Organizational Behaviour

Project II
Organizational Failure: The Satyam Saga

Group Members (D/3):

Daisy Basumatary 197
Dass Banty Ashok 198
Devashish Agarwal 200
Prateek Vijaivargia 225
Ravi Rambhatla 231
Satheesh Gowtham 233
Sathyamoorthy M 234
Shivakumar R 237
 Satyam Computer Services Ltd
• Satyam a leading global business and information technology
company, delivering consulting, systems integration, and
outsourcing solutions to clients in over 20 industries.
• Satyam Computer Services Ltd was founded in 1987 by B.Ramalinga
Raju.
• The company offers information technology (IT) services spanning
various sectors, and is listed on the New York Stock Exchange,
Euronext and Bombay Stock Exchange
• Satyam's network covers 55 countries across six continents.
• Serves over 489 global companies, 156 of which are Fortune
500 corporation
• Golden Peacock award for Excellence in Corporate Governance
A Pioneer…
Pioneered delivery of offshore service (John Deere & Co.)

First Indian Co. to set-up dedicated satellite link

First IT company to get ITAA certification

Set-up India’s first private ISP – SIFY

Among world’s first 10 companies to get SEI-CMM Level 5 assessment

Forming Alliances with best of breed technology vendors very early on

Adoption of Verticalization and a customer-centric organizational Structure

Pioneered ITES quality framework – eSCM

Among the first to be certified under BS 7799 for ISMS

First & only Lead Auditor for eSCM

3.0 The chronology of satyam failure
…and trusted by

 8 of the top 10 Auto majors

 7 of the top 10 Electronics and Electrical Equipment Manufacturers

 6 of the top 10 Pharmaceutical companies

 4 of the top 5 Networking and Other Communication Equipment

Manufacturers

 3 of the top 5 Healthcare companies

 2 of the top 5 Securities companies

 Satyam Board Structure
Other B.Ramalinga Raju
B.Rama Raju
Promoter & CEO Independent Promoter &
Directors Chairman

Ram Mynampati
Whole time Srinivas Vadlamani
Executive Director Chief Financial
Officer

Dr/ M.
Srinivasan Prof. Krishna Mr. Vinod K Prof. M Mr. T R Prof. V S
G Palepu Dham Rammohan Prasad Raju
Rao

GTB/Dr. Sasken Communication/ ISB Dean/

Former
Reddy’s Hellsoft /Montalvo Systems Bharat
CabinetSecretary /GMR
Laboratories and Newpath electronics
Infra/ GVK Taj
4.0 The Analysis: Sources/Causes
Satyam – Share holding Pattern

Total Market capitalization of Rs.

15,262 Cr
(As on Dec 16, 2008 )
 BUSINESS
5.0 Moral and Ethical failure
ENVIRONMENT
6.0 Measures to avoid such recurrences
 Time-Line
21 April 26 Jan
2008 2009

22 Sep
2006
2008

Satyam receives the Golden

Peacock Award for excellence in
Corporate Governance from World
Satyam becomes first council
Indian company to
publish IFRS audited
Satyam financials
revenues
cross $1
Billion
 Time-Line
16 Dec 17 Dec 26 Jan
2008 2008 2009

Satyam gets board

approval for controlling Satyam backs out of
stake in Maytas Maytas deal citing
Infrastructure and investors protest
Maytas properties as
fully owned subsidiary Major Clients of
for $1.6B (Rs. 8000 Cr.) Satyam express
dissatisfaction.
Contracts worth $200
million up for grabs

Satyam shares plunge 55 Board meeting to be

percent in NYSE. BSE share held on Dec 29 for
plunges over 30% proposed buyback of
shares
 Time-Line
19 20 23 26Jan
Dec Dec Dec 2009

British mobile solution World Bank bans Satyam for 8 years

provider Upaid files a law suit
against Satyam in a district
Court in the US over Maytas
deal. May face $1 Billion in
penalties
due to inappropriate payments to
staff and inability to provide
information sought on invoices

Centre refers
Satyam deal to
Registrar of
Companies
(RoC)
 Time-Line
26 28 29 26 Jan
Dec Dec Dec 2009

3 more Independent Directors resign. Mendu

Rammohan Rao, Krishna G Palepu and Vinod K
Board meet initially Dham
scheduled for 29th
postponed to 10th
1st independent January
director Dr.
Mangalam Board announces
Srinivasan resigns exploring option for Satyam asks DSP to Rumors in market
from Satyam buyback of shares review board about strategic
board to restore investor structure takeover by IBM,
confidence Accenture
Satyam objects to
world bank IL&FS sells 44.1 lakh shares
statements, asks Promoters disclose that their pledged shares of Satyam
to apologies or entire holding in Satyam promoters in 1 day. Promoters
face legal action
pledged with institutional equity reduced from 8.6% to
lenders since 2006 aprrox 7%
 Time-Line
30 02 03 26 Jan
Dec Jan Jan 2009

