The Rise of Satyam

7/30/2019 The Rise of Satyam

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PRESENTED BY:HARSH BHATIJA 03

DEV KHANNA 09

TEJAS LILANI 33

VIKAS SHARMA 49

WASIM SHEIKH 50

NIEL POUDEL 56

SIDDHANT SHAH 62


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INTRODUCTION

You can fool some of the people all of the time, and all of thepeople some of the time, but you cannot fool all of the people

all of the time-Abraham Lincoln.

Satyam chairman Ramalinga Raju managed to disprove theAmerican president and has put some of the biggest fraudstersto shame by fooling the whole IT industry, stakeholders andemployees.

What unfolded has not only tarnished the squeaky clean imageof the $60 billion Indian IT services industry but has thrown

corporate governance and ethics literally out of the window,potentially impacting the whole industry, stakeholders, globalcustomers and the careers of 53,000 employees of Satyam.What started as a failed acquisition bid of Raju family promotedtwo real estate companies Maytas Properties and Maytas Infra(Maytas is Satyam spelt backwards!) on December 16, took anew turn with Raju's admission of a Rs 7,000 crore fraud on 7

January and ended three days later, with Raju and his brotherRama surrendering to DGP Andhra Pradesh.

While the court cases may implicate several accountants,auditors and members of the top management, it has alreadyrocked the foundations of corporate governance laws in Indiaas also shaken up India Inc.

THE RISE OF SATYAMSatyam, which ironically means 'truth' in Sanskrit, was set up in1987 with 20 employees as Raju spotted the opportunity inoutsourced code-writing. Within no time, business wasbooming. Andhra Pradesh, of which Hyderabad is the capital,has one of the largest pools of skilled manpower in India.Satyam would prove a doughty competitor to its rivals, pricingits services so aggressively that some thought it was preparedto go with minimum profits in order to gain customers.


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And it expanded aggressively overseas. When he opened hisSydney office a few years ago, he occupied premises vacatedby a top global IT firm. In China, provincial leaders vied to inviteSatyam to set up operations in their areas.

But once Mr Raju sold shares to the Indian public in 1992 andlater, went for a New York listing in 2001, pressure grew on himto improve the company's performance.Ever competitive, he was also in a rush to catch the marketleaders, Tata Consultancy Services, Infosys Technologies andWipro.'Raju was obsessed with getting past the billion-dollar salesmark. When he got there, he wanted to post US$2 billion,' saidan associate.

Satyam posted US$2.1 billion (S$3.1 billion) sales in the year toMarch 31, 2008.With the ever-rising pressure to perform,Satyam began doctoring the books to show bigger profits, aprocess that began several years back, by Mr Raju's ownadmission.

The value of the land bank available with Maytas, the realestate company owned by Mr Satyam's sons, is what hethought he could use to shore up Satyam's books when thingsbegan to go sour.

aMaytas, which is Satyam spelt in reverse, has won thecontract to build the metro rail in Hyderabad and is believed tohave a sizeable land bank in the state.Satyam founder B. Ramalinga Raju, who shocked India byadmitting massive fraud over several years, was the Ernst and

Young Entrepreneur of the Year in 2007 and the company wonthe Golden Peacock Global Award for Excellence in CorporateGovernance given by the World Council for CorporateGovernance.Here is a brief history of the company, which was once a flagbearer of Hyderabad, as its headquarters and Andhra Pradeshwere hailed in the early years of the IT boom in late 1990s.

Established: June 24, 1987

Global Headquarters: Hyderabad

Development Centres: Bangalore, Basingstoke, Beijing,Bhubaneswar, Budapest, California, Chennai, Chicago, Dalian,Georgia, Guangzhou, Gurgaon, Hartford, Hyderabad, Kuala


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Lumpur, Melbourne, Mumbai, Munich, Mississauga, New Jersey,Ontario, Pune, Sao Paulo, Shanghai, Singapore, Sydney, Tokyo,Wiesbaden

Employee strength: 52,865 (including employees in subsidiariesand joint ventures) as on Sep 30, 20081991: Debuts on Bombay Stock Exchange with an IPOoversubscribed 17 times

