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Satyam Scam

Satyam Scam

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Published by Jeevan Yadav

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Published by: Jeevan Yadav on Mar 22, 2012
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Satyam Scam NCRD’S Sterling Institute of Management Studies
Page 1
Subject: Business Ethics and Corporate GovernanceTopic: Analysis of Satyam Scam
Submitted to: Prof. Navneet Baweja Submitted by: Jeevan YadavDate: 22
March 2012 Roll- 95, Div- B
atyam fraud unfolded and so were the inherent weaknesses of Corporate Governance in India.
Ramalinga Raju, once a posture boy of India’s growing
software sector who could find a seatbeside Bill Clinton on the dais, has become a villain in the corporate world for valid reasons.His emotionally charged four and half page letter of startling revelations shook the entirecorporate world when he admitted of cooking the account and inflating the figure by Rupees5040 crore. This scam is being equated with Enron of USA because here also the scam wasorchestrated by its Auditor, Arthur Anderson, in Satyam, Price Waterhouse cooper.By the end of the 20th century, Satyam computers had made a name for itself on the globe andhad emerged as the 4
largest software in the country. The meteoric rise of the company can besubstantiated by the fact that it was established in 1987 as private company and got listed byBSE in 1991. In 2001 its share was listed in NYSE and in 2004 it made its place in Europeanstock market.
According to company’s statement, its revenue exceeds
to 2 bn USD in 2008.
Similarly Raju’s son’s companies also were moving with
leaps and bound. Maytas infra got theambitious Metro projects and bagged many tenders including one of construction of TechnologyPark.
Interestingly Satyam has bagged
Golden Peacock award for best corporate governance
by WorldCouncil for Corporate Governance only a few
years ago. The scam has raised many doubts aboutthe
class of corporate governance in India. While speaking
at a seminar on corporate governanceorganized by CII,
Ministry of Company affairs and National foundation of 
corporate governance,C.B.Bhave, the chairman of SEBI
said on 6th February, 2009 that the corporate
governance is anongoing process. There is a
retrospection everywhere that some concrete steps
with respect to itshould be done.
There are few importance elements of corporate governance namely Auditing, IndependentDirectors, Regulators and Finally the Board including CEO itself. If we examine theseconstituents one by one, it would be crystal clear that all the constituents either failed or did notact as was required.
The role of Price water house Coopers (PwC), the Auditing firm of Satyam has been dealt.Institute of Chartered Accountants of India (ICAI) constituted under Charter Accountants Act,1949 is the regulatory body of all the accounting and auditing firms across the countries.According to a report there is acute shortage of qualified chartered accountants and auditors inIndia and around the world also. The number of CAs passing every year is hopelessly small. It isapprehended therefore that the auditing firms out source unqualified or semi-qualified commercegraduates of Post graduates to do the auditing in the companies. The prestigious firms get theassignment by virtue of their name and fame which they recklessly sell in the market by outsourcing the auditors at a very low remuneration. In case of Satyam, the man who was supposedto do audit was incidentally executive member in ICAI.The independent directors have also failed to discharge their duties properly. Section 49 of SEBIAct and section 229 A of Company Act, 1956 provides for appointment of Independent Directorsin the Companies for protecting the rights of public at large in general and shareholders inparticular. In the case of satyam T.R.Prasad, the retired Cabinet Secretary Govt of India was oneof the directors. It speaks a lot about the procedure of appointment of independent directors.What kinds of people are being appointed in the company? Moreover, they are appointed by theCompanies themselves and pay hefty salaries and perks for virtually doing nothing. Under thiscircumstance is it thinkable that these Independent directors would dare to peep into the affairsof the company against the wishes of the CEOs? There are only two possibilities in Satyam withrespect to Independent directors. Either they connive with Raju and knew everything that wasgoing on, or they did not know. In both the cases they failed miserably to discharge their duties.What is the need of such Independent Directors if they cannot do anything in this matter? Oneunpalatable justification is given that the Independent Directors participate in the meeting andare not concerned with autonomy of the company. It should be bone in mind the Enron scam wasexposed by Sherron Watkins, a women independent director.Thirdly,
the SEBI and Ministry of Company Affairs too have failed in their assigned jobs. SEBIis the highest regulator and keeps eagle eye on the activities of the capital markets. When theprofits of this company were registering abnormal growth, thereby the prices of the shares weresoaring, what were these guys doing? There has been a lot of hue and cry with respect to insider

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