A Study on the Corporate Governance Issues at

SATYAM COMPUTERS CONSULTANCY LTD

Subject: Business Ethics

 CONTENTS

PARTICULARS PAGE NO.

Introduction to Corporate Governance 1-4
Relevance in the present Scenario 5
Introduction to Satyam computers 6-7
consultancy ltd
Details of the case 8-11
Importance & learning of the study
 CORPORATE GOVERNANCE

Corporate Governance is typically perceived as dealing with problems that

result from the separation of leadership & control.

Shareholder

Board
Managemen
t
Employees

DEFINITION:-

Corporate Governance may be defined as holding a balance between

economic & social goals & between individual & commercial goals.
A good corporate governance is one where a firm commits & adopts
ethical practices across its entire value chain & in all of its dealing with
a wide group of stakeholders encompassing employee, customer,
venders, regulators & shareholders in both good and bad times.

DESIDERATA OF CORPORATE GOVERNANCE

Right of Shareholders: The right of shareholders are namely as below:
 They should secure ownership of their shares.
 They have voting rights.
 They have right to full disclosure of information.
 They can participate in decision on sale or any other change in corporate
assets & new shares.
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 Equitable treatment of shareholders: All the shareholders including minority
and foreign shareholders should get equal treatment.

Disclosure & Transparency: The disclosure and dissemination of key

information about the company to all those entitled for such information.

Responsibilities of the Board: The functions of the board include

protecting the company, its shareholders & all its other stakeholders. The
functions would include concerns about corporate strategy, risk, executive
compensation & performance, accounting & reporting system, monitoring
effectiveness & changing them, if needed.

ISSUES IN CORPORATE GOVERNANCE

Distinguishing the roles of Board & Management:

The functions of the board include the below

 Select, decide the remuneration & evaluate on a regular basis, and
if necessary, change the CEO
 Oversee the conduct of the company’s business
 Review & where necessary approve the company’s financial
objectives & major corporate plans & objectives.
 Provide advice & counsel to top management.
 Select & recommend candidate to shareholder’s for electing them to
board of directors
 Review any other functions to be performed by law.
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Seperation of the roles of the CEO & the Chairman: The roles of the
CEO and the Chairman are different. The CEO takes care of the senior
management whereas the chairman takes care of the board.

Appointment to the board & reappointment: The board or its specially

appointed committee selects & appoints the prospective director and gets
the person formally elected by the shareholders at the ensuring Annual
General Body Meeting.

Directors & Executives Remuneration: This is one of the mixed & vexed
issues of corporate governance that first came to the center stage. The key
issues would include
 Transparency
 Justifiability of the pay in the context of performance
 The process adopted in determining it
 Severance payments
 Non-executive directors’ pensions
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Protection of Shareholders rights & their executives:

There are a number of questions relating to this issue as

1. Should companies adhere to 1 share 1 vote principle always?

2. Should companies retain voting by a show of hands or by poll?
3. Can shareholders resolution be bundled?
4. Should shareholders approval be required for all major transactions?

MAJOR THRUST AREAS OF CORPORATE GOVERNANCE

The six major thrust areas of corporate governance are as bellows:

1. They call upon government to put in place an effective institutional

and legal framework to support good corporate governance practices.
2. They call for a corporate governance framework that protects and
facilitates the exercise of shareholders rights
3. They strongly support equitable treatment of all shareholders
including minority & foreign shareholders.
4. They recognize the importance of the role of stakeholders
5. They stress the importance of timely, accurate and transparent
disclosure mechanism.
6. They deal with the board structures & responsibilities.
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RELEVANCE TO THE PRESENT SCENARIO

Satyam scam was not an easy issue. It has its own complexities as it involved
14000 crore scam. Satyam scam had been the example for following poor
governance
Practices. It had failed to show good relation with the shareholders and employees.

