THEGEORGEWASHINGTONUNIVERSITY

SATYAM:BROTHERLYDEMISE THERISEANDFALLOFRAMALINGARAJU
SUBMITTEDTO PROF.JohnW.Dunfee AdjunctProfessor SchoolofBusiness TheGeorgeWashingtonUniversity BY ChristinaCaraballo AnilCheerla OmeedJafari ASREQUIREDFORMANAGEMENTCOURSENUMBER28120 BUSINESSETHICS WASHINGTON,DC May6,2010

TABLEOFCONTENTS COVERPAGE TABLEOFCONTENTS EXECUTIVESUMMARY 1. BACKGROUND 2. RAMALINGARAJUANDTHESATYAMSCANDAL 2.1FACTORSLEADINGTOTHEFRAUD 2.2AFTERMATHOFTHESATYAMSCANDAL 2.3VICTIMSOFTHESCANDAL 2.4CORPORATEGOVERNANCEISSUESATSATYAM 2.5ETHICALDILEMMASFACEDBYRAJU 1.1INDIAINTHEGLOBALECONOMY 1.2 EMERGENCEOFSATYAMCOMPUTERSERVICES

3. HOSMERSSIXSTEPPROCESS 4. LESSONSLEARNED 5.RECOMMENDATIONS 8. CONCLUSION

EXECUTIVESUMMARY ________________________________________________________ TheSatyamComputerServicesscandalbroughttolighttheimportanceofethicsandits relevancetocorporateculture.ThefraudcommittedbythefoundersofSatyamisatestament tothefactthatthescienceofconductisswayedinlargebyhumangreed,ambition,and hungerforpower,money,fameandglory.ScandalsfromEnrontotherecentfinancialcrisis havetimeandtimeagainproventhatthereisaneedforgoodconductbasedonstrongethics. Inthisresearchpaper,weexamineindetailthegrossnegligenceofstakeholderconcernsand overindulgenceofkeymanagementonapersonalandorganizationallevelinimmoralpractices forpersonalbenefit.Wealsoassesstheimplicationsofethicsinthebusinessenvironment.We thendelveintotheethicaldilemmasfacedbytheexecutivesatSatyam,applyHosmers frameworktomoraldecisionmaking,andsuggestalternativestohandlesuchmoral uncertainties.Finally,weconcludebyprovidingrecommendationsforethicalcodeofconduct inorganizationsandtheneedtofosteracultureofintegrityandtrust. 1.BACKGROUND ___________________________________________ InordertoevaluateandunderstandtheseverityofSaytamsfraud,itisimportantto understandfactorsthatcontributedtothedecisionsmadebythecompanysexecutives.First,it isimportanttounderstandIndiaseconomicgrowthwithinthecontextoftheglobaleconomy. Second,itisnecessarytodetailtheriseofSatyamasacompetitorwithintheglobalITservices marketplace..And,finally,itishelpfultoevaluatethedrivingforcebehindSatyamsdecisions: RamalingaRaju. 1.1 INDIAINTHEGLOBALECONOMY,2003PRESENT ___________________________________________________ Brazil,Russia,IndiaandChinahavesolidifiedtheirplaceintheglobaleconomy.Positedby GoldmanSachschiefeconomist,JimONeil,thesenations,commonlyreferredtoastheBRIC Nations,werebelievedtoemergeasthefourdominantemergingeconomiesofthetwentyfirst century.iIn2003,theypossessedonequarteroftheworldslandcoverage;approximately45% oftheworldspopulation;andacollectivegrossdomesticproductof$3.3trillion.iiBy2009, thesenationsnearlytripledtheirgrossdomesticproduct.iiiTogether,theBRICNationsarenow thelargestblocofemergingnationaleconomieswithintheglobaleconomy,outperforming otheremergingmarketsworldwide.By2025,economistshavepredictedthesefoureconomies wouldbehalfthesizeofthecombinedG6(USA,Japan,Britain,German,FranceandItaly)and, by2039,couldovertaketheG6.ivTheyarefixturesintodaysglobaleconomy. Geopoliticalrisks,increasingincomeinequality,andstructuralconstraintsinthesefour economiesnotwithstanding,globalizationhascontributedsignificantlytotheireconomic growth.Indiahasbenefitedimmensely.Itsgrossdomesticproduct(currentdollars)hasgrown atacompoundannualgrowthrateof14%since2003.vToday,itspopulationstandsat1.2
