Scandal at satyam truth lies & corporate governance
Scandal at Satyam: Truth, Lies &Corporate GovernanceAn Ethical perspectiveMr Raju, winner of innumerable awards of excellence, unarguably noticed once as one of the most successfulentrepreneurs, suddenly turns from a great leader to a great thief in a few weeks in the wake of India’s biggest corporatescam amounting to over 1 billion USD. What could be the possible reason behind such a huge corporate fraud ? Whycould someone of the intellect & stature of Mr Raju do this ?A Report presented by PGDM 2010-12 students at the Goa institute of management towards the partial fulfillment of thecourse on Ethics and Corporate governanceSubmitted By:Abhimanyu SukhwalMeghna bhattacharyaAhefaz khanDavid VazAshwin RamaswamyPGP-1 Section “D”
Scandal at Satyam: Truth, Lies & Corporate GovernanceRamalinga Raju is one of the pioneers of the Information Technology industry in India.He is the founder and Chairman of Satyam Computer Services Ltd. Ramalinga Raju wasborn on September 16, 1954 in a family of farmers. He did his B. Com from AndhraLoyola College at Vijayawada and subsequently did his MBA from Ohio University,USA. Ramalinga Raju had a stint at Harvard too. He attended the Owner / Presidentcourse at Harvard.Satyam achieved huge number of Awards and achievements under the leadership ofRamalinga Raju. Detail of these awards can be viewed on Satyam Website. Someof Ramalinga Raju’s awards and honors include Ernst & Young Entrepreneur of theYear for Services in 1999, Dataquest IT Man of the Year in 2000, and CNBC’s AsianBusiness Leader – Corporate Citizen of the Year award in 2002, Asian MAKE (MostAdmired Knowledge Enterprise) Award 2008, Partner Innovation Award for Anti-MoneyLaundering (AML) solution 2007 etc.Great Leader to Great Thief:Amid of Economic Recession, Biggest news of 2009 start was, When Mr. Rajuannounced, Satyam’s Financial statements are based on lies. Raju resigned as chairman,revealing profits had been falsified for years and that $1 billion of cash on the books didnot exist. With this news, Satyam badly damaged on Stock Exchange and a big questionmark raised on Indian’s largest IT Company and its 53,000 Employees. Ramalinga Rajuresigned after revealing that he had systematically falsified the company’s accounts as itexpanded from a handful of employees into a back office giant with a workforce of 3,000and operations in 66 countries. Mr. Raju said Wednesday that 50.4 billion rupees, or$1.04 billion, of the 53.6 billion rupees in cash and bank loans the company listed inassets at the end of its second quarter that ended in September were nonexistent.Revenues for the quarter ending September 30 were 20 percent lower than the 27 billionrupees reported, and the company’s operating margin for the quarter was a fraction ofwhat it declared, he said in a letter to the Bombay stock exchange authorities.
The Ethics perspectiveIn a four-and-a-half page statement to the Bombay stock exchange, Mr. Raju described a smalldiscrepancy that grew beyond his control. “What started as a marginal gap between actual operatingprofit and the one reflected in the books of accounts continued to grow over the years. It hasattained unmanageable proportions as the size of company operations grew,” he said. “It was likeriding a tiger, not knowing how to get off without being eaten,” he wrote.Mr. Raju said he had attempted and failed to bridge the gap, including an attempt in December tobuy two construction firms in which the company’s founders held stakes. Speaking of a “deepregret” and a “tremendous burden,” Mr. Raju said that neither he nor co-founder and managingdirector B. Rama Raju had “taken one rupee/dollar from the company.” He said the board had noknowledge of the situation, nor did his or the managing director’s families.In the light of various articles and documents publicly available, it is imperative that such a hugescam and inflating of cash reseves isn’t possible without the management being aware of the same.Considering the huge negative impact that the scandal had over the future of India IT industry andover the life of its employees, and no visible logic in going forth with the overstated figures in falsefinancial statement, the issue is clarly unethical. There was no observable pattern in Raju’s behaviorsince he had been appreciating the firm’s progress over the past and had been a role model forothers to follow, just before the revealation of the fraud.Raju’s behaviour and actions in the light of the Kohlberg’s framework and the context ofshadow selfKohlberg’s Stage 5 respondents are working toward a conception of the good society. They suggestthat we need to (a) protect certain individual rights and (b) settle disputes through democraticprocesses. However, democratic processes alone do not always result in outcomes that weintuitively sense are just. A majority, for example, may vote for a law that hinders a minority. Thus,Kohlberg believes that there must be a higher stage--stage 6--which defines the principles by whichwe achieve justice. Stage 5 respondents are working toward a conception of the good society. Theysuggest that we need to (a) protect certain individual rights and (b) settle disputes throughdemocratic processes. However, democratic processes alone do not always result in outcomes