SATYAM

Scandal
Group 2
IIM Raipur
 Introduction

Biggest corporate scam

Fictitious assets with real ones
Fraud involving about Rs 8,000
crore
Astounding confessions of B.
Ramalinga Raju
Reputation of Indias IT sector.
Company was listed with NY stock exchange, NSE and
BSE.
There were 52000 employees working in Satyam in
2008.
Mislead various investors
Used dummy accounts

Violated Insider trading

Norms
Withdrew INR 20 crores each month to pay non existing
13000 employees.
 Few Questions!!

How did Raju manage to

cook up his books and Why was Raju
what was his actual forced to blow his
accounting techniques to
manipulate the accounts
own whistle?
for a period of eight
years?

"Why wasn't there a

stricter punitive action
What was the need against the auditors of
to commit a fraud Satyam(Pricewaterhous
on such a large eCoopers)?"
scale?
Why SATYAM tempted to break the law

0 Infosys, Satyams
0 1990s
4
competitor, has
been recording
liberalization
1 period tremendous
growth
0 It started as an
0 Increasing attempt to cover
competition 5 up the bad
2 performance in
one quarter
0 to spice up Satyams
06 Overconfidence in his
account to show the ability to turn things
3 companys performance around
How scam was related to MAYTAS

Its group of companies Raju was blamed to use

founded by B.Raju Satyams money for family
business

Property development World bank banned satyam

company to take services for 8 years
(Documentation)

Originally Infra run by Termed as Enron Scandal

Satyam
 Implications

Stock prices of Satyam fell from Rs 544 in 2008 to Rs.11.10 in 2009

Rs 14000 crore loss incurred by shareholders of Satyam Computers
Job of 40000 employees at stake
Scam effect has started its infectious presence US listed stocks of other companies
took a severe beating.
It has caused a serious damage to India Incs reputation as well the reputation of
Indian regulatory authorities.
Before Scam it was 4th biggest IT company which became the least value company
in 2009
A special CBI court on sentenced B Ramalinga Raju, his two brothers and
seven others to seven years in prison in the Satyam fraud case

Indian Institute of Management

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Raipur
 What led to biggest Accounting fraud

Unethical corporate governance and fraudulent practice allegedly

in connivance with auditors and accountants
The promoters are primary culprits, although it is almost impossible
to misrepresent such facts without the connivance of the auditors
and some executive board members
Independent directors, it seems, were kept in the dark about the
actual books of accounts.
The role of external third party auditors, who were tasked to ensure
that no financial bungling is undertaken to carry out promoters
interest or hide facts, have also been brought to question,.(PWC)

Indian Institute of Management

8
Raipur
ETHICS &VALUES IN MANAGEMENT
 Importance of Ethics in Business

Ethics in business is influenced by the culture of the

company

Taking right course of action may involve rejecting short

term profits

Benefits of ethics in business

Attracting customers
Attracting investors
Reduced Turnover rate
Helps in retaining talented employees
Creates goodwill in the market
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10
Raipur
 Impacts and Lessons Learnt

Impacts :
Ripple effect
Impacts FDI

Lessons learnt :
Transparency should be very good
Tighter norms for Chartered accountants
A cap on revenues, at 10%, to an audit firm
Independent directors should have sound technical skills
Should have an effective Whistle blower policy
Need for education on ethical values

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Raipur
Ethical Issues Involved

Not following Tampering

corporate
governance
the financial
norms data

Misleading Putting self-

interest at the
the expense of
shareholders shareholders
fund interests
 Ethics in Business

Ethical choices are difficult for businessman because :

Bottom line is unforgiving in

todays competitive
business world
Pressure for results is much
too higher
Indian Institute of Management
13
Raipur
 Is the Corporation a Moral Agent?

According to law, the corporation is a person, distinct in its personality from the persons who bear ownership
shares in it (its shareholders) or conduct activities on its behalf (its directors, officers, and other employees

If the corporation is a legal person, is it also a moral person?

Business ethicists have taken a variety of positions on the question whether the corporation is a moral person
or a moral agent

Moral lessons to be learnt

Humility helps while at the same time Ego hurts.

Think of a Rainy day, always.

Distinguish between opportunities & temptations.

Build quality teams & enable succession.

Adapt with technology/knowledge changes at the same time stay static on fundamentals.

Many good things done get washed away in one bad conduct.

Ability may take you to the top but it takes Character to stay there.
 Our Recommendations
Mr. Raju should have
analysed the consequences
of his wrong doings.
STEP ONE
He should have thought the
following questions-
Who will be helped by what you
do?
Who will be hurt ?
What kind of benefits and harms
are we talking about?
A course of action
Mr Raju should have
analysed his actions Make a Decision
STEP TWO STEP THREE
against moral principles like After careful analysis of both the
honesty, fairness, equality, steps given before, one should go for
respecting the dignity of others, the one which, fits well into the
respecting people's rights, and situation.
recognizing the vulnerability of
individuals weaker or less fortunate
than others?
 If there were one or two more such accounting scandals in the next six months, it would make
international investors more wary, says Wharton management professor Michael Useem

An immediate impact could be skepticism on the part of clients about whether Indian IT firms can
be entrusted with sensitive financial information. Clients could begin to ask, How much do I
know about this IT company and its governance?' says Aron.

There are several major international conventions, the OECD

Convention of December 1997 on Combating Bribery of
Foreign Public Officials in International Business Transactions
being the earliest. India is a signatory to the United Nations
Convention Against Corruption (UCAC), established in 2005
There are also various voluntary organizations such as
Transparency International with powerful members, which have
been party to anti-corruption instruments, and key tests, for
distinguishing soft and hard corruption between bribes, gifts and
consultancy payments, and acknowledging that in certain countries
some of these are a must for basics. However, none of these
have been effective, largely because they lack an effective
enforcement mechanism.
 To avoid such tragedies

Board of Law
Audit The law and
empowered to administration
conduct surprise should come down
audit or on heavily on breach
complaints of of trust and fraud
whistle-blowers

Monitor Independe Promote

Audits nt
The same auditor The Department Incentives should
should not be directors
of Corporate be provided to
allowed to Affairs should Whistle-blowers.
continue for more create a pool of
than 3 years with independent
a Company. directors with high
integrity and
prescribe for them
adequate
remuneration.
 Conclusion

Satyam scam is unparalleled in the corporate history of India, and as some

keen corporate observers point out, the world itself.

The idea of a corporation, and the values and principles that should guide its
governance must be imbibed by promoters.
Because,
An careless administration, ill-equipped regulatory system and terribly
delayed justice delivery process only make things easier for the corporate
crooks to make a killing.

Corporate governance framework needs to be implemented in letter as well

as spirit. The increasing rates of white collar crimes demands stiff penalties
and punishment.

Creating an awareness of the large consequences of small lies may help

some to avoid this trap.
Thank you.

Indian Institute of Management

19
Raipur