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billionpeople,a2%compoundannualgrowthrateoverthelastsixyears.viGivenitsabilityto sustainproductivityasitspopulationgrowsinsizeandskill,Indiasattractivenessasan emergingmarketisevident.DeregulationpoliciesadoptedbytheGovernmentofIndiahaveled tosubstantialdomesticinvestmentandinflowofforeigncapitaltothisindustry.Ithasdrawn nearly$90billioninforeigndirectinvestmentvii,andofthatamount,approximately28%was achievedbetweenApril2009andFeb2010.viiiInthelasttenyearstheInformationTechnology industryinIndiahasgrownatanaverageannualrateof30%.Exportscontributetoaround75% ofthetotalrevenueoftheITindustryinIndia.Indiasgrowthisattributabletoitssurgein productivity.And,givenitsfavorabledemographictrendsandfurtherriseincapitalformation (accumulation)ix,Indiasinfluenceontheworldeconomyisimmediateandwidelyfelt. 1.2EMERGENCEOFSATYAMCOMPUTERSERVICES. ________________________________________________________ SatyamComputerServices,Ltd.wasarisingstarintheIndianoutsourcedITservicesindustry. Thecompanywasformedin1987inHyderbad,IndiabyB.RamalingaRaju.Thefirmbeganwith twentyemployeesandgrewrapidlyasaglobalbusiness.Itoffersinformationtechnology(IT) andbusinessprocessoutsourcing(BPO)servicesspanningvarioussectorsx,including:aerospace anddefense,bankingandfinancialservices,energyandutilities,lifesciencesandhealthcare, manufacturinganddiversifiedindustrials,publicservicesandeducation,retail, telecommunicationsandtravel. By2003,SatyamsITservicesbusinessesincluded13,120technicalassociatesservicingover300 customersworldwide.xiAtthattime,theworldwideITservicesmarketwasestimatedatnearly $400billion,withanestimatedannualcompoundgrowthrateof6.4%.xiiThemarketsmajor driversatthatpointintimeweretheincreasedimportanceofITservicestobusinesses worldwide;theimpactoftheinternetoneBusiness;theemergenceofahighqualityITservices industryinIndiaandtheirmethodologies;and,thegrowingneedofITservicesproviderswho couldprovidearangeofservices.xiiiThefollowingchartshowsSatyamscompositioninrelation toconsulting,systemsintegration,andoutsourcing:

TheIndianITservicesindustryhaditsrisks:geopoliticalconflictinSouthAsiaandterrorist attacksintheUnitedStates;Indianpoliticalinstability;restrictionsonforeigninvestment decisions;theimpactofexchangerateandtaxregimes;and,finally,lawsassociatedwith intellectualproperty.xiv TocompeteagainstAccenture,BearingPoint,Capgemini,Deloitte,HewlettPackardandIBM, CSC,ElectronicDataSystems,InfosysTechnologies,TataConsultancy,andWipro,thecompany embarkedonamultiprongedbusinessgrowthstrategy.First,thecompanywouldbuildupon itscustomerrelationshipstocrosssellitsarrayofserviceswhilemaintainingacontinuedfocus onenterprisewidebusinesssolutionsandhighqualityITservicesxv.Second,thecompany wouldexpanditsmarketsbypenetratingnewgeographicmarketsthroughoutNorthAmerica, Europe,LatinAmerica,andtheAsianPacificregions.xviThird,thecompanywouldfurther developitsindustryexpertisetoaccessnewcustomergroups,suchasmanufacturing,financial services,etcxvii.Fourth,Satyamwantedtoattractandretaintechnicalassociatesandaugment employeetrainingtoimproveretentionandservicesofferingsxviii.And,finally,thecompany wantedtoenhancecapabilitiesthroughtechnicalalliancesandstrategicacquisitions,e.g.the proposedstrategicacquisitionofCitisoftplc,anicheorientedbusinessconsultancyinthe UnitedKingdom.xixThismultiprongedbusinessgrowthstrategywouldbethestatedmeansto growSatyamandboostshareholdervalue. From2003to2008,innearlyallfinancialmetricsofinteresttoinvestors,thecompanygrew measurably.SatyamgeneratedUSD$467millionintotalsales.xxByMarch2008,thecompany hadgrowntoUSD$2.1billion.xxiThecompanydemonstratedanannualcompoundgrowthrate of35%overthatperiod.xxiiOperatingprofitsaveraged21%.Earningspersharesimilarlygrew, from$0.12to$0.62,atacompoundannualgrowthrateof40%.xxiiiOverthesameperiod (20032009),thecompanywastradingatanaveragetrailingEBITDAmultipleof15.36x.xxiv Finally,beginninginJanuary2003,atasharepriceof138.08INR,Satyamsstockwouldpeakat 526.25INRa300%improvementinsharepriceafternearlyfiveyears.xxvSatyamclearly generatedsignificantcorporategrowthandshareholdervalue.