Post cancellation Satyam board confirms

of deal, Maytas promoters stake to be around
looks for raising 5%. Further 3.2% still pledged.
IL&FS sells further
$500 million
44.27 Lakh pledged
through sale of
shares taking the
equities and
tally to 1.5 crore
properties
pledged shares

Satyam-Upaid case
hearing over the
Maytas deal in Texas
court on January 8.
 Time-Line
05 06 26 Jan
Jan Jan 2009

Tech Mahindra (Revenues

Total pledged shares sold by 3766 Cr.) offers to merge
IL&FS reaches 2.5 Cr. in last 13 with Satyam (Revenues
days. Promoters stake down to 8473 Cr.)
Promoters stake in 3.6%. Still a further 1.7% are
the company down pledged
to 4.5%
The Night Before 7th Jan
SEBI considers
proposal to make it Merill Lynch discovers serious
mandatory for irregularities in books of accounts
promoters and and approaches regulator SEBI for
majority share holders further course of action and its
to disclosed pledged inability to investigate further. DSP
shares to stock submits report to SEBI and Satyam
exchange management late night.
 Time-Line
07 26 Jan
Jan 2009

09:45 A.M. ADR’s crash 90% Hunt for Raju brothers

Satyam Chairman Satyam BSE scrip falls 78% begin. Amid speculation
Ramalinga Raju writes the over his whereabouts, 
letter to the company Raju is believed to have
board DSP snaps ties with left for the United States
satyam. in connection with a court
case.
Ram Mynampati takes
over as interim CEO
according to Raju’s letter Satyam stripped of
Golden Peacock award
Auditing firm PWC under
scanner
NSE removes Satyam from its benchmark index Nifty. It
will be replaced by Reliance Capital with effect from
Govt. instructs RoC to January 12. It will also be removed from various other
review report indices like CNX 100, S&P CNX 500,CNX IT and the CNX
Services sector index
 Time-Line
08 09 10 26 Jan
Jan Jan Jan 2009

PwC in major BSE to replace Satyam

Computer with Sun Former CFO Valdamani
trouble. Stocks of
Pharmaceutical in its
PwC clients take a Srinivas remanded to
benchmark index Sensex
major beating at with effect from January
judicial custody
the BSE and NSE 12.

CFO Valdamani Srinivas, Raju brothers arrested by the police on

who is the financial charges of criminal conspiracy,
custodian of the cheating, forgery, misappropriation of
company resigns funds and criminal breach of trust.

PwC shot back at Satyam, saying in

a media statement that the auditing
was based on the audit evidence
provided by Satyam and in was
accordance with applicable
standards. 
Market Capitalization of satyam falls to Rs. 1,607
Cr from Rs.15,262 Cr. on Dec 16 in 19 trading
sessions.
 Time-Line
13 14 15 16
26 Jan
Jan Jan Jan Jan
2009

Government
hands satyam case Maytas stocks hit
to SFIO 23 year old the lower circuit
employee of satyam for 7th
commits suicide in consecutive
Chennai trading session

The newly appointed 3 member

board appoints auditing firm KPMG
and Delloitte to assist it in cleaning
the mess in the scam tainted
company’s accounts
The government expanded the three-
member Satyam board to six to include S
Balakrishnan of Life Insurance Corporation,
Tarun Das, chief mentor of the
Confederation of Indian Industry and T N
Manoharan, former president of the
Institute of Chartered Accountants of India
 Why on 7th Jan 2009?
• DSP Merrill Lynch informed SEBI about
Material irregularities in Accounts on 6th Jan

• Minutes of Meeting of 16th December,2008 were

not submitted to RoC-(This created some doubts)

• Hearing of Upaid- satyam case on 8th Jan at the US

court
Fake FD receipts and Employee Nos.??

Take FD
receipt
The money Tell to Banks
has already FD receipt is
vanished Lost

At the end
show the Ask for
original FD Duplicate
receipts Repeat the Receipts
procedure

Park the
Money Use the Duplicate
in other to Withdraw
Bank money
Parallel Finance Department ???

