a harsh legislation in
this regard so that the culprits are severely punished.
12

SATYAM FRAUD; FAILURE OF

CORPORATE GOVERNANCE
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The fraud committed by Ramalinga Raju in Satyam computers is the biggest corporate fraud in
India. Among other things, it is also a case of failure... (More) The fraud committed by
Ramalinga Raju in Satyam computers is the biggest corporate fraud in India. Among other
things, it is also a case of failure of corporate governance (Less)
software
auditing
Sebi
RBI
Corporate Governance
Satyam
price waterhouse coopers
itbpo
chartered account
(more tags)
software
auditing
Sebi
RBI
Corporate Governance
Satyam
price waterhouse coopers
itbpo
chartered account
sfio
satyam industries
governace
accountants
made
failure reason
failure corporate
scam ex
corporate governes
stories
ramalinga raju
(fewer)
Om Prakash Yadav
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Government and Sarkari Jobs in india
By: Kamaldeep Singh|2010-09-27|Recruitment
On this text we are going to focus on in regards to the Government Jobs in india or Sarkari
Naukri from Indian Govertment Sector,Recruitment Companies and PSU. in Immediately\'s
Time, Market goes up and down very fastly. This is creating very drastic modifications in
industry.
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Meaning of corporate governance in india
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Yogesh Giri - To know more regarding corporate uniforms in UK click link:
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VK Singh - Please visit our website businessmantra.org for MSME Expo and
Entrepreneurship in india.

Alice Shown - CGC Inc. Online provides range of services including corporate
governance consultancy, corporate governance training, real estate, citizenship
program in St. Kitts & Nevis. Visit Cgcinconline.com for more information!

Kamaldeep Singh - Online Duniya provide various information about Governement

Jobs in india and Government Jobs in Delhi

IvoireConsultancy - Ivoireconsultancy.org is an online outsourcing site where

businesses and consultants meet to work on projects.

John Whonderr-Arthur, Esq - Article Source: http://ezineseeker.com/?

expert=John_Whonderr-Arthur,_Esq

J Taylor Grenough - Article Source: http://ezineseeker.com/?

expert=J_Taylor_Grenough

Article Manager - AllGovtNaukri.Com is a Job Portal which provides

Employment/Recruitment Examination's information of all the Government Jobs in
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the Govt Jobs in india.

Hany Abou-El Fotouh - Hany Abou-El-Fotouh is Director Policy & corporate Affairs /
Board Secretary, CI Capital Holding - the investment banking arm of Commercial
International Bank which is the largest private bank in Egypt . He provides advice
and direction to the Board and management with respect to corporate
governance practices and formulates corporate policies.

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