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ThecompanywasaleadingstarandarecognizablenameinaglobalITmarketplace.The externalenvironmentinwhichSatyamoperatedwasindeedbeneficialtothecompanys growth.But,thenumbersdidntrepresentthefullpicture. 2.B.RAMALINGARAJUANDTHESAYTAMSCANDAL ________________________________________________________ TheSatyamscandalisaclassiccaseofnegligenceoffiduciaryduties,totalcollapseofethical standards,andalackofcorporatesocialresponsibility.Itishumangreedanddesirethatledto fraud.Thistypeofbehaviorcanbetracedto:greedovershadowingtheresponsibilitytomeet fiduciaryduties;fiercecompetitionandtheneedtoimpressstakeholdersespeciallyinvestors, analysts,shareholders,andthestockmarket;lowethicalandmoralstandardsbytop management;and,greateremphasisonshorttermperformance. Greedformoney,power,competition,successandprestigecompelledMr.Rajutoridethe tiger,whichledtoviolationofalldutiesimposedonthemasfiduciariesthedutyofcare,the dutyofnegligence,thedutyofloyalty,thedutyofdisclosuretowardsthestakeholders.xxvi AccordingtoCBI,theIndiancrimeinvestigationagency,thefraudactivitydatesbackfromApril 1999,whenthecompanyembarkedonaroadtodoubledigitannualgrowth.AsofDecember 2008,Satyamhadatotalmarketcapitalizationof$3.2billiondollars. SatyamplannedtoacquireafiftyonepercentstakeinMaytasInfrastructure,aleading InfrastructureDevelopment,ConstructionandProjectManagementCompany,for$300million. TheRajusshada37%stake.Thetotalturnoverwas$350millionandanetprofitof$20million. Rajusalsohada35%shareinMaytasProperties,anotherrealestateinvestmentfirm.Satyam revenuesexceeded$1billionin2006. InApril,2008SatyambecamethefirstIndiancompanytopublishIFRSauditedfinancials.xxviiOn December16,2008,theSatyamboard,includingitsfiveindependentdirectorshadapproved thefounder'sproposaltobuythestakeinMaytasInfrastructureandallofMaytasProperties, whichwereownedbyfamilymembersofSatyamsChairman,BRamalingaRaju,asfullyowned subsidiaryfor$1.6B. Withoutshareholderapproval,thedirectorswentaheadwiththemanagement'sdecision.The decisionofacquisitionwas,however,reversedtwelvehoursafterinvestorssoldSatyam'sstock andthreatenedactionagainstthemanagement.xxviiiThiswasfollowedbythelawsuitsfiledin theUScontestingMaytasdeal.TheWorldBankbannedSatyamfromconductingbusinessfor8 yearsduetoinappropriatepaymentstostaffandinabilitytoprovideinformationsoughton invoices.xxixFourindependentdirectorsquittheSatyamboardandSEBIorderedpromotersto disclosepledgedsharestostockexchange. InvestmentbankDSPMerrillLynch,whichwasappointedbySatyamtolookforapartneror buyerforthecompany,ultimatelyblewthewhistleandterminateditsengagementwiththe
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companysoonafteritfoundfinancialirregularities.xxxOn7January2009,Saytamsprevious Chairman,RamalingaRaju,resignedafternotifyingboardmembersandtheSecuritiesand ExchangeBoardofIndia(SEBI)thatSatyam'saccountshadbeenfalsified.xxxi RajuconfessedthatSatyam'sbalancesheetofSeptember30,2008,containedthefollowing irregularies: InflatedfiguresforcashandbankbalancesofUS$1.04billionvs.US$1.1billionreflected inthebooks; AnaccruedinterestofUS$77.46millionwhichwasnonexistent; AnunderstatedliabilityofUS$253.38milliononaccountoffundswasarrangedby himself; Anoverstateddebtors'positionofUS$100.94millionvs.US$546.11millioninthebooks. Rajuclaimedinthesameletterthatneitherhenorthemanagingdirectorhadbenefited financiallyfromtheinflatedrevenues.xxxiiHeclaimedthatnoneoftheboardmembershadany knowledgeofthesituationinwhichthecompanywasplaced.xxxiiiThefraudtookplacetodivert companyfundsintorealestateinvestment,keephighearningspershare,raiseexecutive compensationandmakehugeprofitsbysellingstakeatinflatedprice. Thegapinthebalancesheethadarisenpurelyonaccountofinflatedprofitsoveraperiodthat lastedseveralyearsstartinginApril1999.Whataccountedasamarginalgapbetweenactual operatingprofitandtheonereflectedinthebooksofaccountscontinuedtogrowoverthe years,Raguexplainedinhislettertotheboardandshareholders.Hewentontoexplain,This gapreachedunmanageableproportionsascompanyoperationsgrewsignificantly.Every attempttoeliminatethegapfailed,andtheabortedMaytasacquisitiondealwasthelast attempttofillthefictitiousassetswithrealones.Buttheinvestorsthoughtitwasabrazen attempttosiphoncashoutofSatyam,inwhichtheRajufamilyheldasmallstake,intofirmsthe familyheldtightly.xxxivThefollowingchartdepictstheSatyamsfabricatedincomestatement.It showsthedifferencebetweenactualandreportedfinances: FabricatedIncomeStatementsofSatyam