1999: Satyam Infoway (Sify) becomes the first Indian Internetcompany listed on Nasdaq; presence established in 30countries

2001: Listed on the New York Stock Exchange with tradingnameSAY

2006: Revenue exceeds $1 billion; sets up the first 'GlobalInnovation Hub' in Singapore and operations in Guangzhou,China

2007: Becomes the official IT services provider for the FIFA

World Cups, 2010 (South Africa) and 2014 (Brazil); RamalingaRaju named the 'Ernst and Young Entrepreneur of the Year'

2008: Revenue crosses the $2-billion mark

2008 Dec 16: Announces plan to buy two Maytas firms; calls off the deal within hours in the face of shareholders' opposition;share price tumbles

Satyam was one of the first outsourcing companies to moveemployees outside of Indian urban centers, and one of the firstIndian companies to list on the Nasdaq and the New York StockExchange. It has been more aggressive than most aboutopening offices in Europe, and setting up training facilities inWestern counties like Australia.


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HOW DID THE SCAM START

Researchers from the Wharton School (among the worlds topbusiness schools) have some interesting insights on this aspect

of corporate frauds. They believe that while confidenceunderlies decisive, strong leadership, overconfidence leadsmanagers to cross the line and commit fraud.Mr. Raju is a clear case in point. We know this from thefollowing statement he made in his confession letter Everyattempt to eliminate the (balance sheet) gap failed. As thepromoters held a small percentage of equity, the concern wasthat poor performance would result in a takeover, therebyexposing the gap. It was like riding a tiger, not knowing how toget off without being eaten.Satyam Computer Services, a leading Indian outsourcingcompany that serves more than a third of the Fortune 500companies, significantly inflated its earnings and assets foryears, the chairman and co-founder said, roiling Indian stockmarkets and throwing the industry into turmoil.

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

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 customerservice. Clients have included General Electric, General Motors,Nestl and the United States government. In some cases,Satyam is even responsible for clients finances andaccounting.


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In the four-and-a-half page letter distributed by the Bombaystock exchange, Mr. Raju described a small discrepancy thatgrew beyond his control. What started as a marginal gapbetween actual operating profit and the one reflected in the

books of accounts continued to grow over the years. It hasattained unmanageable proportions as the size of companyoperations grew, he wrote. It was like riding a tiger, notknowing 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 inwhich the companys founders held stakes. Speaking of a deepregret 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 theboard had no knowledge of the situation, nor did his or themanaging directors families.

The size and scope of the fraud raises questions aboutregulatory oversight in India and beyond. In addition to India,Satyam has been listed on the New York Stock Exchange since2001, and on Euronext since January of 2008. The company hasbeen audited by PricewaterhouseCoopers since its listing on theNew York Stock exchange.

The Serious Fraud Investigation Office will probe also Maytasinfrastructure as part of the Satyam financial scam probe.Corporate affairs minister P C Gupta said on Monday eveningthat initial investigations suggest a clear nexus betweenSatyam, Maytas properties and Maytas infrastructureEarlier, the Andhra High Court dismissed Ramalinga Raju'srevision petition against his police custody. But SEBI still did notget to question Raju on Monday as a court order on the body'spetition to question him was postponed till January 22.Meanwhile the CID is questioning the Raju brothers and formerSatyam CFO Vadlamani Srinivas.

They are also looking into their e-mails and phone records overthe last one month. Meanwhile, Andhra chief minister Y S RReddy reiterated his government did not flout any rule inawarding the Hyderabad metro rail project to Maytas.


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But how deep and how wide is the rot inside India's fourthlargest software company?Sources tell CNN-IBN the company is facing serious moneycrunch, and needs Rs 1,110 crore to tide over the crisis and Rs

500 crore to pay the January salary to employees.Meanwhile a search is also on for a new CEO for the embattledIT firm. Network-18 learns that the board is looking at a 10-daytime period to pick someone to head the company. Over 40applications have come in so far.

There is now also a question mark on the number of employeesSatyam has. It is reported that Satyam has 53,000 employees.

