CORPORATE GOVERNANCE

-SATYAM

Section 1 Group 3

FT211006 AMAN NAITHANI

FT211026 DEEPAK KUMAR
FT211045 MEGHANA GUNTHA
FT211063 RICHY JOHN SAMUEL E
FT211083 SUBHAM DAGA
FT213026 DIVYA BASER
FT213055 PARTH KRISHNA
 WHAT WAS THE PROBLEM WITH SATYAM?
▪ Satyam as a whole neglected corporate governance rules and regulations which
were in place and fell victim to its own promoter's fraudulent activities
▪ Both internal and external regulatory failures contributed to this problem
▪ Despite negligible cash flows, Satyam subsidiary Maytas made huge investments
which led them to deep debts
▪ Satyam's promoter, Raju, tried to cover up the deceit in Satyam's balance sheets
by taking over Maytas.
▪ This move to acquire another company owned by his own family members
shook investor confidence and Satyam shares fell by over 50%. This paved the
way for the downfall of Satyam
▪ Satyam’s balance sheet carried inflated and non-existent cash and bank
balances, Satyam reported false operating margins: 24% of revenue as opposed
to the actual 3% of revenue.
▪ Raju had also inflated the size of the workforce by more than 25% and had
siphoned off wages of non-existent employees
▪ World Bank blacklisted Satyam for eight years on grounds of data theft and
bribing bank officials
▪ Satyam's independent directors were in fact not really independent and
following the trend in most owner led companies in India, they were appointed
by the promoter aka Raju himself.
▪ The international audit firm, PwC, which was in charge of conducting due
diligence for Satyam also failed in its duty to accurately verify their financial
statements
▪ Both inflation of cash and bank balances, and non disclosure of liabilities led to
78% drop in share prices after confession letter.
 BRING OUT IMPORTANT LEARNING FROM THE CASE
▪ Lack of ethics in leadership can doom any organization.
▪ It takes a chain of oversights and missteps for things to go wrong in a
corporation.
▪ While the origin of the issue might be something as direct as fraud by an over-
ambitious promoter, a range of internal and external factors allows the issue to
snowball into a crisis
▪ Corporate Governance is incomplete without proper enforcement and without
all checks and balances working in tandem efficiently
▪ Governmental intervention is often crucial in the private sector especially when
the failure of a large company threatens the corporate image of the entire
nation and consequently the economy
▪ Growth of a company is crucial but not at the cost of ethics. The line between a
successful corporation and a ponzi scheme is a thin one if the management is
not careful
▪ Conflict of interest: Choosing independent directors who are not only well-
educated and qualified but also neutral and free of influence from promoters, is
very important for a large organization
▪ Qualities and qualifications of an independent and non executive director must
be defined ,such as they should “question intelligently, debate constructively,
challenge rigorously and decide dispassionately”