So as to throw a light on the poor governance practice at one of the major IT

giants, the need to study such case is made important. Taking this scam as a role
model, it could be suggested that there is a need to frame up good governance rules
and see to the proper implementation of it.
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INTRODUCTION TO SATYAM
COMPUTER CONSULTANCY LIMITED
SATYAM COMPUTER CONSULTANCY LIMITED was established on
June 24 1987. the founder of such organization was mr.Ramalinga Raju.
Chief executive officer at the time of the scam was Mr. Ram Mynampati
And chief financial officer of such was mr. Valdamani Srinivas.Non executive
directors were Krishna Palepu & Vinod.K.Dham. satyam computer consultancy
limited has its headquarter at Hyderabad.

Satyam computer services limited has its several subsidiaries:

 1) Satyam BPO
 Citisoft
 CA Satyam
 STI
 Bridge Consultancy

The various services offered by the satyam compute consultancy limited

Included:

 Application Software
 Business process outsourcing
 Business value enhancement
 Consulting and Enterprise Solution
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 Infrastructure Management Service
 Integrated Engineering Solution
 Product and Application Testing
 Six Sigma Consulting

Offices of satyam computer consultancy limited are located global at

America, Europe, Middle East Africa.

SCS had achieved several awards and achievements for its meritorious work.
To name a few:
1) UK trade and Investment India business award for “ CORPORATE
SOCIAL RESPONSIBILITY”
2) Ranked No.1 in American society for and development best
award 2007.

After the scam of rs.14000 crore came into light, the board of members were
Replaced temporarily by experts. Several board members retired voluntarily.
Even the auditing company, named KPMG was penalized. Several bidding
took place for acquiring satyam by several companies. The final three bidders
for satyam were L&T, Spice group and tech mahindra.

After the successful bidding, Tech mahindra acquired satyam and the
new chief executive officer is Mr. C.P. Gurnani. The two independent
directors are C.Achuthan and T.N.Manoharan. working directors included
Mr. C.P.Gurnani and MR.Vineet Nayyar.

DETAILS ABOUT THE CASE- SATYAM SCAM

The case examines the corporate governance issues at the India based IT
services company, Satyam Computer Services Limited (Satyam). In mid-December
2008, Satyam announced acquisition of two companies - Maytas Properties and
Maytas Infrastructure owned by the family members of Satyam's founder and
Chairman Ramalinga Raju (Raju). It planned to acquire 100% and 50% stakes in
Maytas property and infra for $1.6B. Due to adverse reaction from institutional
investors and the stock markets, the deal was withdrawn within 12 hours. Questions
were raised on the corporate governance practices of Satyam with analysts and
investors questioning the company's board on the reasons for giving consent for the
acquisition as it was a related party transaction.

After the deal was aborted, four of the prominent independent directors
resigned from the board of the company. In early January 2009, Raju
revealed that the revenue and profit figures of Satyam had been inflated for
past several years. The following were the inflated figures:

 Inflated cash and bank balance Rs.5040cr

 Non existent accrued interest Rs376cr
 Understated liability of Rs.1230cr
 Overstated Debtor position of Rs.490cr
  Inflated staff by 12000 ( Actual were 40000)
 Revenue of Rs.2700cr (Actual were Rs.2112cr)
 Operating margin to be 6494 cr ( Actual were 61cr)

INDIA’S LARGEST FRAUD- Rs.7800crore( now estimated as 14000

crore)

As per the definition of corporate governance discussed above,

A good corporate governance is one where a firm commits & adopts

ethical practices across its entire value chain & in all of its dealing with
a wide group of stakeholders encompassing employee, customer,
vendors, regulators & shareholders in both good and bad times.

Corporate governance includes various parties:

1) shareholders
2) employees
3) management
4) bankers
5) government

Governance issue at Satyam arose because of non fulfillment of

obligation of the company towards the various stakeholders. It proved a
poor relationship with all the stakeholders.
It is well known that a shareholder has a right to get information from the
organization, such information could be with respect to the merger and
acquisition. Shareholders expect transparent dealing in an organization.
They even have right to get the financial reporting and records.

In the case of satyam, the above obligations were never fulfilled. The
acquiuisition of maytas infrastructure and properties were announced,

without the consent of shareholders. They were even provided with false
inflated financial reports. The shareholders were cheated.

