BUSINESS LAW PRESENTATION

SATYAM ² AN INTROSPECTIVE

PRESENTED BY:ANUP KUMAR AVINASH ROLL NO. ± 10HM06

COMPANY PROFILE
Satyam Computer Services Ltd. was founded in 1987 by Ramalinga Raju. y The company offers information technology (IT) services spanning various sectors, and is listed on the New York Stock Exchange and Euronext. y In news because of the accounting scandal by its CEO Ramalinga Raju. y Satyam's network covers 67 countries across six continents. The company employs 53,000 IT professionals.
y

COMPANY PROFILE
India·s 4th biggest software company. On 26th August, 1991 it was converted into a Public Limited Company and went for PUBLIC ISSUE In 1992. y BSE IPO oversubscribed 17 times when made public. y It was listed in BSE, NSE, NYSE and Euronext (Amsterdam). y It serves over 654 global companies, 185 of which are Fortune 500 corporations.
y

What is CSR
y CSR also known as corporate

citizenship, is a form of corporate self-regulation integrated into a business model. y Ideally, CSR policy functions as a built-in, self-regulating mechanism allowing business to monitor and ensure its adherence to law, ethical standards, and international norms. y Business would embrace responsibility for the impact of their activities on its various stakeholders.

CSR at Satyam
y Byrraju Foundation, a non

governmental organisation dedicated to social transformation in rural areas. y Satyam won the Asian Corporate Social Responsibilty Award under poverty alleviation category through the Gram IT project ( a rural BPO program) an initiative by Byrraju Foundation. y EMRI (Emergency Management and Research Institute), is an initiative of by Raju foundation which was initiated in August 2005.

Corporate Governance
y Corporate governance is the

set of processes, customs, policies, laws, and institutions affecting the way a corporation or company is directed, administered or controlled. y Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.

Corporate Governance Of Satyam
y Vision Statement :y To leverage information,

y y y y y

knowledge and technology to enhance human endeavour. Core values of Satyam:Belief in People Entrepreneurship Customer Orientation Pursuit of Excellence..

Controversies:y Maytas acquisition y World Bank y Upaid lawsuit y Accounting scandal

of 2009

World Bank Fiasco
y The World Bank had banned Satyam

from doing business with it for 8 years due to inappropriate payments to the World Bank's staff. y The World Bank accused Satyam of giving improper benefits to its (the Bank's) staff and of failing to maintain documentation to support fees charged for its subcontractors. y However, it clarified that Satyam was not involved in incidences of data theft or malicious attacks that had been made on the Bank's information systems.

Upaid Lawsuit
y UK mobile payments company

Upaid Systems is suing Satyam for over 1 billion US dollars on complaints of fraud, forgery and breach of contract. y On 9 December 2009 Satyam has settled the lawsuit with UPAID for $70 MM, of which $45 MM is payable upon regulatory approval, and the remaining $25 MM is payable a year after the initial payment.

Maytas Infrastructure
y Raju·s family hold 36.64 y y y

y

percent. while institutional holding is 10.92 per cent. The company had raised Rs. 327.45 crore through IPO. It had a turnover of Rs 1,660 crore and net profit of Rs 100 crore in the last financial year. Satyam planned to acquire 51 per cent stake for Rs 1, 440 crore or $0.3 billion.

Maytas Properties
y Raju·s family owns 35% of

Maytas properties. y Founded in 2005, it has a land of 6,800 acres. y It has clearances for three IT SEZs based on 148 acres. y An undisclosed stake is held by Infinite India Investment Management, a realty fund jointly promoted by JM Financial and US-based SRM Investments, which invested Rs 600 crore in February.

Satyam·s justification for Maytas buyout deal
y De-risk the core business

the integrated organization would be stronger and more diversified to deal with the uncertainty of the market feeling that in the recent times it is difficult to make a strategic deal with other IT companies.