How they did it

Investigators are now reportedly coming across evidence of insider trading by the promoters even before the scandal broke. The big take away from the Registrar of Companies report isthat the top management of Satyam - the directors and seniorofficials - sold shares ahead of the Big Bang revelation by Raju.

The reports say Satyam books have been overstated by Rs5,000 to Rs 6,000 crore, leading to an inflated stock price thathelped the top management make money.

Who sold what?Raju has claimed that no one else in the company was privy tothe fudging of accounts. But exclusive information with CNN-IBN suggests insider trading.BSE figures show a number of senior people in the company,including Raju and CFO Vadlamani were reportedly sellingSatyam's shares over the last 22 quarters.In June 2001, Raju had nearly 23 per cent shares. By December

that year, his share was down to 22.4 per cent.In September2002; it fell to 21.6 per cent which fell a year later to just over19 per cent.In 2004, Raju's holding was 16 per cent which fell to 14 percent in 2005, 11 per cent in 2006. In 2007 it was in single digit.By September 2008 Raju's share was just 8.27 per cent.BSEfigure also show Vadlamani sold 92,538 shares while the thenCEO Ram Mynampati sold 700,000 shares plus 2,50,000 ADRs.Apart from these, other senior officials also reportedly sold

large number of shares. Sources say they include one KiranCavale who reportedly sold 400,000 shares and 10,000 ADRs


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and one Rajan Nagarajan who reportedly sold 430,000 sharesand 70,000 ADRs.

THE ILLUSIONISTS

Ramalinga Raju: Satyam Former Chairman B Rama Raju: Brother of Ramalinga Raju

Former Managing director. V Srinivas: Ex-chief financial officer S Gopalakrishnan: PriceWaterhouse Auditor Talluri Srinivas: PriceWaterhouse Auditor

PRICE WATER HOUSE COOPERSPricewaterhouseCoopers (trading as PwC ) is aglobal professional services firm headquartered in London,United Kingdom. It is the world's largest professional servicesfirm and the largest of the "Big Four" accountancy firmsmeasured by 2011 revenues. PwC has offices in 771 citiesacross 158 countries and employs over 69,000 people. It hadtotal revenues of $29.2 billion in FY 2011, of which $14.14billion was generated by its Assurance practice, $7.63 billion byits Tax practice and $7.46 billion by its Advisory practice. Thefirm was formed in 1998 by a merger between Coopers &Lybrand and Price Waterhouse. The trading name wasshortened to PwC in September 2010 as part of a majorrebranding exercise. As of 2010 PwC was the seventh-largest privately owned organization in the United States. Therole of the statutory auditors in Indias Enron comes under


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the spotlight amid allegations that large Indian companiesregularly use misleading accounting techniques and bullyanalysts, accountants and auditors into staying quiet.

PricewaterhouseCoopers has three main service lines:Assurance Services

Tax Advisory, (international tax planning and compliance withlocal tax laws, customs, human resource consulting,and transfer pricing )Advisory mainly consulting an activity which covers Strategy,Performance Improvement, Transactions Services, Business

Recovery Services, Corporate Finance, Business Valuation,Sustainability and Crisis Management in a range of specialistareas such as accountancy and actuarial advisory.PwC's service lines face the market in each country by broadindustry specialisations such as:Consumer and Industrial Products and Service (CIPS)Financial Services (FS)

Technology, Information, Communications and Entertainment(TICE)

Infrastructure, Government and Utilities (IG&U)Private Company Services (PCS) These sub-divisions may vary slightly in some territories.

THE REASONS FOR THE SCAM
http://en.wikipedia.org/wiki/Transfer_pricinghttp://en.wikipedia.org/wiki/Transfer_pricing


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The Satyam scandal has shaken corporate India, and damagedits reputation with investors, domestic and foreign. It turns outthat founder and CEO B. Ramalinga Raju invented $ 1 billion incash, which never existed. How could the auditors miss this

fraud? The discussion below will first show how problems started toappear and how the CEO eventually disclosed the fraud. Thediscussion will also identify the roles that various parties had inthe fraud.First Cracks AppearAs stock markets around the world collapsed during 2008, theIndian Stock Exchange, the Sensex, fell from a high of over21,000 to below 8,000 between January 2008 and October

