Lalit business ethics satyam scam case


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Lalit business ethics satyam scam case

  1. 1. STERLING INSTITUTE OF MANAGEMENT STUDIES MMS 2nd YEAR ASSIGNMENT Subject: Business Ethics and Corporate Governance Analysis of Satyam Scam Submitted to: Submitted by:Prof. Navneet Baweja Lalit Sonkoli (B - 89)
  2. 2. History of the Satyam ScamIt was the biggest Fraud in the nation and also in the corporate world. It is hard to believe thatone of the largest IT companies, Satyam Computer Systems, underwent such a huge fraudcase. Two brothers, Mr. Raju and B. Ramalinga Raju, who were the founder of SatyamComputer Systems were arrested for further investigation in the Satyam fraud case. The chieffinancial officer, Srinivas Vadlamani, may join the two brothers in jail because he resignedjust after B. Ramalinga Raju resigned after the fraud case. The two brothers have beencharged for cheating, criminal breach of trust and forgery. • The Satyam Computer Systems is considered to be one of the leading outsourcing companies in India and it was among the top five IT companies in India. The company employs about 53,000 people and now the faith of these people is critical. And also many new engineers and technicians were recruited recently from colleges and universities in campus interview. It is doubtful whether the Satyam Computer Systems will be able to send the joining letters to all these new recruits. • The Rs. 7,100 crore fraud case of Satyam will give awareness to all the companies that there must be transparency in all the aspects within the companies. There has been a talk that some leaders of IT companies like Azim Premji will takeover the control of the company but it has not been finalized yet. • If you just want to know more on how Ramalinga Raju started losing his attention from the company, then I can relate some more information about the background of the fraud case. Well, the two sons of Raju are investing in the real estate business and recently their real estate business was not in good shape. So, Raju started using the manpower and other resources for the Satyam Company for the welfare of his sons’ real estate business. Now the four main shareholders of Satyam Company were horrified by the changing behavior of Raju and they want the attention of Raju in his company. As a result of this, the company has some setback in the IT and outsourcing field as their main concentration slightly goes to the real estate business of Raju’s sons. • Now Ram Mynampati is the interim CEO of Satyam Computer System and he is doubtful whether the company has enough funds for paying salaries to its associates for January. This is the biggest fraud case in the history of IT companies and Ram Mynampati is in a very critical situation handling the sinking company.
  3. 3. Analysis of the scam:Raju had appointed a task force to address the Maytas situation in the last few days beforerevealing the news of the accounting fraud. After the scandal broke, the then-board memberselected Ram Mynampati to be Satyam’s interim CEO. Mynampati’s statement on Satyam’swebsite said:“We are obviously shocked by the contents of the letter. The senior leaders of Satyam standunited in their commitment to customers, associates, suppliers and all shareholders. We havegathered together at Hyderabad to strategize the way forward in light of this startlingrevelation.”On 10 January 2009, the Company Law Board decided to bar the current board of Satyamfrom functioning and appoint 10 nominal directors. “The current board has failed to do whatthey are supposed to do. The credibility of the IT industry should not be allowed to suffer.”said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAIissued show-cause notice to Satyam’s auditor PricewaterhouseCoopers (PwC) on theaccounts fudging. “We have asked PwC to reply within 21 days,” ICAI President Ved Jainsaid.On the same day, the Crime Investigation Department (CID) team picked up VadlamaniSrinivas, Satyam’s then-CFO, for questioning. He was arrested later and kept in judicialcustody[1].On 11 January 2009, the government nominated noted banker Deepak Parekh, formerNASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam’s board.Analysts in India have termed the Satyam scandal India’s own Enron scandal.[2]. Some socialcommentators see it more as a part of a broader problem relating to India’s caste-based,family-owned corporate environment [3].Immediately following the news, Merrill Lynch (now a part of Bank of America) and StateFarm Insurance terminated its engagement with the company. Also, Credit Suisse suspendedits coverage of Satyam.[citation needed]. It was also reported that Satyam’s auditing firmPricewaterhouseCoopers will be scrutinized for complicity in this scandal. SEBI, the stockmarket regulator, also said that, if found guilty, its license to work in India may be revoked. [4][5][6][7][8] Satyam was the 2008 winner of the coveted Golden Peacock Award for CorporateGovernance under Risk Management and Compliance Issues,[9] which was stripped fromthem in the aftermath of the scandal.[10] The New York Stock Exchange has halted trading inSatyam stock as of 7 January 2009.[11] India’s National Stock Exchange has announced that itwill remove Satyam from its S&P CNX Nifty 50-share index on 12 January. [12] The founderof Satyam was arrested two days after he admitted to falsifying the firm’s accounts.Ramalinga Raju is charged with several offences, including criminal conspiracy, breach oftrust, and forgery.Satyam’s shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998,compared to a high of 544 rupees in 2008[13]. In New York Stock Exchange Satyam sharespeaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80.
  4. 4. The Indian Government has stated that it may provide temporary direct or indirect liquiditysupport to the company. However, whether employment will continue at pre-crisis levels,particularly for new recruits, is questionable [14].On 14 January 2009, Price Waterhouse, the Indian division of PricewaterhouseCoopers,announced that its reliance on potentially false information provided by the management ofSatyam may have rendered its audit reports “inaccurate and unreliable”[15].On 22 January 2009, CID told in court that the actual number of employees is only 40,000and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing INR 20crore rupees every month for paying these 13,000 non-existent employees [16].New CEO and special advisorsOn 5 February 2009, the six-member board appointed by the Government of India named A.S. Murthy as the new CEO of the firm with immediate effect. Murthy, an electrical engineer,has been with Satyam since January 1994 and was heading the Global Delivery Sectionbefore being appointed as CEO of the company. The two-day-long board meeting alsoappointed Homi Khusrokhan (formerly with Tata Chemicals) and Partho Datta, a CharteredAccountant as special advisors [17][18].Acquisition by Mahindra GroupOn 13th April 2009, via a formal public auction process, a 46% stake in Satyam waspurchased by Mahindra & Mahindra owned company Tech Mahindra, as part of itsdiversification strategy. Effective July 2009, Satyam rebranded its services under the newMahindra management as “Mahindra Satyam” with a new corporate Gurnani is the current CEO.Restatement of ResultsAs a result of the scandal, under the directions of the new Mahindra management team,Satyam Computer Services restated its financial results for the period 2002 to 2008. Theserestated results were published in September 2009.Webliography: