Satyam was a successful Indian IT company that grew rapidly between 1987-2008, reaching over 50,000 employees and a presence in 66 countries. However, in January 2009 the Chairman confessed to an accounting fraud of $1 billion. Key issues included incomplete disclosure of a related-party acquisition, insufficient internal controls, and reliance on an auditor also involved in past accounting frauds. The fraud damaged the reputation of the Indian IT sector and highlighted the need for stronger governance controls and auditor accountability.

1. Riding pillion on ‘A’ tiger – a
stakeholders’ perspective
The Pedigree
The Cloud break
Responsibility
The Impact
Kishore Rohit Ajay Shankar Jeyaseelan Nathan

2. The Pedigree
• Business Growth
– Employee strength
– Presence in number of countries
– Profitability of the business
• Corporate Practices
– Structure of the Board
– Ethical practices and corporate governance
– Whistleblower policy
– Awards - Golden Peacock Award 3 years in a row

3. Chronology of Growth
• 1987 – Satyam was incorporated as a pvt. ltd.
Company having Raju brothers as promoters
and with only 20 employees.
• 1991 – First IPO which was over subscribed by
17 times.
• 1993 – Joint venture with Dun and Bradstreet
for IT services and with GE.
• 1996 – 2 offices in USA and Japan
Cont……

4. Chronology of Growth
• 1998 - First overseas development center in New
Jersey, USA.
• 1999 – Presence in 30 countries
• 2000 – 10000 Employees.
• 2001 – Listing on NASDAQ
• 2004 – Presence in 45 countries, 15000
employees and 18 development centers.
• Mid 2005 – 16872 employees in 45 countries
Cont….

5. Chronology of Growth
• 2006 – Revenue crossed $2 Billion
• 2008 – Revenue over $2 Billion
Net income - $417 Million
Presence in 65 countries
690 global customers
185 Fortune 500 Companies
45969 employees.
Cont…

6. Chronology of Growth
• 2008 Quarter ending in September –
Revenue of INR 28.19 Billion
53000 Employees
Presence in 66 Countries.

7. Satyam Governance Practices
• Core Values of Corporate Governance
– Associate Delight
– Investor Delight
– Customer Delight
– Pursuit of Excellence
• Framework to help board of directors to fulfill its responsibilities
• Board consisted of executive and non executive members
• Board Committees were formed
– Audit Committee
– Compensation Committee
– Investors’ Grievance Committee
• Whistle Blower Policy
• Code of Conduct and Ethics
– Avoid Conduct of business of the company with their relatives or their associated companies, firms.
– In case of conflicts, disclosure shall be made to board of directors and approval obtained
• Winner of Golden Peacock Award in September 2008

8. Satyam Computers – Board of Directors
Name Designation
B Ramalinga Raju Chairman
B Rama Raju Managing Director
Ram Mynampati Whole-time Director
Mangalam Srinivasan Director
Krishna G Palepu Director
Vinod K Dham Director
T R Prasad Director
M Rammohan Rao Director
V S Raju Director

9. The cloud break
• High cash reserve (book)
– takeover candidate?
• Maytas acquisition
– for proper deployment of funds
• Termination of DSP Merryll Lynch
• The Confession

10. Responsibility
• Incomplete Disclosure
– Failure to put the Maytas Acquisition decision in front of the Institutional Investors who
in combined represent the largest shareholders
– No proper justification why diversification.

11. Responsibility
• Insufficient controls
– Independent Directors not performing the role of watchdogs to protect the interests of
minority stakeholders
– Non-availability of ‘Audit Committee Expert’ in the Audit Committee
– Non occurrence of non-management directors regular meet without the management
– Non Availability of Nominating/Corporate Governance Committee

12. Responsibility
• Usage of an indulgent auditors PwC.
– Banned in Performing Corporate in in Japan in 2006 for certifying false accounts in
Kanebo Limited
– Failed to point out high Non Performing Assets in Global Trust Bank in 2004 that led to ts
collapse

13. Moral of the story
• Increased controls
– Suggestion - Auditors to be held liable for frauds
– External Auditor tenure and image
• Loss of prestige to the whole sector
• Reduced business – due to de-risking practices

14. Why?
• Cannot (or should not try to ) bend reality
• Feel Entitled to bend ground rules
• Loss of perspective - Risk vs reward