TheSatyamdealwithMatyaswassalvageable.Itcouldhavebeensavedonlyifthedealhad beenallowedtogothrough,asSatyamwouldhavebeenabletouseMaytas'assetstoshoreup itsownbooks.xxxvRaju,whoshowedartificialcashonhisbooks,hadplannedtousethisnon existentcashtoacquirethetwoMaytascompanies.xxxviGiventhestaketheRajusheldin Matyas,pursuingthedealwouldnothavebeenterriblydifficultfromtheperspectiveofthe Rajufamily. Theauditors,bankers,andSEBI,themarketwatchdog,wereallblamedfortheirroleinthe accountingfraud.Towhatextentdidthefraudtakeplaceandwhoelsewasinvolved?Itis likelythefraudextendedbeyondRajutoothertopmananagers.Thefrauditself,however,was enough. 2.1FACTORSCONTRIBUTINGTOFRAUD ________________________________________________________ NumerousfactoredcontributedtotheSatyamfraud.Theindependentboardmembersof Satyam(includingthedeanoftheIndianSchoolofBusiness,aHarvardBusinessSchool professor,andanerstwhilestaratIntel),theinstitutionalinvestorcommunity,theSEBI,retail investors,andtheexternalauditornoneofthem,includingprofessionalinvestorswith detailedinformationandmodelsavailabletothem,detectedthemalfeasance.xxxviiThe followingisalistoffactorsthatcontributedtothefraud: Greed Ambitiouscorporategrowth Deceptivereportingpracticeslackoftransparency Excessiveinterestinmaintainingstockprices Executiveincentives Stockmarketexpectations Natureofaccountingrules ESOPsissuedtothosewhopreparedfakebills Highriskdealsthatwentsour AuditfailuresInternal&External Aggressivenessofinvestmentbanks,commercialbanks, Ratingagencies&investors WeakIndependentdirectorsandAuditcommittee Whistleblowerpolicynotbeingeffective 2.2AFTERMATHOFSATYAMSCANDAL ________________________________________________________ Immediatelyfollowingthenewsofthefraud,MerrillLynchterminateditsengagementwith Saytam,CreditSuissesuspendeditscoverageofSatyam,andPricewaterhouseCooperscame underintensescrutinyanditslicensetooperatemayberevoked.Covetedawardswonby
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Satyamanditsexecutivemanagement,suchasGoldenPeacockAwardforCorporate GovernanceunderRiskManagementandComplianceIssues,SAPPinnacleAward,E&Y EntrepreneurAwardetc,werestrippedfromthecompany.Satyam'ssharesfellto11.50rupees onJanuary10,2009,theirlowestlevelsinceMarch1998,xxxviiicomparedtoahighof544rupees in2008.xxxixIntheNewYorkStockExchange,Satyamsharespeakedin2008atUS$29.10xl;by March2009theyweretradingaroundUS$1.80.Investorslost$2.82billioninSatyam.Criminal chargeswerebroughtagainstMr.Raju,including:criminalconspiracy,breachoftrust,and forgery.AftertheSatyamfiascoandtheroleplayedbyPwC,investorsbecamewaryofthose companieswhoareclientsofPwC,whichresultedinfallinsharepricesofaround100 companiesvaryingbetween515%.ThefollowingchartshowsSatyamsstockdeclinebetween December2008andJanuary2009: StockChartingofSatyamfromDecember2008toJanuary2009

2.3VICTIMSOFFRAUD ________________________________________________________ EmployeesofSatyamspentanxiousmomentsandsleeplessnightsastheyfacednonpayment ofsalaries,projectcancellations,layoffsandequallybleakprospectsofoutsideemployment. Theywerestrandedinmanywaysmorally,financially,legally,andsocially.xli ClientsofSatyamexpressedlossoftrustandreviewedtheircontractspreferringtogowith othercompetitors.Cisco,TelstraandWorldBankcancelledcontractswithSatyam.Customers wereshockedandworriedabouttheprojectcontinuity,confidentiality,andcostoverrun.xlii

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ShareholderslosttheirvaluableinvestmentsandtherewasdoubtaboutrevivalofIndiaasa preferredinvestmentdestination.TheVCandMDofMahindra,inastatement,saidthatthe developmenthad"resultedinincalculableandunjustifiabledamagetoBrandIndiaandBrandIt inparticular." Bankerswereconcernedaboutrecoveryoffinancialandnonfinancialexposureandrecalled facilities.xliii IndianGovernmentwasworriedaboutitsimageoftheNation&ITSectoraffectingfaithto investortodobusinessinthecounty.xliv 2.4CORPORATEGOVERNANCEISSUESATSATYAM ________________________________________________________ JagdishSheth,executivedirectoroftheIndia,ChinaandAmericanInstituteandProfessorof