2008. The enormous losses caused investors to withdraw largeamounts of cash from their investments. These cashwithdrawals in turn triggered the discovery of several cases of financial fraud in America, as perpetrators could no longer hidethe results. The discovery of high-profile financial scandalsincreased scrutiny on governance practices and companies'financial statements. To quote Warren Buffet, "It's only whenthe tide goes out that you realize who has been swimmingnaked." Satyam continued to report positive results during

2008 and claimed success in navigating the economic crisis. InOctober 2008, Satyam reported net income of $132.3 million,an increase of 28 percent from the same quarter the previousyear. Saytam asserted that, despite the challengingenvironment, it continued to find opportunities for growth.

The first crack in the company's reputation occurred duringOctober, when the World Bank fired Satyam and issued aneight-year ban against the company. The World Bank accusedSatyam of installing spy systems on its computers and stealingassets from the World Bank. In addition, during an Octoberconference call reporting earnings, one stock analyst drewattention to large cash balances in non-interest bearing bankaccounts. The analyst expressed concern about the largebalances and expressed reservations about the accuracy of thenumbers. Investors ignored the analyst's comment and thestock price rose with the reports of positive earnings andrevenue growth.In December 2008, Satyam's Board of Directors unanimouslyapproved the purchase of Maytas Properties and MaytasInfrastructure, two companies unrelated to the information


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technology field. At the time, Mr. Raju stated that he and theBoard anticipated that the market would "be delighted" by thetwo transactions as it would provide Satyam with greaterdiversification. However, investors were outraged over the

transactions because Mr. Raju's family held a larger stake inMaytas Properties and Maytas Infrastructure than it did inSatyam. Shareholders viewed the transactions as an attempt tosiphon money out of Satyam into the hands of the Raju family.Satyam quickly aborted the transactions, but the incident stillcaused significant damage to Satyam's reputation as a well-managed company.After the incident, chaos ensued. Analysts immediately souredon the company and put sell recommendations on its stock.

Satyam's shares dropped nearly 10 percent and four of the fiveindependent directors resigned. On December 30, analysts withForrester Research advised clients to stop doing business withSatyam because of the fear of widespread fraud. Satyam hiredMerrill Lynch to advise it on ways to increase shareholdervalue. By January 5, 2009, rumors circulated about severalpotential mergers between Satyam and competitors. On

January 7, just hours before Mr. Raju disclosed the fraud, MerrillLynch sent a letter to the stock exchange indicating that it was

withdrawing from its engagement with Satyam because duringthe course of its representation it learned of materialaccounting irregularities. The Board called an emergencymeeting for January 10 to address the company's rapidlydeteriorating reputation.

How the Fraud was UncoveredOn January 7, 2009, Mr. Raju disclosed in a letter to Satyam'sBoard of Directors that he had been manipulating the

company's accounting numbers for years. Mr. Raju said themanipulation started out small, and grew larger by the year. Inthe letter he stated, "It was like riding a tiger, not knowing howto get off without being eaten." Mr. Raju stated that eventually,the stress of hiding the fraud grew too much for him to bear.


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RAMALINGA RAJU AND THE MAYTASACQUISITION

The Satyam scandal is a classic case of negligence of fiduciaryduties, total collapse of ethical standards, and a lack of corporate social responsibility. It is human greed and desirethat led to fraud. This type of behaviour can be traced to: greedovershadowing the responsibility to meet fiduciary duties;fierce competition and the need to impress stakeholdersespecially investors, analysts, shareholders, and the stockmarket; low ethical and moral standards by top management;and, greater emphasis on short term performance. Greed for money, power, competition, success and prestige compelledMr. Raju to ride the tiger, which led to violation of all dutiesimposed on them as fiduciaries the duty of care, the duty of negligence, the duty of loyalty, the duty of disclosure towardsthe stakeholders.

