SATYAM SCANDAL 'INDIA'S ENRON' 

Submitted by:- Mansi Mangla

Submitted to :- Dr Charu shri gupta
 WHAT IS BUSINESS ETHICS ?

• Business ethics is the study of appropriate business policies and

practices regarding potentially controversial subjects including
corporate governance, insider trading, bribery, discrimination,
corporate social responsibility, and fiduciary responsibilities.
 WHAT IS UNETHICAL BEHAVIOUR?

• Unethical behaviour is behaviour that breaches both the Company's Code of Conduct, and the general
notion of morally correct behaviour. Unethical behaviour can include any deeds that violate the law
like theft or violence, but unethical behaviour can involve much broader areas as well.
 VIDEO

https://www.youtube.com/watch?v=KlEBp0QpX-k
 SATYAM COMPUTER SERVICES

• Mahindra Satyam (Formerly Satyam Computer Services Limited) Was An

Indian information technology (IT) Services Company Based In Hyderabad,
India, Offering software development , system maintenance, Packaged
Software Integration And engineering design Services. Satyam Computer
Services Was Listed On The pink sheets, the national stock exchange And
Bombay stock exchange And Provided Services To A Wide Range Of
Customers Including 185 fortune 500 Companies.
• Founder:  Ramalinga Raju
• Founded: 24 June 1987
• Ceo:  C.P Gurnani  (9 Apr 2009–)
• Successor:  Tech Mahindra
• Headquarters: Hyderabad
• Type Of Business:  Publicly listed company
 SATYAM SCANDAL

• Everything was going well with Satyam until the sequence of events unfolded which ultimately
led to the disclosure of not only the biggest financial but also the major ethical scam of
corporate India.
• In the year 2009, when the world was already reeling under the impacts of major financial
recession, Indian Technology sector was hit by what is termed as the most colossal fraud in
corporate history of India, The Satyam Scandal. The fraud often dubbed as the ‘India’s Enron’
took everyone by surprise as at the time scam was exposed.
• However, things turned ugly when on January 07, 2009, the chairman of Satyam Computer
Services Ramalinga Raju wrote a letter to Securities and Exchange Board of India admitting to
the fraudulent activities and financial irregularities in his company. Ramalinga acknowledged
in his letter that he had been forging company’s accounts by overstating its revenues and
inflating its profits for years and that Satyam Balance sheet showed nearly $1.5 billion in non-
existent cash and bank balances, accrued interest, and misstatements.
 PEOPLE INVOLVED IN THIS SCAM

• Ramalinga Raju :- Satyam Former Chairman

• B Rama Raju :- Brother Of Ramalinga Raju ( Former MD)
• V Srinivas:- Ex Financial Officer
• S Gopalkrishnan :- Price Waterhouse Auditor
• Talluri Srinivas :- Price Waterhouse Auditor
 UNETHICAL ISSUES IN THE COMPANY

Unethical issues in finance

Satyam was evidently the case of ethical malpractices of Ramalinga Raju, chairman of the company who admitted his own
misconducts. The Serious Fraud Investigation Office (SFIO), investigating arm of Ministry of Corporate Affairs in India
investigated the case and submitted its report on April 13, 2009. As per the report, Satyam founders, conspired to artificially
increase the revenues and profits in the books. The report highlights that the falsification was done deliberately leaving
loopholes in the Computerized Accounting System which uses ERP modules. These loopholes were intentionally left to insert
fictitious invoices and bank statements to balance them without being detected.
• Unethical conduct in Hrm
Unethical Conduct – Ramalinga Raju
Satyam’s chairman Ramalinga Raju’s way of conducting the business is the classical example of unethical practices in the
industry. He was solely driven by the greed of money and acquiring lands. He wanted to compete with the top three IT
companies of India (Infosys, TCS and WIPRO). Raju chose the easiest yet the most immoral ways to achieve his goals. He
forged the accounting books for nine years, avoided taxes, and diverted the money received from shareholders, created fake
clients, account salaries and invoices. Ramalinga Raju showed his company in very good financial health and attracted money
from shareholders to buy lands. Ethical standards thus in the company were poor.
• Insider Trading
The promoters indulged in insider trading of the company’s shares to raise money. The funds collected by the
former chairman B. Ramalinga Raju, his brother Rama Raju and their relatives were used to purchase lands in the
names of 330 companies Promoters of Satyam and their family members during April 2000 to January 7, 2009 sold
almost 3.9 crore shares collecting in Rs 3029.67 crore. The promoters based on the inflated books thus projected a
very good financial position of the company and used the shareholders money for their personal gains.
• False Books & Accounting
According to the findings of SFIO, Satyam’s balance sheet as on September 7, 2008 carried an accrued interest of
Rs. 376 crore, which was non-existent. The company had created a false impression about its fixed deposits
summing to be about Rs 3318.37 crore while they held FDRs of just about Rs 9.96 crores.
One of the biggest sources of forgery at Satyam was the inflation of the number of employees.
• Negligent Board of Directors
The directors at the Satyam Board never questioned the actions of their Chairman. They did not raise objections
when the management decided to invest 1.6 billion dollars to acquire a 100 percent stake in the two real estate
firms promoted by Raju's sons which was in gross violation of the Companies Act 1956, under which no company
is allowed without shareholder’s approval to acquire directly or indirectly any other corporate entity that is valued
at over 60 percent of its paid-up capital.
• Faulty Ownership model
Satyam ownership model was flawed from the perspective of good corporate governance.
1. As a publicly owned company, it was under pressure to overstate profits to keep the
company’s bonds and equities in high esteem.
2. Mr. B. Ramalinga Raju, diluted his holding from 25.6 % in 2001 to 3.6 % in 2009. He
could overstate profits with the objective of influencing other shareholders. The
overstatement never hurt him as his own share was small.
3. Satyam would not have overstated its revenues and profits if it had to back both with real
cash. A big part of the blame for the colossal fraud thus belongs to India’s trade and fiscal
policy makers.
 IMPACTS OF SATYAM SCAM

• Jobs of over 5000 people were at risk.

• India’s global image was suffered.
• Indian stock market fell dramatically.
• IT sector suffered a downtown.
• The GDP fell by 0.4%
• India’s national stock exchange announced removal of Satyam from S&P CNX& Nifty 50.
• The NewYork stock exchange halted trending in Satyam stock
 REGULATORY ACTION

• New board of directors were appointed

• Disclosure of pledge securities
• Increased financial accounting disclosure
• Adoption of international standards
• Creation of new corporate code of conduct by ministry of corporate affairs.
 CONCLUSION

More scandals like satyam can be avoided if:

• If auditing firm is honest
• SEBI plays an active role.
• Periodic review of legal compliance reports by independent directors.