BUSINESS ETHICS AT SATHYAM

ASSIGNMENT II

ABSTRACTMahindra Satyam formerly Satyam Computer Services, is an Indian IT services company based in Hyderabad, India.

In June 2009, the company unveiled its new brand identity Mahindra Satyam subsequent to its takeover by the Mahindra Groups IT arm, Tech Mahindra on April 13, 2009.

Even though the company got 245 crores profit in Q4 for 2010 2011, but due to outside payments nearly 570 crores for SEK,UPAID and Class Action Suit in Q4 ,the company had reported a consolidated net loss of Rs 327 crore for the January March quarter of 2010-2011.IT firm Mahindra Satyam posted a consolidated net profit of Rs 225.2 crore for the quarter ended June 30, 2011.

Competition Commission of India approved the proposed merger of Mahindra Satyam and other companies with Tech Mahindra.

It is mandatory for the firm to get the AGM nod to go ahead with the merger The shareholders of both Tech Mahindra and Mahindra Satyam have unanimously approved the scheme of amalgamation and merger of Satyam Computer Services Ltd, Venturbay Consultants, C&S System Technologies, Canvas M Technologies and Mahindra Logisoft Business Solutions with Tech Mahindra.WHAT IS BUSINESS ETHICS ?

Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizationsThe term 'business ethics' came into common use in the United States in the early 1970s. By the mid-1980s at least 500 courses in business ethics reached 40,000 students, using some twenty textbooks and at least ten casebooks along supported by professional societies, centers and journals of business ethics.

UNDERSTANDING SATHYAM

Mahindra Satyam formerly Satyam Computer Services, is an Indian IT services company based in Hyderabad, India. It was founded in 1987 by B Ramalinga Raju. Mahindra Satyam is a part of the Mahindra Group which is one of the top 10 industrial firms based in India. The company offers consulting and information technology (IT) services spanning various sectors, and is listed on the Pink Sheets, the National Stock Exchange (India) and Bombay Stock Exchange (India). In June 2009, the company unveiled its new brand identity Mahindra Satyam subsequent to its takeover by the Mahindra Groups IT arm, Tech Mahindra on April 13, 2009.

CONTROVERSIES AT SATHYAM

MAYTAS ACQUISITIONIn 2008, Satyam attempted to acquire Maytas Infrastructure and Maytas Properties, founded by family relations of company founder Ramalinga Raju (Maytas is "Satyam" reversed) for $1.6 billion, despite concerns raised by independent board directors.\ Both companies are owned by Raju's sons. This eventually led to a review of the deal by the government a veiled criticism by the vice president of India and Satyam's clients re-evaluating their relationship with the company. Satyam's investors lost about crore INCLUDEPICTURE "http://upload.wikimedia.org/wikipedia/commons/thumb/e/ee/Indian_Rupee_symbol.svg/7px-Indian_Rupee_symbol.svg.png" \* MERGEFORMATINET

3,400 in the related panic selling. The USD $1.6 billion ( 8,000 crore) acquisition was met with skepticism as Satyam's shares fell 55% on the New York Stock Exchange. Three members of the board of directors resigned on 29 December 2008. ACCOUNTING SCANDAL OF 2009Main article: Satyam accounting scandalIn addition to other controversies involving Satyam, on January 7, 2009, Chairman Raju resigned after publicly announcing his involvement in a massive accounting fraud.