Mr. Raju

RamaKrishna
PWC Auditors
VP Finance
 CORPORATE GOVERNANCE
• Corporate governance is an internal system encompassing
policies, processes and people, which serves the needs of
shareholders and other stakeholders, by directing and controlling
management activities with good business objectivity,
accountability and integrity.

• Commonly accepted principles of corporate governance include:

 Rights and equitable treatment of shareholders:

 Interests of other stakeholders:
 Role and responsibilities of the board:
 Integrity and ethical behaviour:
 Disclosure and transparency:
 LACK OF CORPORATE GOVERNANCE
In Case of SATYAM COMPUTERS

• In satyam computer case this is the main

problem because here every decision taken by
the Mr.Ramalinga Raju in not in the favour of
shareholders and stakeholders .

• So the six independent directors quit the satyam

board . It shows the lack of corporate
governances in the company.
 Failure of Supervisory and Regulatory
Agencies
• The statutory auditor (Price Waterhouse, the Indian subsidiary
of PriceWaterhouseCoopers)
• Satyam's independent directors
• The Ministry of Corporate Affairs
• The Registrar of Companies
• The Company Law Board
• The Institute of Chartered Accountants of India
• The Securities and Exchange Board of India (SEBI)
• The Quality Review Board (QRB), a high-powered 11-member
committee appointed by the Indian government for chartered
accountants.
 The Auditor
• Price Waterhouse, Satyam's auditor since 1991, blindly
certified its account-books to be correct and accurate
without verifying their authenticity
• It failed to detect huge transfers of funds, of the order of
over one billion dollars
• An audit comprises of three main objects
– To certify to the correctness of the financial position as shown in
the balance sheet, and the accompanying financial statements.
– The detection of errors.
– The detection of fraud. The detection of fraud is of primary
importance
 The role of SEBI
• Union revenue secretary E.A.S. Sarma recently
warned SEBI and the Prime Minister's office about
malfeasance in Satyam, but was ignored
• Irregularities were repeatedly reported to it in Price
Waterhouse's handling of Satyam accounts in 2001
and 2002, failed to conduct an investigation
• a complaint was filed with SEBI by a Member of
Parliament in 2003. But under political pressure,
this was not pursued
Institute of Chartered Accounts of India (ICAI)

• Ironically, Price Waterhouse has two members

in the ICAI disciplinary council
• not a single auditor in India has ever faced
punitive action by ICAI or been convicted and
sentenced under the Companies Act and other
laws
 Moral and Ethical failure
• Satyam downfall brings into focus the issue of moral
and ethical failure
• How could the owner and chairman of the company
inflate accounting profits without the knowledge of
the entire board or anyone else in the company
• Why did board of directors not question the financial
statements
• What put Ramalinga Raju’s fraud in a different league
is the numerous awards and accolades he won for his
business skills
 Measures to avoid such recurrences
• The Laxity of Indian laws
– If an auditor fails in his duty in India, he faces a ridiculous penalty
of Rs 10,000 and maximum imprisonment of two years
• In contrast the U.S. Sarbanes-Oxley Act passed after the
Enron and WorldCom scandals, awards imprisonment for 20
years
• The U.S. and many other countries have greatly improved
fraud detection by reforming audit methods and offering
incentives to whistle-blowers. India is yet to do any of this
• India lacks adequate corporate regulation. And its
enforcement is appalling
 Conclusions and Recommendations
• people are more important than processes
• 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
• a regulatory regime built on senior management responsibilities is
absolutely essential
• regulators must focus attention on the top level of management in
the firm
• Boards should take more interest in the nature of the incentive
structure within the organisation
• no corporate governance system will work well unless there is
some engagement on the part of shareholders
 Challenges ahead
• Client Acquisition and Retention
• Retaining employees
• Productivity
• Resource and Skill Gaps
• Funding What
(policies)

Who How
(decision) (processes)
 CONCLUSION
• We also wish that the company stands once again
whooping investors not with the false promises but in
accordance with its name that is TRUTHFULNESS.
• Quickly put the issues behind us and ensure continuity of
our operations and our services delivered to our
customers.
• Do everything that we can as an organisation to ensure
the stakeholders
• Restore confidence of the customers employees, suppliers
and investors by ensuring business continuity.
 BIBLIOGRAPHY
• http://en.wikipedia.org/wiki/Information_technology
• http://www.rediff.com/money/2008/jul/17sd1.htm 
• http://www.livemint.com/2009/01/07214335/Truth-about-Satyam-rise-and-f.html
• http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4344
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 BIBLIOGRAPHY
• http://simulating.blogspot.com/2009/01/what-happened-to-satyam.html
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