MarketingatEmroyUniversity,stated:Indianbusinesscultureputsapremiumonfavors, friendship,andclanship.xlvTheWesternconceptofconflictofinterestdoesnotalwaysmesh wellwiththeIndianvalueofloyalty.Peoplebelievethattheyhavetocheattowin.Theybelieve thatniceguysfinishlast.xlvi Onaquarterlybasis,Satyamsearningsgrew.Mr.Rajuadmittedthatthefraudwhichhe committedamountedtonearly$276million.Intheprocess,Satyamgrosslyviolatedallrulesof corporategovernance.TheSatyamscamhadbeentheexampleforfollowingpoorgovernance practices.xlviiIthadfailedtoshowgoodrelationwiththeshareholdersandemployees.xlviii GovernanceissueatSatyamarosebecauseofnonfulfillmentofobligationofthecompany towardsthevariousstakeholders.xlixOfspecificinterestarethefollowing:distinguishingthe rolesofboardandmanagement;separationoftherolesoftheCEOandchairman;appointment totheboard;directorsandexecutivecompensation;protectionofshareholdersrightsandtheir executives. Shareholdersneverhadtheopportunitytogivetheirconsentpriortotheannouncementofthe Matyasdeal.Falsifieddocumentswithgrosslyinflatedfinancialreportsweredeliveredto them.Ultimately,shareholderswereatalossand,cheated.Surely,questionsabout managementscredibilitywereraisedinadditiontothenonpaymentofadvancetaxestothe government.Together,theseraisequestionsaboutSatyamsfinancialhealth. 2.5ETHICALDILEMMASFACEDBYRAMALINGARAJU ________________________________________________________ Anethicalproblemcannotberesolvedunlessitisfirstrecognizedasadilemma.Rewardor punishmenttoethicalintegrityandmoralcouragedecidetheactofanindividual.lThe existenceofrules,policies,jobdescriptionsandculturalnormswilldiscourageindividualsfrom unethicalbehavioreveniftheyhaveafeeblemoralsense.But,inthepresenceofunethical
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organizationalcultureandstructure,evenhighlymoralindividualsmaybecomecorrupt.The cultureatSatyam,especiallydominatedbytheboard,symbolizedsuchanunethicalculture.In thecaseofMr.Raju,Satyam,asthesmallestofthebigfourplayers,wasunderpressureto showextraordinaryresultsinordertosurvive.Apartfromthattherewasgreed,perhaps recklessgreed,causingthebrotherstoindulgeinillegalandunethicalactivities. Ononehand,hisrisetostardominthecorporateworldcoupledwithimmensepressureto impressinvestorsmadeMr.Rajuacompelledleadertodeliveroutstandingresults.Onthe contrary,Mr.Rajuhadtosuppresshisownmoralsandvaluesinfavorofthegreatergoodof thecompany.Theboardconnivedwithhisactionsandstoodasablindspectator.Thelureof bigcompensationtomembersfurtherencouragedsuchbehavior.But,intheend,truthis soughtandthoseviolatingthelegal,ethical,andsocietalnormsaretakentotask.Thefraud finallyhadtoendandtheimplicationswerefarreaching.Thepublicconfessionoffraudby RamalingaRajuspeaksofintegritystillleftintheindividual.Hisacceptanceofguiltandblame forthewholefiascoshowsabrightspotofanotherwisetamperedcharacter. AfterquittingasSatyam'sChairman,Rajusaid,"Iamnowpreparedtosubjectmyselftothe lawsoflandandfaceconsequencesthereof."Mr.Rajuhadmanyethicaldilemmastoface,but hispersistentimmoralreasoningbroughthisowndemise. 3.HOSMERSSIXSTEPPROCESS Hosmerssixstepprocessformoralreasoningisanexcellentwaytoevaluateethical behaviorsorlackofethicalbehaviorsinbusinesssituations.UtilizingHosmerssixstepprocess inrelationstothiscasehelpstounderstandandevaluateRamalingaRajuunethicalbehavior. ThefollowingdepictsthesixstepprocessinrelationtotheSatyamcase. Step1Definemoralissue Inordertodefinethemoralissue,itisimportanttoaddresswhohasbeenhurtbyRajusaction. Inthiscase,Satyamsstakeholders,shareholders,andemployeeshavebeenaffected,aswell as,Indiaasawhole.Theshareholdershavebeendeceivedbecauseofthelackoftransparency inRajusreportingofSatyamsfinances.Rajuunderstatedtheliability,overstateddebtors positions,andclaimedfalserevenueandoperationmargins.Satyamsemployeeshavelost moneyduetovestedinterestsinthecompanyandlostwagesduetothecancellationofmany ofSatyamsprojects.Theemployeesalsohaveapermanentstigmaattachedtothemfortheir connectiontoSatyam,eveniftheywerenotinvolvedinscandal.Thiswillmakeitdifficultfor themtoseekemploymentelsewhere.ThisscandalputtheIndiangovernmentinabadposition andmadethemlookunreliabletotherestoftheworldcausingIndiancompaniestolose internationalcredibility,experienceadeclineinstockprices,andcauseoutsiderstoquestion investinginIndiancompanies.TheSatyamscandalforcedtheworldeconomytoquestionthe moralethicsofIndiancorporationsandtheSECIsabilitytomanagefirms.TheWorldBanks decisiontobanSatyamfor8yearsbroughtevenmoreattentionofthedepthsofthisscandalto