Reaction of Investors
y The shareholders realised

that the buyout was not profitable for them. y Satyam using there serve cash to purchase Maytas Infra and Maytas Properties was a big risk.

Result of Investor·s Reaction
y It results that part of investors succeeded to an attempt by

the minority shareholding promoters to use the firm·s cash reserves to buy out two companies owned by them Maytas Properties and Maytas Infra. y That aborted attempt at expansion precipitated a collapse in the price of the company·s stock and a shocking confession of financial manipulation and fraud from its chairman, B. Ramalinga Raju. y The promoters decided to inflate the revenue and profit figures of Satyam. In the event, the company had a huge hole in its balance sheet, consisting of non-existent assets and cash reserves that have been recorded and liabilities that are unrecorded.

Accounting Scam
y Satyam faced is the biggest fraud in India's corporate y y

y y

history. The company management, mainly disgraced chairman B Ramalinga Raju, kept everyone in the dark for a decade. On 7 January 2009, company·s previous Chairman Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyam's accounts had been falsified. Raju confessed that Satyam·s balance sheet of 30 September 2008 contained: Inflated figures for cash and bank balances of Rs. 5,040 crore as against Rs 5,361 crore reflected in the books. An accrued interest of Rs. 376 crore which was non-existent.

The Scam«
y An understated liability of Rs. 1,230 crore on account of

funds was arranged by himself. y An overstated debtors' position of Rs. 490 crore (as against Rs. 2,651 crore in the books.

The promoters
y Since the promoters, in this case, held only about 8 percent

shares. y Their idea to push through the Maytas acquisition deal was defeated by an angry lot of shareholders.

The guilty

Directors and independent directors
y The Satyam board, including its five independent directors

had approved the founder's proposal to buy 51 percent stake in Maytas Infrastructure and all of Maytas Properties, owned by the family members of Satyam chairman B Ramalinga Raju. y Despite the shareholders not being taken into confidence, the directors went ahead with the management's decision. y The decision of acquisition was ,however, reversed 12 hours later after investors dumped Satyam¶s stock and threatened action against the Management.

Other Company Bigwigs
y Satyam's CFO Srinivas Vadlamani has already been

arrested. y But could only two or three people have managed to cook the books for years of a company so large.

Satyam·s auditors
y So what were the auditing company,

PricewaterhouseCoopers, doing ? y PwC has written a letter to the BOD of Satyam that its audit may be rendered "inaccurate and unreliable" due to the disclosures made by Satyam's (ex) Chairman.

Is it real? How could Auditors miss the gaping hole when : y Auditors do bank reconciliation to check whether the

money has indeed come or not. y They check bank statements and certificates. y So was this a total lapse in supervision or were the bank statements forged.

The bankers
y If the auditors were conned, it means that either the

bank statement and certificates were forged. y Satyam's banks ² ICICI Bank, HDFC Bank, Bank of Baroda, etc«

The SEBI
y The SEBI had in December given a clean chit to

Satyam in the probe on violation of corporate governance Law.

Public
y The incident has hurt public perception of

Corporate India and is likely to hurt shareholders' confidence in India Inc. y It resulted in incalculable and unjustifiable damage to Brand India and Brand IT in particular. y It is likely to dent the public credibility about the concepts of corporate governance in India.

Investment Bankers
y Investment banker DSP Merrill Lynch was appointed by

Satyam to look for a partner or buyer for the company. y DSP Merrill terminated its engagement with the company soon after it found financial irregularities. y Merrill Lynch also sent the information and the reason for their termination of the contract to the Bombay Stock Exchange, SEBI and even the New York Stock Exchange. y However, despite the fact that DSP Merrill Lynch blew the whistle, it is not yet clear why it took such a long time to inform the authorities, and why it did not let the public know of Satyam's misdeeds.

The Government
y The government too is

equally guilty in not having managed to save the shareholders, the employees and some clients of the company from losing heavily.