thatwe intuitively sense are just. A majority, for example, may vote for a law that hinders a minority.Thus, Kohlberg believes that there must be a higher stage--stage 6--which defines the principles bywhich we achieve justice.In the light of the Satyam scam, one might infer that Mr Raju might have resorted to inflatingSATYAM’s financial statements to Gain larger investor confidence Huge Client confidence Grab various new and bigger projects Easily obtain funding/financing approvals from banks-by showing a stronger financial muscle.This was essential since in the prevalent IT sector, firm size and capabilities unarguably count a lotin grabbing prospective assignments, since it’s the perception of prospective clients what reallymatters at the end of the day. Satyam night not have grown at such a rapid pace had it beentransparent & honest in all of its dealings. Besides, he might be envisioning an aggressive
expansion/diversification strategy for huge growth by riding on a fake bubble of gaps betweenactual Operating profits and those stated in the financial reports, which he would have possiblyabsorbed/dissolved later on by adjusting from greater profits. One example of this is going for theMaytas investment soon after which the scam revealed in public. Had Satyam/Raju been able tocontain such a big goof up under wraps even after Maytas acquisition, it might have driven off thefirst few IT/Real estate giants in its revenues and profits, and nobody would be ever aware of such ascam. Thinking that way, one can think of Mr Raju as a mastermind, who could play such a seriousgame really well for years altogether, but just being unfortunate that things got out of his control allof a sudden to irrecoverable & unmanageable extents. Satyam made several freshers stand on their feet to get better jobs elsewhere across the globe andattain on site exposure through Satyam. What Raju did was to keep the business of Satyam going atany cost. One can see a very smart man in him when he understood that he should rather accept hismistake than be caught by the USA laws . He had a selfish father in him too that he put a lot at stakefor Maytas. However, he resigned with a lot of dignity and his letter of resignation shows humility.It takes a mammoth amount of courage to accept one’s mistake in public at a time when the mediais ready to blow everything out of proportion. Thus considering assuming truth in the claim thatnot even a penny was misused by Raju or his family, only the charts and figures were inflated. Ifall this was done for the common good of benefitting india’s masses with huge employment, andpositioning india better in the IT landscape, then Mr Raju would be placed at some of theheighest levels ever in morality - Level 6.Dr Karl Jung says that oppression of the shadow can lead us to the shadow overwhelming us and weend up doing things that we earlier used to condemn. Same appears to be the case with Raju. Jungsays that there are undesirable qualities like greed and manipulation which we suppress and thesequalities enter our sub-consciousness. There, they remain active and finally emerge and force us todo something which we might not have otherwise done. Satyam scandal involved greediness andmanipulation of information by Raju and his colleagues, which resulted in one of the corporateIndia’s biggest financial scam.Raju’s employees and Kohlberg’s frameworkRaju’s employees who were aware of the proceedings of the scam when the financials wereconstantly inflated would all be operating at Kohlberg’s morality stage number 1, since they wereafraid of loosing their jobs / careers with Satyam in the event of their revolting against the existingmalpractices. They choose to stay quiet over the issues in the fear of power authority of seniormanagement of Satyam.Something larger than greed or mere projection ?Several supporters of Raju’s actions claim that this was done largely to keep the businesses ofSatyam going, and he generated employment for some 50,000 plus odd individuals who wereprovided employment despite having backlogs, low grades from unpopular universitites. Bybloating the figures he managed to cover up the aggressive growth despite not actually beingcapable of the same, and made lives meaningful for those who would have never got decent jobshad Satyam not absorbed them. However, it’s quite evident that indulging into such a big scam,even for the benefit of the masses surely had its pie of side- effects for the entire indian IT industryand investors, employess and other stakeholders of Satyam as a whole whose lives were made
miserable the moment the scandal was disclosed in public. Hence justifying such an act even withthe target of social benefit is all in vain.My reaction if I were in those Shoes ?Had I been part of the Satyam corporate scandal, as a member of one of the teams aware of thewrong-doings, I would have firstly tried to convince the internal management to abolish suchmalpractices for common good, and be honest, truthful & transprent in their financial reports. Buteven if after repeated requests the scandal kept inflating, I would have firslt found out anothersubstitute job for myself so as to sustain my own career going forward, and as soon as I would quitthe organization, I would blow the whistle leaking out the entire fraud for common good.