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theworldeconomy,whichhurtIndianaswell.ThecredibilityofSatyamsauditor,Price Waterhouse,wasalsohurtbythisscandal,andothercompaniesconnectedtoPrice Waterhousewereputunderscrutiny. Step2Whatelsecanwelearn? Hosmerrecommendsnotpassingmoraljudgmentbeforeconsideringallofthefacts.First,itis importanttoconsiderwhatdoesnotmakesenseinthecase.Inthiscase,Rajuisawareof falsifiedaccounting.ItappearsasifRajurealizesthatheneedstopaybackthecompanyand balanceSatyamsbooks.Duetotherapidgrowthofthecompany,Rajuseemstohavegottenin overhishead.HetriedtocorrecthismistakesbyacquiringMaytas,whichwasownedbyhis ownfamilymember.ThisactionwasadesperateattempttofixSatyamsaccounting,andputs Rajusethicsintomorequestion.Second,itisimportanttoconsiderwhatisontheRajusmind. Itishardtosayforsurewhatapersonthinks,butRajuseemstowanttofixSatyams accounting.Hedidnotpersonallybenefitfromtheaccountingfraud.Third,itisbeneficialto considerwhatfactswouldbeimportanttothoseaffectedbyRajusactions.Inthiscase,actual revenueandoperatingmargins,actualdebtorsposition,andactualliabilitywouldbe importantinformation.Forth,itisimportanttoconsiderwhatfactsarereadilyaccessible.In thiscase,theaccessiblefactstoconsiderincludeRajusrelationtoMaytasandSaytams DirectorsapprovalofmergingwithMaytas.Finally,itisimportanttoconsiderifRajuhasa legitimatesecret.Inthiscase,Rajusdeceptionisnotjustifiedbecausehewaslyingabout financialstandings. Step3Ifpossible,avoidrocksandhardplaces Inthiscase,Rajumostlikelydidnotmeantogethimselfinsodeep.Indiasfastgrowing economyandSatyamsextraordinarygrowthratemadeithardforRajutoliveupto expectations.SatyamhelpedIndianbecomeamajorplayerintheworldeconomy,and Satyamsstockholdersexpectedhighreturnsontheirinvestments.Rajureactedtothese pressuresbyfalsifyingSatyamsaccountinguntilitgotoutofcontrol. Step4Whataboutme? Toanswerthisquestion,Hosmerrecommendsaskingwhattheconsequencesareoftakingona moralfight,andwhattheconsequencesareofnottakingonamoralfight.Accordingto Hosmer,theconsequencesoftakingonamoralfightcanoftenhavenegativepersonaland professionalconsequences.Rajusactionswerefirstquestionedwithhisdecisiontoacquire Maytas.Satyamsshareholdersquestionedthisdecisionandthreatenedmanagement.This actionleadsRajutoadmithisactions.Rajuresignedafterultimatelyblowingthewhistleonhis owncompanyandhimself,butitisimportanttonotethatthiswasadirectresponseto shareholdersobjectionsandsuspicionsregardingRajusdecisiontoacquirehisfamilys company.IfRajudidnotadmittofalsifyingSatyamsaccounts,hewouldhavedrawoutthe processofuncoveringhisactions.TherewasnowaytodigSatyamoutofthissituation.Atthis point,theIndiangovernmentcouldstillsalvagethecompanybeforeitwascompletely
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destroyed.Rajuhadexpensedallofhisoptions,andtherewasnothingtodoexceptadmithis actions. Step5Applyethicalframeworks Inthisstep,itisimportanttoapplyethicalframeworksbyassessingethicaltheories.The UtilitarianTheory,theTelevisionTest,andtheEthicalRelativismTheorycanbeusedtoassess thiscase.TheUtilitarianTheorystatesthatmoralactionsarethosethatproducethegreatest netpleasurecomparedwithnetpain.liOneaspectoftheUtilitarianTheoryistheCostBenefit Analysiswhichquantifiesthebenefitsandthecostsofthealternativeinagivensituation.In Rajussituations,thebenefitoffalsifyingSatyamsaccountingwasincreasingSatyamsstock priceandtheappearanceofcontinuedrapidgrowth.Thealternativewouldbetoreportthe companyscorrectfinances.Thiswouldlowerstockvalue,reduceprofitsforSatyamandits shareholders,andleadtolessbuyinsfrominvestors.TheTelevisionTestasksifanindividual wouldwanthis/heractionsbroadcastedontelevision.Rajuwouldmostlikelynotwanthis actionsbroadcasted.Hedidnotadmithisaccountingfrauduntilhewascornered.Ethical Relativismsaysthatactionsmustbejudgedbywhatindividualssubjectivelyfeelisrightor wrongforthemselves.SituationalEthicsisanaspectoftheEthicalRelativismTheorythatsays onemustjudgeaperson'sactionsbyfirstputtingoneselfintheactor'ssituation.liiRajuchose