Employees
y It is nights and heartburns for the over 53,000 employees y

y

y

y

of Satyam Computers. As they conjure up worst case scenarios like non-payment of salaries, project cancellations , layoffs and equally bleak prospects outside. As the company's management tries to reassure shocked employees, jobs sites have got flooded from resumes of hundreds of Satyam employees. Job consultants believe that in the current economic climate , Satyam employees might have to settle for lower salaries outside. It is an employers' market.

Shareholders
y An accounting fraud was the last thing investors

in India would have imagined as a trigger for a reversal in investor sentiment. y This scam is likely to affect the image of Indian companies among foreign portfolio investors. y The share prices of Satyam saw a sharp fall after Raju·s confession. y The share prices fell down from190 to 30 (approximately) in a matter of a days.

Clients
y Satyam Computer·s clients include General Electric, Nissan

Motors and General Motors. y The debacle may force the clients to review their contracts and look at other offshore suppliers. y Australian telecom company Telstra had already decided to split a new contract worth $200 million among three Indian vendors. y Another partner and customer of the company, Cisco Systems said that a proposed investment in Satyam Global Life net could be in jeopardy.

Directors
y Satyam's CFO Srinivas Vadlamani already arrested. y Many others after this scam, mainly due to their own

mistakes of not actively participating in the management of the organisation.

Competitors
y The competitors were mainly benefited positively from this

scam. y The Satyam Scam was also lesson to learn for the other organisations in the IT sector.

New Policies :y Compliance with Laws, Rules and Regulations. y Legal, Honest and Ethical Conduct. y Suspected Fraudulent behavior.

NEW BOARD APPOINTED..
y On 11 January 2009,

the government nominated noted banker Deepak Parekh, former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's board.

The Takeover Of Satyam
Mahindra Satyam 
Tech Mahindra paid Rs1757 Crore for a 31% stake in the

company, at Rs 58 per share. Satyam Computer Services zoomed15% to Rs 54.20 ahead of the announcement of the highest bidder for the company on April 13, 2009. In India this moment was full of praise for the manner and speed with which the reconstituted board of Satyam Computer Services found a strategic investor.

Mahindra Satyam core values
y Core Values:y Involving People: - Volunteers, Community, Civilians,

NGOs and Government. y Applying Knowledge: - Leveraging the core competencies of Satyam Technology, Process and Managerial competency. y Making Things Happen:- All initiatives are outcome oriented, scalability driven and capable of execution. y They have five chapters in India located at Hyderabad, Pune, Bengaluru, Bhubaneshwar and Chennai. The Foundation focuses its activities in the core areas of Education, Livelihoods, Health, Environment and Empowerment for Persons with Disability.

Has India learnt ?
y Satyam was a wakeup call for India to clean up its act. But did India

Inc wake up? y Experts and industry watchers remain divided in the aftermath. While there is a set of people who believe that Satyam definitely made promoters sit up and make alterations, there is an equally strong lobby that says nothing has changed in the real sense of the term. y One of the main factors that is prompting independent directors to sit up and take active interest is the fear of punitive action, like the one that Satyam·s independent directors faced after promoter Ramalinga Raju owned up to his fraud. There has certainly been a bit of a change in the last few months in the way boards are functioning. y Audit committees are being more careful to ensure that the external auditors perform their role more diligently. We also find that the chairman of the board and members of the audit committee are being more careful and thorough in their questioning. Boards, too, are taking care to ensure that there are no slip-ups at their end..

Mahindra Satyam«.
y Mahindra Satyam has tried immensely hard

not to go down the same road that Satyam went. The company does not have a fixed vision and mission statement, but they do have a set of well formulated rules and regulations covering almost every aspect including fraud. We see that Mahindra Satyam is definitely one company which has learnt from the Satyam Scandal.

Bibliography
y www.wikipedia.com y www.reportjunction.com y www.mahindrasatyam.com y www.scribd.com y www.wikinewforum.com

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