According to CBI, the Indian crime investigation agency, thefraud activity dates back from April 1999, when the companyembarked on a road to double digit annual growth. As of December 2008, Satyam had a total market capitalization of $3.2 billion dollars. Satyam planned to acquire a fifty one percent stake in Maytas Infrastructure, a leading InfrastructureDevelopment, Construction and Project Management Company,for $300 million. The Rajuss had a 37% stake. The totalturnover was $350 million and a net profit of$20 million. Rajusalso had a 35% share in Maytas Properties, another real estate


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investment firm. Maytas infra and Maytas properties: firmsowned by the sons of Raju. Planned to buy the Maytas to fill thegap in the balance sheet. Last attempt Raju made to fill the gapin the balance sheet. Major shareholder rebellion Acquisition

was termed Poor corporate governance.Satyam revenues exceeded $1 billion in 2006. In April, 2008Satyam became the first Indian company to publish IFRSaudited financials.

On December 16, 2008, the Satyam board, including its fiveindependent directors had approved the founder's proposal tobuy the stake in Maytas Infrastructure and all of MaytasProperties, which were owned by family members of Satyams

Chairman, B Ramalinga Raju, as fully owned subsidiary for$1.6B. Without shareholder approval, the directors went aheadwith the management's decision. The decision of acquisitionwas, however, reversed twelve hours after investors soldSatyam's stock and threatened action against themanagement. This was followed by the lawsuits filed in the UScontesting Maytas deal. The World Bank banned Satyam fromconducting business for 8 years due to inappropriate paymentsto staff and inability to provide information sought on invoices.

Four independent directors quit the Satyam board and SEBIordered promoters to disclose pledged shares to stockexchange. Investment bank DSP Merrill Lynch, which wasappointed by Satyam to look for a partner or buyer for thecompany, ultimately blew the whistle and terminated itsengagement with the company soon after it found financialirregularities.On 7 January 2009, Saytams previous Chairman, RamalingaRaju, resigned after notifying board members and theSecurities and Exchange Board of India (SEBI) that Satyam'saccounts had been falsified. Raju confessed that Satyam'sbalance sheet of September 30, 2008, contained the followingregularise: Inflated figures for cash and bank balances of US$1.04 billionvs.S$1.1 billion reflected in the books; An accrued interest of US$77.46 million which was non existent; An understated liability of US$253.38 million on account of funds was arranged by him;


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An overstated debtors' position of US$100.94 million vs.US$546.11 million in the books.Raju claimed in the same letter that neither he nor themanaging director had benefited financially from the inflated

revenues. He claimed that none of the board members had anyknowledge of the situation in which the company was placed. The fraud took place to divert company funds into real estateinvestment, keep high earnings per share, raise executivecompensation and make huge profits by selling stake atinflated price. The gap in the balance sheet had arisen purelyon account of inflated profits over a period that lasted severalyears starting in April 1999.

What accounted as a marginal gap between actual operatingprofit and the one reflected in the books of accounts continuedto grow over the years, Ragu explained in his letter to theboard and shareholders. He went on to explain, This gapreached unmanageable proportions as company operationsgrew significantly. Every attempt to eliminate the gap failed,and the aborted Maytas acquisition deal was the last attempt tofill the fictitious assets with real ones. But the investors thoughtit was a brazen attempt to siphon cash out of Satyam, in which

the Raju family held a small stake, into firms the family heldtightly. The following chart depicts the Satyams fabricatedincome statement. It shows the difference between actual andreported finances: Fabricated Income Statements of Satyam8the Satyam deal with Matyas was salvageable. It could havebeen saved only if the deal had been allowed to go through, asSatyam would have been able to use Maytas' assets to shoreup its own books.Raju, who showed artificial cash on his books, had planned touse this non existent cash to acquire the two Maytas companies. Given the stake the Rajus held in Matyas, pursuingthe deal would not have been terribly difficult from theperspective of the Raju family. The auditors, bankers, and SEBI,the market watchdog, were all blamed for their role in theaccounting fraud. To what extent did the fraud take place andwho else was involved? It is likely the fraud extended beyondRaju to other top managers. The fraud itself, however, wasenough.


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WHY DID RAJU CONFESS????

Raju was probably convinced that the gap in the balance sheetreached unmanageable proportions and could not be filledanyhow in future.

