Analysis of Satyam

case.
Contributors: Group A.
Ardhendu Chatterjee
Dipomitra Ghosh
Jyotirmoy Chatterjee
 INTRODUCTION:-
• Satyam computers was founded by Ramalinga Raju.
1987
• He started the Satyam Computers with 20 employees.

• Converted into Public Ltd Co. and listed in BSE and NSE.
1991 • First Indian company to be listed in 3 international exchanges
NYSE, DOWJONES, EURONEXT.

2000 • Declared one of the 100 most pioneering technologies by World

Economic Forum.

• Became the first Asian Company to feature in the training magazine list
2007
of top 125 companies for learning.

• 4th Fastest growing IT Company in India.

• Satyam Network covers 66 countries and 53,000 employees across the
2008
Globe.
The areas of company culture and structure that
could have raised some red flags about satyam’s
situation:

• Satyam’s compartmentalized structure- Out of 51,000 employees only a handful

would really know what was going on within the firm. Each Department had it’s
own Financial Unit which which report to a central Financial Team headed by the
CFO, Srinivasa Vadlamani. Each Unit was unaware of the performance of other
departments.

• Top Management consisting of a few professionals and mainly family members of

the Founder.

• They were allotted large quantities of Satyam Shares to ensure that they had
incentives to take actions that would help boost the stock price.

• Strong Departmentalisation and a strict hierchial structure where junior

employees’ opinions weren’t valued much.

• Majority stakeholders as family owned part.

india’s environment that investors should
consider when investing in companies like Satyam:
• A strict hierchy based beaurocratic structure in companies like Satyam that
offers the Junior employees to be manipulated along all colours by the
senior employees, also treated as subordinates with no value given to their
opinion.

• A company having “A family” as a majority stake holder provides ample

opportunities for corruption.

• Balance of power tilted towards the founder who runs the show and the
Board involved only in the strategic level.

Investors should make strict vigil in the above mentioned points

before plunging in an investment.
Challenges of effective implementation of
Whistleblower policy in a company like Satyam:
• Fear of loosing relationship at work or outside work by Whistleblowers. They may get
terminated, suspended or at a risk of their own well beings.

• Strict compartmentalization and Hierchial workforce makes it difficult for the whistle blower
to approach the authority at ease.

• Conflict of interest with the top management when reporting fraudulent practices might lead
to a chronical of unprecedented events.

how should directors react to whistleblower’s problems?

• According to ICAEW (2004), The ideal Director will use a report from the Whistleblower to
examine the company’s internal controls. In addition the Director will document evidence
from the report and follow up the report confidentially. The Director will also provide
feedback to the reporter at the right time. All these procedures are ideally known to all
company managers and employees.
 Analysis on the independence of the board and the ability of the board to exercise
independent judgement on the corporate affairs of satyam and why the non executive
directors missed the fraud perpetrated in the company over a number of years.

The company commissioner consists of 5 independent commissioners and 1 commissioner. So, the board of
commissioners should be quite independent when viewed from the composition. However, one of the
independent commissioners has been a commissioner since 1991, another independent commissioner has
received considerable compensation for the educational institutions he owns, and they have received high
compensation from Satyam. Non-independent Commissioner Satyam, Krishna Palepu, also received substantial
income from Satyam because of his role as a company consultant. So, it can be concluded that in fact the
composition of the commissioners as a whole is less independent.
The board of commissioners was not too listened to by Raju. This is evident from when Raju forced a merger
with a company owned by his son. So, it is very likely that this will trigger the reluctance of the board of
commissioners to give the bestperformance.So, if it is concluded, the lack of independence of the board of
commissioners, and the lack of hearing of the board of commissioners makes them not see fraud that has
occurred for years
 Lessons Learned from Satyam Scam

• Investigate All Inaccuracies: The fraud scheme at Satyam started very small, eventually growing into $276 million
white-elephant in the room. Indeed, a lot of fraud schemes initially start out small, with the perpetrator thinking
that small changes here and there would not make a big difference, and is less likely to be detected. This sends a
message to a lot of companies: if your accounts are not balancing, or if something seems inaccurate (even just a
tiny bit), it is worth investigating. Dividing responsibilities across a team of people makes it easier to detect
irregularities or misappropriated funds.
• Ruined Reputations: Fraud does not just look bad on a company; it looks bad on the whole industry and a country.
“India’s biggest corporate scandal in memory threatens future foreign investment flows into Asia’s third largest
economy and casts a cloud over growth in its once-booming outsourcing sector. The news sent Indian equity
markets into a tail-spin, with Bombay’s main benchmark index tumbling 7.3% and the Indian rupee fell”. Now,
because of the Satyam scandal, Indian rivals will come under greater scrutiny by the regulators, investors and
customers.
• Corporate Governance Needs to Be Stronger: The Satyam case is just another example supporting the need for
stronger CG. All public-companies must be careful when selecting executives and top-level managers. These are the
people who set the tone for the company: if there is corruption at the top, it is bound to trickle-down. Also,
separate the role of CEO and Chairman of the Board. Splitting up the roles, thus, helps avoid situations like the one
at Satyam.