Mahindra Satyam Case Analysis

CG & Employee as Stakeholder

Lecture 7
November 9, 2022
Case questions
• Personal communication –
What should be the employees- trust
priorities before Soni • Code of conduct- employees,
directors ( Exhibit 3) & SEBI
in his role as CCO? Guidelines( Exhibit 4)
• Processes-whistle blower policy,
employee training etc
What is the basic
-------------------------------------------------
managerial issue • Corporate Governance is main issue
before Soni? • Management issues:
Case questions

What are the

• Series of acquisitions- (2005-2008) transparency of
dealings
• Decrease in personal holdings from 15.6 % to 8.6
signals that % to 2.3% in 2009- Transferred shares in family
company

independent • Sept 2008- Global brokerage firm- $56 million debt

when $ 1 billion was sitting in current account
• IT company having interest in Real estate- when
directors, have stake in IT company was falling
• Satyam had expertise in SAP. HCL was invading

missed at Satyam’s territory, but Satyam was investing 1.3

billion in unrelated business

Satyam?
• Large idle cash reserves: Should be returned to the
shareholders as dividend or bonus shares
Case questions
• Increase personal wealth
What might Raju’s • Retain control of Satyam in the light of falling
promoter stake
motive have • Stem Shareholder Value
• ------------------------------------
been? • Fictitious bank and cash balances- employee
involvement in banks
• Poor internal controls
How scam • Unethical work culture
• Chairman friendly directors- ignored legal
happened? compliances, allowed conflict of interest
transcations
• Auditor complicity
 Case questions
Transparent, correct,
What is your understanding
verifiable picture of
of the role of auditors? financials
How can a scam of this kind
be prevented?
Check invoices thoroughly

Verify cash and bank

balance

Post Satyam Scam: CII appointed Naresh Chandra Committee in 2009

& SEBI appointed Narayan Murthy Committee to recommend
necessary reforms on Corporate Governance.
 Stakeholder Engagement: Central Feature of CG for Long term Sustainability

CORPORATE GOVERNANCE

INVESTORS LENDERS CUSTOMER SUPPLIER EMPLOYEE GOVERMENT COMMUNITY

• Confidence • Safety of • Value

• Security of interest & Creation • Value • Resources
Funds principal, • Better Creation • Better • Harmony
• quality of quality of HR • Legal & Tax •
Better & • Favorable License to
Favorable Products/S • Better Salary Compliance operate
terms of
ervices • Benefits • Resources
Credit supplier
Terms • Cheaper agreements • Stability
Prices
 A company/corporation: Conglomeration of different stakeholders
Corporate governance covers a set of
relationships between the management and
its stakeholders.
Employees
To create long term value: Act in a fair and
Society Customers transparent manner to ensure various
stakeholder interests are balanced.

Governmental Mere compliance to regulations is NOT

Shareholders
authorities SUFFICIENT. Supportive legislation alone is
an insufficient motivator.

Dealers/retailers Vendors Role of Board: Create structures and

processes which will create a corporate
culture to create shareholder value.
Measurement of Value
Addition to Stakeholder
Groups
CG & Stakeholder Engagement
Benefits As To Value Addition
How can companies take care of their
Employees

Governance Perspective
Employee:
Stakeholder Concerns
Components of Governance: Recognition of • Employees are their eyes and
Human Capital as Competitive Advantage ears of the company: Does
•
•
Recruitment practices: Contracts the company encourages
Human Rights at workplace
• Performance Appraisals voices to speak out? Does it
• Remuneration really encourage
• Profit sharing
• Equity sharing whistleblowing?
• Employee Representation on BOD • “Whistleblowing”: Term for
• Avoiding unreasonable risks for employees
• Whistle blowing the disclosure of wrongdoing
within an organisation) 
 Types of Whistle Blowers

Types
• Internal whistle blowing: Where an employee reports wrongdoing to his
superiors/ management/ special cell within the organisation  ( reports of
disloyalty , improper conduct, indiscipline, insubordination, disobedience etc.)
• External whistle blowing: Employee reports to outside agencies ( Media, legal
agencies, public interest groups etc) about wrong doings.
• Alumni Whistle blowers: Former employees report wrongdoings
• Personal whistle blowing: Organizational doings harm one person or group of
persons
• Impersonal whistle blowing: Organizational doings harm others ( community,
society, external stakeholders)
EFFECTS OF WHISTLE
BLOWING
• Forced to leave organisation /
demotion.
• Credibility ruined
• Family, health and/or life in jeopardy.
• Outrage and divisiveness of people
directly or indirectly invovlved.
• Physical or psychological isolation.
• Organisation experiences loss of
money, restitution, productivity and
positive reputations.
• Incarceration.
Key element of an effective ESG-
compliant entity:
• The absence of an effective and
robust whistleblowing policy
reflects the manner in which
human rights and overall
corporate culture are upheld,
amongst other critical ESG
criteria
Recommendations: Whistleblowing

Provisions relating to whistle-blowers: Recommendations :

Narayana Murthy committee 2003.
• Personnel who observe an unethical or an improper practice should be able to
approach the audit committee of the Director Board without necessarily
informing their supervisors.
• Employees can complain to the audit committee even if the improper practice
does not violate any law.
• Companies shall take measures to ensure that this right of access is
communicated to all employees through means of internal circulars, e-mails etc.
• Personnel policies of the company: Contain provisions protecting whistleblowers
from unfair termination and other unfair prejudicial employment practices.
• Annually affirm: Protection to whistleblowers from unfair termination and other
unfair or prejudicial employment practices.