A person who used a pseudonym, claimed himself to be aformer senior executive in Satyam involved with itscontract with the World Bank, acted as the whistleblowerwhose email to a Satyam board member triggered a chainof events that culminated in erstwhile chairman Mr Rajusdecision to confess to the financial crime.

Did Raju confess to a lesser crime??With media reports speculating that Raju may have hadbenami accounts, land holdings and so on, seniorgovernment sources told Outlook Business that the

suspicion from day one has been that Raju probablyowned up to inflating accounts as the punishment for this


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is significantly less than that for siphoning funds.

"If Raju had been charged with more serious offences suchas siphoning of funds or forging of valuable securities,

then under Section 467 of the Indian Penal Code he wouldhave faced life imprisonment. These offences are alsocognisable and non-bail able," says Aman Sinha, SeniorCounsel, and Supreme Court. On the other hand, if he ischarged with cheating, say under Section 420, then themaximum punishment is seven years, with the likelihoodof getting away with a shorter term. The provisions underthe Income Tax (I-T) Act and the like also don't providethat extreme punishments either. For instance, under

Section 277A, an offence for falsification of books oraccounts, etc. carries a maximum punishment of rigorousimprisonment of three years and with a fine (though someother I-T offences could carry even a maximum of sevenyears).

SATYAM UNDER RECONSTRUCTION

Appointing new board.Board appointed by Govt: Former Nasscom Chief - Kiran

Karnik, Chairman HDFC -Deepak Parikh Former SEBImember- C. Achuthan.Satyam shares gained over 44% day after appointment of the new board.New CEO: A S Murthy

Tech Mahindra acquired Satyam on April 13, 2009


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THE REVELATION OF FRAUD

Satyams fall from pioneering iconoclast to the largestcorporate fraud in India has been rapid, unexpected andshocking. Now, some analysts and investors are wonderingwhether the same coolness under pressure and willingness totake risks that attracted supporters, employees and investorsto Raju may have laid the groundwork for fraud. In a move thatwould have been unfathomable just a month ago, the Indiangovernment ousted Satyam's board.

Raju admitted to faking about $1 billion in cash on Satyam'sbooks and vastly inflating the company's profit margins, afterwhat he described as a small discrepancy bloomed out of control. The Rajus were arrested Friday, and Vadlamani onSunday; all three are being investigated on suspicion of cheating, forgery, criminal breach of trust and falsifyingdocuments.

Ramalinga Rajus confession letter had this statement I havepromoted and have been associated with Satyam ( SAY) for wellover twenty years now. I have seen it grow from few people to53,000 people, with 185 Fortune 500 companies as customersand operations in 66 countries.

There isnt a speck of falsehood in this statement. Mr. Raju haspromoted Satyam and has played an integral part in shaping upthe company over the years. And under his chairmanship,Satyam has grown into a leading player in the Indian IT servicesspace.

Mr. Raju said that 50.4 billion rupees, or $1.04 billion, of the53.6 billion rupees in cash and bank loans the company listedas assets for its second quarter, which ended in September,were nonexistent. Revenue for the quarter was 20 percentlower than the 27 billion rupees reported.
http://seekingalpha.com/symbol/sayhttp://seekingalpha.com/symbol/say


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INVESTIGATION CBI filed a charge sheet against nine on April 7, 2009. Apart from 5 illusionists, 4 others are:

-Rajus second brother S. Raju-2 employees from finance wing-vice president (Finance)

With the scam seemingly having multiple layers, the truth willbe out only after investigations have been completed andappropriate charges filed. Meanwhile in New Delhi, within the

corridors of government, hardly anyone is buying the theorythat Raju, at present in judicial custody till January 23, onlyinflated accounts to show inflated profits for the past severalyears. Rather, with the sudden remembrance of the Income TaxDepartment having unearthed more than 50 bank accounts inthe name of Raju's family members and others way back in2002, the focus now is on whether the profits were actuallysiphoned away to group companies such as MaytasInfrastructure for investments in the latter's infrastructure

projects. Or worse still, for underhand deals to grease thehands of politicians and bureaucrats. "Maytas in the last fewyears has bagged a number of high-profile infrastructureprojects and it is a well known fact that the Rajus werepolitically well-connected. There is more than what meets theeye," says a government source.