It is well known that the collapse of any organization’s reputation has a

diect impact on the employee’s job. As per the case, employees were
shown with a inflated figure. The excess of employees in the organization
were kept under VIRTUAL POOL who received just 60% of their
salaries and several were removed.

The entire scam had its impact on management. Questions were raised
over the credibility of management.

Any organization has its obligation towards the Government by means of

timely payment of taxes and abiding by the rules and laws framed up by
the Government. As per the case with satyam , the company did not pay
advance tax for the financial year 2009. As per the rule, the advance tax
is to be paid 4 times a year; such was not fulfilled by them.
 Finally the satyam computer consultancy limited didn’t have good
relationship iwt bak too. SCS was blacklisted by world Bank over
charges of Bribery.It was declared ineligible for contracts to providing:

1) improper benefit to bankstaff.

2) Failing to maintain documentation to support fees.

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The revelation further deepened concerns about poor corporate

governance practices at the company. The case describes the corporate
governance structure at Satyam, its code of conduct, roles and
responsibilities of different committees under the board, whistle blower
policy etc. It highlights the role played by the independent directors of
Satyam in approving the Maytas deal and discusses their limitations.
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CONCLSION:
As earlier stated that corporate governance consist of four parties. In case of
satyam fraud, board is unable to fulfill its role & responsibilities.

SHARE HOLDERS

BOARD

MANAGEM
ENT

EMPLOYEES

Now we discuss the responsibilities that should be followed ethically by

board and what is actually did –

Ethical responsibilities:
•governing the organization by establishing broad policies and objectives;
•selecting, appointing, supporting and reviewing the performance of the
chief executive;
•ensuring the availability of adequate financial resources;
•approving annual budgets;
•accounting to the stakeholders for the organization's performance.
Actual scenario:
 Despite the shareholders not being taken into confidence, the directors
went ahead with the management's decision.

 The government too is equally guilty in not having managed to save

the shareholders, the employees and some clients of the company
from losing heavily.

 Simple manipulation of revenues and earnings To show superior

performance

 Raising fictitious bills for services that were never rendered.

 To increase the Cash & bank balance correspondingly.

 Operating profits were artificially boosted from the actual Rs 61 crore

to Rs 649 crore.

Its financial statements for years were totally false, cooked up and...
 Never had Rs 5064 crores (US$ 1.05 Billion) shown as cash for
several years.

 Its liability was understated by $ 1.23 Billions.

 The Debtors were overstated by 400 million plus.

 The interest accrued and receivable by 376 Millions never existed.

So when the case came in light following are the actions that has been
taken:
• Nasscum sets up panel to avoid satyam like case in future- formed a
corporate Governance & ethics committee, chaired by N.R.Narayana
Murthy (chairman and chief mentor of Infosys.)

• Hinduja Global chalks out 100 day plan for satyam.

• 8 Year ban on satyam to be reviewed.

 • Govt. orders CBI to probe fraud ( concerned about 52000 employees)
- agencies ( 3 months time to probe)-

 Serious fraud investigation office(SFIO)

 Market regulation SEBI,

 Institute of chartered accountancy India (ICAI)

 Andhra police

The Sebi had in December given a clean chit to Satyam in the probe on
violation of corporate governance law.
The government has realized the need of code of conduct & whistleblower
policy, now we will discuss what is these terms and how they played an
important role.

CODE OF CONDUCT:
This Code of Business Conduct covers a wide range of business practices and
procedures. It does not cover every issue that may arise, but it sets out basic
principles to guide all employees and officers of the Company. Those who violate
the standards in this Code will be subject to disciplinary action, including possible
dismissal. Furthermore, violations of this Code may also be violations of the law
and may result in civil or criminal penalties for you, your supervisors and/or the
Company. The basic principles discussed in this Code are subject to any
Company policies covering the same issues:
• Compliance with Laws, Rules and Regulations

• Conflicts of Interest

• Corporate Opportunities

• Competition and Fair Dealing

• Political Contributions

• Discrimination and Harassment

• Health and Safety

• Confidentiality

• Protection and Proper Use of Company Asset

BIBLIOGRAPHY
1) www.google.com
2) www.wikipedia.org
3) Business ethics: concepts and cases- velasquez.