TURN AROUNDS AT SATHYAM

The company had reported a consolidated net loss of Rs 233.3 crore for the JulySeptember quarter of 2010. Speaking at a press conference, Vineet Nayyar, chairman of the company said the consolidate cash and cash equivalents at Rs 30 crore compared to Rs 26 crore. We will take three [years] for a turnaround, he informed. Even though the company got 245 crores profit in Q4 for 20102011, but due to outside payments nearly 570 crores for SEK,UPAID and Class Action Suit in Q4 (Total 641 crores for the year 2010-2011 ),the company had reported a consolidated net loss of Rs 327 crore for the JanuaryMarch quarter of 2010-2011.IT firm Mahindra Satyam posted a consolidated net profit of Rs 225.2 crore for the quarter ended June 30, 2011. During the quarter, the company added 2,172 people (net), taking total headcount to 31,438 as of June 30, 2011. The company added 36 new customers during the quarter. The total headcount of the company stood at 32,092 as of the quarter ended September 30, 2011 during which net addition of 654 personnel took place. The company added 188 employees in quarter three ending December 31, 2011 and recorded 29.4% quarter-on-quarter in its consolidated net profit of 308 crore . Mahindra Satyam reported a net profit of 534.21 crore for the fourth quarter ended March 31, 2012

PROBLEMS WITH THE INCOME TAX DEPARTMENT

The Income Tax Department had issued notices to the company seeking 617 crore tax for the assessment years from 2003-04 to 2008-09, when the company was run by the founder B Ramalinga Raju and his team. The Central Board of Direct Taxes has attached the properties of Mahindra Satyam on February 3, 2012,stating the attachment of properties was according to Section 281 B of the Income Tax Act. Section 281 B refers to recovery of tax and allows the tax department to issue provisional orders to the assessee to safeguard revenues accrued to it.The Income Tax department had slapped notice on the company after disallowing exemptions claimed by the software firm. The company has received notices of demand for 1,037 crore and 1,075 crore for assessment years 2002-03 and 200708, respectively. However, the Andhra Pradesh High Court granted a breather to Mahindra Satyam, by staying the Income Tax Department's provisional order to attach properties of the IT firm.

RECENT NEWS AND DEVELOPMENTS

Mahindra Satyam will acquire a minority stake of 15% for 35 crore in Dion Global Solutions Limited, the Delhi-based firm owned by billionaire brothers Malvinder Mohan Singh and Shivinder Mohan Singh, that provides solutions for capital markets globally. Mahindra Satyam acquired Delhi based BPO firm vCustomer's International operations for US $27 million. This is the first 100% acquisition by Mahindra Satyam since it became part of Mahindra GroupPRESENT INDUSTRIES THAT SATHYAM PROVIDES SERVICES.

Mahindra Satyam provides services in the following areas:

Aerospace and Defence

Banking, Financial Services & Insurance

Energy and Utilities

Life Sciences & Healthcare

Manufacturing, Chemicals & Automotive

Public Services & Education

Retail

Consumer Packaged Goods

Travel, Transport, Logistics

Telecom, Infrastructure, Media and Entertainment & Semiconductors

OFFICES OF SATHYAM ACROSS Mahindra Satyam headquartered in Hyderabad, India has development centres and/or regional offices in USA, Canada, Brazil, the United Kingdom, Hungary, Egypt, UAE, India, China, Malaysia, Singapore, and Australia.PARTNERSHIPS

February 11, 2010, Mahindra Satyam, announced that it has entered into a partnership with the Integr8 Group, Africas largest privately owned ICT service and solutions provider. In June 2012, Mahindra Satyam has tied up with Oxygen Finance, which is a UK based firm to market its cloud-based payment systemTHE MERGER

Mahindra Satyam's proposed merger with Tech Mahindra may be delayed all because of legal issues, and ambiguity over jurisdiction between investigating agencies and the government. The merger has been delayed due to two tax cases pending with the Income Tax claiming over 2700 crore for both. Tech Mahindra announced its merger with Mahindra Satyam on March 21, 2012,after the board of two companies gave the approval. The two firms have received the go-ahead for merger from the Bombay Stock Exchange and the National Stock Exchange. Competition Commission of India(CCI)approved the proposed merger of Mahindra Satyam and other companies with Tech Mahindra. Mahindra Satyam will hold its annual general meeting (AGM) on June 8,2012 to consider the proposal to merge the company with Tech Mahindra. It is mandatory for the firm to get the AGM nod to go ahead with the merger The shareholders of both Tech Mahindra and Mahindra Satyam have unanimously approved the scheme of amalgamation and merger of Satyam Computer Services Ltd, Venturbay Consultants, C&S System Technologies, CanvasM Technologies and Mahindra Logisoft Business Solutions with Tech Mahindra. Mahindra Satyam Chairman, Vineet Nayyar said on 2 August 2012, that the merger with Tech Mahindra was at the final stage of getting approval from the Andhra Pradesh and Maharashtra High Courts.