There is also widespread scepticism about Raju's claims thatSatyam's profits margins could have been as low as 3%. "It ishighly possible that just as businessmen 'rotate funds', Rajumust have also done the same by siphoning funds from Satyamto Maytas, especially with the real estate market booming andwith the latter grabbing many government projects includingthe Hyderabad Metro project," says a business analyst whodidn't want to be named. 'Rotation of funds' refers to thepractice of illegally moving funds from, say, Business A andinvesting it in Business B. Once the investment in Business Bturns profitable, the original money is quietly put back inBusiness A.


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With the IT sector being given tax waiver (recently extended tillMarch 31, 2010); many IT companies have been flush withfunds. "It is likely that Satyam siphoned away its monies toMaytas hoping to make a killing on the projects, assuming the

boom in the economy continued. However, the US sub-primecrisis and the subsequent market meltdown burst the realtybubble, shattering Raju's original plans," suggests anotherbusiness analyst.

Disappointed by the failure of the auditors in either not spottingor allowing the scam to take place, home minister PChidambaram, on January 12, is said to have summoned Ved

Jain, President of The Institute of Chartered Accountants of

India (ICAI), and told him in no uncertain terms that thechartered accountants regulator should take proper cognisanceof the role of the auditors and take appropriate stringentactions thereafter. Soon after, ICAI initiated stringentproceedings against PricewaterhouseCoopers, Satyam'sauditors. While sources would not confirm or deny whether PwCwould be banned from conducting business in India if foundguilty, they indicated that the government was in no mood tobe lenient to anybody found guilty. "Many a time, finance

ministry officials do point out to ICAI about auditors who cookbooks, but the apex body only looks the other way," alleges agovernment official.

Though Chidambaram took over the reins of the Home Ministryafter the Mumbai terror attack, for all practical purpose hecontinues to be the de jure finance minister. "The PM has hadhuge faith in the administrative capabilities of MrChidambaram," says a source the finance ministry portfolionow comes directly under the Prime Minister.


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CONCLUSION

Lasting solutions can only be found by transforming humanconsciousness through an inner discipline and higher moralreasoning. A company can build sustainable competitiveadvantage through ethics, values, excellence, quality, socialresponsibility and human development. An integrated, valuebased vision of leadership and governance will go along increating corporate governance. A transformed organizationalculture which pays highest attention to ethical conduct andmoral values will strengthen sustainable roots of the company.

Transparency and effective auditing and regulatory checksthrough internal and external auditors and monitoring agencieswill help establish long lasting credibility for anycompany. Companies should gather feedback, measureeffectiveness, and continually improve their code of conduct.

They always distinguish between opportunities andtemptations. No matter what heights a person may reach,character must be maintained at any cost. Companies must


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take a step back when presented with challenging decisionsand individuals must listen to the little voice in their head incomplying with law and to their heart in dealing with people.When making corporate decisions, it is important to not losesight of the individuals ethical reasoning.

Personal ethics, self discipline, and high moral reasoning are critical to avoiding unethical behaviour. Some of theadvantages of these elements include avoiding unethicalbehaviour, performing fiduciary duties, and resolving ethicaldilemmas. But such personal ethics may put a person in directconflict with existing corrupt bureaucratic systems, increased

ethical dilemmas, and exposure to stress and intense emotionalpressure. Transparency in financial reporting as a moral dutyand ethical conduct is also very important for companies toadhere to in order to uphold ethical standards. Benefits fromsuch engagement include higher trust and loyalty fromstakeholders, increased goodwill, and higher investorconfidence. Absolute transparency may lead to revelation of favourable and unfavourable performance which in turn may

result in loss of investor confidence and inability to attract newcapital. It is also important for companies to establish anorganizational culture which supports ethical conduct through acode of conduct and properly laid out corporate governancepolicies and procedures. Advantages of this approach includefostering ethical behaviour from employees, increased innerdiscipline, and providing value based corporate vision.However, such a culture will add new conflicts of interest, strict

compliance with rules and regulations and extra supervision.

The Rise of Satyam

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