toactinhisbestinterest.HemayhavebelievedthathewasprotectingSatyamsmarketshares, butthiswasshortsighted.Rajureceivedalotofprestigiousawardsthatwerebasedon Satyamssuccess.RajuwasarrogantandbelievedhecouldfudgeSatyamsaccountingand makeupforitinthelongrun.ThiswasavainandunethicaldecisionthatwasdrivenbyRajus greedanddesiretobeatthetop. Step6Reachaconclusion Inordertoreachaconclusion,Hosmerrecommendsconsideringthevariousethical frameworkstomakeadecisionandimplementingthatdecision.InthiscaseRajudecidedto falsifySatyam'saccountingdespitethefactthatitwasafraudulentact.HeliedtoSatyams employees,shareholders,stakeholders,andtheIndiangovernment.Thisbehaviorshouldnot betolerated.WhenRajudecidedtofalsifySatyamsaccounting,heactedunethically.When Satyamsinvestorsquestionedhisactions,Rajufinallydecidedtotakeanethicalapproachby admittingtofraudulentaccounting.However,thiswasnotenoughtocounterhisunethical behavior.Rajushouldhaveadmittedtofinanciallosewhentheyoccurredandfiguredoutaway togrowhonestly. 4.LESSONSLEARNED ________________________________________________________ SatyamsfraudspurredthegovernmentofIndiatotightencorporatenormstoprevent recurrenceofsimilarfraudsinfuture.Thegovernmenttookactiontoprotecttheinterestofthe investorsandsafeguardthecredibilityofIndiaandthenationsimageacrosstheworld.Ithas forcedthegovernmenttorewritecorporategovernancerulesandtightenthenormsfor
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charteredaccountants.Someoftheregulationsincludepromotionofshareholdersdemocracy withprotectionofrightsofminorityshareholders,responsibleselfregulationwithadequate disclosureandaccountabilityandlessergovernmentcontroloverinternalcorporateprocesses, voluntarycorporategovernancecode,certificateofindependenceforindependentdirectors, aninstitutionofmechanismforwhistleblowers,andacapat10percentontherevenues comingfromasingleclienttoanauditfirm.Promotersshouldbeprohibitedfrominterferingin therecruitmentofindependentdirectors.Independentdirectorsshouldhavechallenging, skilledIDs,whohavetimetodevotetothebusiness,ratherthanwellknownfaces.Additional lessonsincludehavinganeffectivewhistleblowerpolicyinplace,educationonethicalvalues, criteriaforremunerationtokeypersonnel,andstrengtheningofqualityreview. 5.RECOMMENDATIONS ________________________________________________________ Lastingsolutionscanonlybefoundbytransforminghumanconsciousnessthroughaninner disciplineandhighermoralreasoning.Acompanycanbuildsustainablecompetitiveadvantage throughethics,values,excellence,quality,socialresponsibilityandhumandevelopment.An integrated,valuebasedvisionofleadershipandgovernancewillgoalongincreatingcorporate governance.Atransformedorganizationalculturewhichpayshighestattentiontoethical conductandmoralvalueswillstrengthensustainablerootsofthecompany.Transparencyand effectiveauditingandregulatorychecksthroughinternalandexternalauditorsandmonitoring agencieswillhelpestablishlonglastingcredibilityforanycompany.Companiesshouldgather feedback,measureeffectiveness,andcontinuallyimprovetheircodeofconduct.Theyalways distinguishbetweenopportunitiesandtemptations.Nomatterwhatheightsapersonmay reach,charactermustbemaintainedatanycost.Companiesmusttakeastepbackwhen presentedwithchallengingdecisionsandindividualsmustlistentothelittlevoiceintheir headincomplyingwithlawandtotheirheartindealingwithpeople.Whenmakingcorporate decisions,itisimportanttonotlosesightoftheindividualsethicalreasoning. Personalethics,selfdiscipline,andhighmoralreasoningarecriticaltoavoidingunethical behavior.Someoftheadvantagesoftheseelementsincludeavoidingunethicalbehavior, performingfiduciaryduties,andresolvingethicaldilemmas.Butsuchpersonalethicsmayputa personindirectconflictwithexistingcorruptbureaucraticsystems,increasedethicaldilemmas, andexposuretostressandintenseemotionalpressure. Transparencyinfinancialreportingasamoraldutyandethicalconductisalsoveryimportant forcompaniestoadheretoinordertoupholdethicalstandards.Benefitsfromsuch engagementincludehighertrustandloyaltyfromstakeholders,increasedgoodwill,andhigher investorconfidence.Absolutetransparencymayleadtorevelationoffavorableand unfavorableperformancewhichinturnmayresultinlossofinvestorconfidenceandinabilityto attractnewcapital.

