CORPORATE GOVERNACE FAILURE AT SATYAM:

SUMMARY

The case is about the collapse of both Satyam and its founder, Ramalinga Raju, who was a
major celebrity in corporate India. This case can be helpful in the process of understanding
how corporate governance works and how flaws, in this kind of governance, can lead to some
scandal situations. It also helps understanding the role of a promoter, independent directors,
auditors and the government in corporate governance failures. And most of all, this case can
give a great lead to clarifying corporate governance theories.
Mr. Raju was clearly the first responsible for the fraud. Indian authorities sued Mr. Raju, and
other involved personalities such as the CFO, Mr. Raju's brother, a managing director, the
company's global head of internal audit with responsibility for the fraud and filed charges
against them. Satyam's auditors and Board of Directors also bear some responsibility for the
fraud because of their failure to prevent it. The ownership structure of Indian businesses are
also to blame in the Satyam scandal.
The unethical conduct was one of the main reasons behind the inadequate corporate
governance at Satyam. There was no explicit or implicit code of ethics surrounding Satyam’s
corporate culture; bribery, corruption, and exchange of favours, within and outside the
company, appear to have occurred with frequency at various levels. The case of false books
showed a whole different financial status. The investigations also detailed that the company
had deliberately paid taxes on account of the non-existent accrued interests, which was a
considerable loss for the company. These figures of accrued interest were shown in balance
sheets in order to suppress the detection of such non-existent fixed deposits on account of
inflated profits. The independent directors should have questioned why the company was
sitting on such a huge pile of cash (as shown in the cooked books). The facts of the Satyam’s
case make it clear in spite of knowing the truth they did not raise their voice against such
malpractices. They kept watching the wrongdoing for so many years even when it was
detrimental to the interest of shareholders and other stakeholders. The true role of audit
committee is to ensure transparency in the company, that financial disclosures and financial
statements provide a correct, sufficient and creditable picture and that, cases of frauds,
irregularities, failure of internal control system within the organization, were minimized,
which the committee failed to carry out in Satyam’s case.
As every scandal, the Satyam’s helps learning some lessons. For instance, companies should
know that all inaccuracies should be investigated. If your accounts are not balancing, or if
something seems inaccurate, it is worth investigating. Dividing responsibilities across a team
of people makes it easier to detect irregularities or misappropriated funds. Satyam’s situation
ruined, not only its reputation, but also the reputation of all the industry and even all of the
country. India is now pursued as a fraud land. Therefore, Indian rivals will come under greater
scrutiny by the regulators, investors and customers. The third lesson concerns the need of a
good corporate governance. Splitting up the roles, of the CEO and the Chairman of the Board,
thus, helps avoid situations like the one at Satyam.