SATHYAM COMPUTERS BUSINESS ETHICS

The astounding confessions of B. Ramalinga Raju, ex-Chairman of Satyam Computers, has not only hit investors and employees badly, it has also tarnished the reputation of Indias IT sector. Amidst fears that clients would do a rethink on business commitments, the bigwigs of India Inc are desperately trying to paint the Satyam case as an exception. While Indian corporations really need to do everything possible to salvage the situation, they also must pay heed to some lessons to be learnt from the scandal.

Satyam was indiscreet in its actions, but it will be unfair to view the rest of India Inc in the same light. It would be equally unwise, however, to think of the fraud as an isolated case. The IT sector must understand that there might be other Satyams out there, waiting to be discovered. A serious investigation needs to be carried out into business ethics, or, more specifically, the lack of it.

Why would Satyam have been tempted to break the law? Post 1990, in what is known as the liberalization period, the corporate sector has played a major role in the Indian economy.

There must have been times when the increasing competition forced big corporations to seek unethical ways of conducting their business.

Ramalinga Raju might have been tempted to spice up Satyams account to show the companys performance in good light. Infosys, Satyams competitor, has been recording tremendous growth over the years. Even after the Satyam scandal became public news, Infosys performance remained largely unaffected.

It could also have started off as an attempt to cover up the bad performance in one quarter. As Raju admits in his letter, what was initially a small gap between the actual and reported operating profit, became unmanageable as the company expanded.

Overconfidence in his ability to turn things around before they got out of hand could have been another compelling reason.

Raju could have sincerely believed that the minor adjustment was in the general interest of everybody concerned, as it would retain investors confidence in the company.

Experts refuse to believe that the operating profit of Satyam could be as low as 3%. This leads to speculation that some of the money could have been siphoned off.

Should Satyam be saved at all costs?

Yes: Satyam is a flagship of the Indian IT sector. Its downfall will be an indelible mark on the reputation of the entire industry.

The government needs to rally around and pull the company out of its present state. Only this will reestablish the confidence of clients and investors in the IT industry.

The jobs of nearly 53,000 employees are at stake. If you add to this the number of people who have bought Satyam shares, you end up with a significantly huge number of people whose lives could be badly affected by the fall of this giant.

No: Satyam must pay for its actions. The government must not set a precedent by bailing it out. They will have to do the same in all cases where a company finds itself in a similar situation.

This is a clear case of market justice meting itself out. You tamper with the rules, you face the consequences. Satyam should be an example to all other players in the arena not to indulge in nefarious tactics.

Satyam does not represent the entire Indian IT industry. Its fall wont be the death knell of the sector. This needs to be made clear to clients and investors.

If a tainted organization like Satyam is allowed to continue, the IT sector stands to lose a lot more than it hopes to gain.

Any possibility of a loss of projects on the account of the fall of Satyam is unfounded. There is a fairly high probability of the se projects being redistributed among Satyams competitors in India.

The same applies to the employees of Satyam. Trained professionals like them are bound to be lapped up by other companies to handle the redistributed projects.COPY OF LETTER FROM SATHYAM's CHAIRMAN B. Ramalinga Raju TO CEO's

Satyam Computer Services, a leading Indian outsourcing company that serves more than a third of the Fortune 500 companies, significantly inflated its earnings and assets for years, the chairman and co-founder said Wednesday, roiling Indian stock markets and throwing the industry into turmoil.