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Itisalsoimportantforcompaniestoestablishanorganizationalculturewhichsupportsethical conductthroughacodeofconductandproperlylaidoutcorporategovernancepoliciesand procedures.Advantagesofthisapproachincludefosteringethicalbehaviorfromemployees, increasedinnerdiscipline,andprovidingvaluebasedcorporatevision.However,suchaculture willaddnewconflictsofinterest,strictcompliancewithrulesandregulationsandextra supervision. 6.CONCLUSION ________________________________________________________ Corporategovernanceframeworkneedstobeimplementedinletteraswellasspirit.The increasingratesofwhitecollarcrimesdemandsstiffpenaltiesandpunishment.Thesmall distortionscreatedbyfewimmoralexecutivesladfarreachingnegativeconsequences. Hopefully,creatinganawarenessofthelargeconsequencesofsmallliesmayhelpsometo avoidthistrap.

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BIBLIOGRAPHY/CITATIONS ________________________________________________________

Asktheexpert:BRICsandinvestorstrategy.FinancialTimes.2November2006. http://us.ft.com/ftgateway/superpage.ft?news_id=fto110620061008293518 ii WorldEconomicOutlook.InternationalMonetaryFund.April2010 iii Ibid. iv Marshall,Andrew.TheBRICNations:GrowthandRisks.Reuters.10June2009 v WorldEconomicOutlook.InternationalMonetaryFund.April2010 vi Ibid. vii IndiaFDIFactsheetFebruary2010.IndianMinistryofCommerceandIndustry.30April 2010.http://dipp.nic.in/fdi_statistics/india_FDI_February2010.pdf viii Ibid. ix Poddar,TusharandEvaYi.IndiasRisingGrowthPotential.GoldmanSachs.22January2007 x CapitalIQ.www.capitaliq.com xi 2004SECAnnualFiling.SatyamComputerServices,Ltd.29June2004 xii 2005SECAnnualFiling.SatyamComputerSystems,Ltd.28April2005 xiii 2004SECAnnualFiling.SatyamComputerServices,Ltd.29June2004 xiv Ibid. xv SatyamSECFilings,20052008 xvi Ibid. xvii Ibid. xviii Ibid. xix Ibid. xx CapitalIQ.www.capitaliq.com xxi Ibid. xxii Ibid. xxiii Ibid. xxiv Ibid. xxv Ibid. xxvi SatyamCaseStudy.UniversityoftheFraserValley.14November2009 xxvii TheSatyamFiasco.www.scribd.com xxviii SatyamScam.www.scribd.com xxix AStudyonSatyamFraud.www.slideshare.net xxx FinancialScamsStormtheMarketandKilledtheInnocentInvestors.InvestorsProtection andRedressalForum. xxxi Ashani,Peeyush.ChangeinManagementinanOrganizationwithReference:Satyam ComputerServices.www.scribd.com xxxii PresentationonSatyamScam.www.scribd.com xxxiii CommentaryaboutSatyamScandal.SanDiegoAccountantsGuide. www.sandiegoaccountantsguide.com xxxiv SatyamAnInsightStory.www.scribd.com xxxv SatyamScam:SoWhoistoBlam?www.scribd.com.14January2009
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Ibid. TheSatyamScandal:NowWhat?RediffIndiaAbroad.9January2009 xxxviii IndianITScandalBossArrested.BBCNews.9January2009. xxxix Ibid. xl Ibid. xli Manoharan,T.N.FinancialStatementFraudandCorporateGovernance. xlii Ibid. xliii Ibid. xliv Ibid. xlv CorporateEthics:TheMoralElementofBusiness.www.scribd.com xlvi Steen,Margaret.IndiasChangingEthics.www.scu.edu xlvii AStudyonCorporateGovernanceIssuesatSatyam.www.scribd.com xlviii Ibid. xlix Ibid. l CorporateEthics:TheMoralElementofaBusiness.www.slideshare.net li Dunfee,John."BusinessEthics."GeorgeWashingtonUniversity,Washington,DC.11Mar. 2010.Lecture. lii Ibid
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