The chairman, Ramalinga Raju, resigned after revealing that he had systematically falsified accounts as the company expanded from a handful of employees into a back-office giant with a work force of 53,000 and operations in 66 countries.

Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04 billion, of the 53.6 billion rupees in cash and bank loans the company listed as assets for its second quarter, which ended in September, were nonexistent.

Revenue for the quarter was 20 percent lower than the 27 billion rupees reported, and the companys operating margin was a fraction of what it declared, he said Wednesday in a letter to directors that was distributed by the Bombay Stock Exchange.

Satyam serves as the back office for some of the largest banks, manufacturers, health care and media companies in the world, handling everything from computer systems to customer service. Clients have included General Electric, General Motors, Nestl and the United States government. In some cases, Satyam is even responsible for clients finances and accounting.

The revelations could cause a major shake-up in Indias enormous outsourcing industry, analysts said, and may force many large companies to investigate and perhaps revamp their back offices.

This development is going to have a major impact on Satyams business with its clients, said analysts with Religare Hichens Harrison on Wednesday. In the short term we will see lot of Satyams clients migrating to competition like Infosys, TCS and Wipro, they said. Satyam is the fourth-largest outsourcing firm after the three named.

In the four-and-a-half page letter distributed by the Bombay stock exchange, Mr. Raju described a small discrepancy that grew beyond his control. What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew, he wrote. It was like riding a tiger, not knowing how to get off without being eaten.

Mr. Raju said he had tried and failed to bridge the gap, including an effort in December to buy two construction firms in which the companys founders held stakes. Speaking of a deep regret and a tremendous burden, Mr. Raju said that neither he nor the co-founder and managing director, B. Rama Raju, had taken one rupee/dollar from the company. He said the board had no knowledge of the situation, nor did his or the managing directors families.

The size and scope of the fraud raises questions about regulatory oversight in India and beyond. In addition to India, Satyam has been listed on the New York Stock Exchange since 2001, and on Euronext since January of 2008. The company has been audited by PricewaterhouseCoopers since its listing on the New York Stock exchange.

Satyam has been under close scrutiny in recent months, after an October report that the company had been banned from World Bank contracts for installing spy software on some World Bank computers. Satyam denied the accusation but in December, the World Bank confirmed without elaboration on the cause that Satyam had been banned. Also in December, Satyams investors revolted after the company proposed buying two firms with ties to Mr. Rajus sons.

On Dec. 30, analysts with Forrester Research warned that corporations that rely on Satyam might ultimately need to stop doing business with the company. Firms should take the initial steps of reviewing the exit clauses in their current Satyam contracts, in case management or direction of the company changed, Forrester said.

The scandal raised questions over accounting standards in India as a whole, as observers asked whether similar problems might lie buried elsewhere. The risk premium for Indian companies will rise in investors eyes, said Nilesh Jasani, India strategist at Credit Suisse.

R. K. Gupta, managing director at Taurus Asset Management in New Delhi, told Reuters: If a companys chairman himself says they built fictitious assets, who do you believe here? The fraud has put a question mark on the entire corporate governance system in India, he said.

News of the scandal quickly compared with the collapse of Enron sent jitters through the Indian stock market, and the benchmark Sensex index fell more than 5 percent. Shares in Satyam fell more than 70 percent.

Just a few months ago, Mr. Raju was trying to persuade investors that the company was sound. In October, he surprised analysts with better-than-expected results, saying he was pleased that the company had achieved this in a challenging global macroeconomic environment, and amidst the volatile currency scenario that became reality.

But by late December, it seems he had little support from the board or investors, and four of the companys directors resigned in recent weeks. Satyam recently retained Merrill Lynch for strategic advice, a move that is generally a precursor to a sale.

Mr. Raju said in his statement that he sincerely apologized to shareholders and employees and asked them to stand by the company.

Anwar. M. Quereshi

M.B.A. II