shame for corporate india shame for corporate india
Post on 12-Jan-2016
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Shame for corporate India
Prepared byAranya Adhikari 13 Mukul Varma 25Pawan Mittal 32Satendra Agrawal 45 Sanjay Singh 43
The Satyam Story Founded in : 1987 Profile : IT Services Head Quarter : Hyderabad , India Deals in : Application development & maintenance, Extended engineering solutions, Infrastructure management services Business Process Outsourcing Listed in : New York Stock Exchange ( 1st Indian IT Inc. to be listed in NASDAQ) & Euronext
The Satyam Story Customers : 654 global companies ( including 185 Fortune 500 Co. ) : In 67 countries across 6 continents Development centre abroad : US , UK , UAE , Canada , Hungary , Singapore , Malaysia , China , Japan, Egypt & Australia Development centre in India : Hyderabad , Bangalore , Chennai , Pune, Mumbai , Nagpur , Delhi , Kolkata , Bhubaneswar , Visakhapatnam
Board of DirectorsExecutives Directors : Mr. B. Ramalinga Raju (Founder & Chairman) Mr. B. Rama Raju (Co-Founder & CEO) Non-Executive Directors : Mr. V. P. Rama Rao, IAS (Retd.) Dr. (Mrs.) Mangalam Srinivasan Prof. Krishna G. Palepu Mr. Vinod Dham Mr. S V Krishnan Mr. Vijay PrasadIndependent Directors : Mr. Prabhakar Gupta ( Ex-dean , ISB ) Mr. Keshab Panda Mr. Virender Agarwal Mr. A S Murthy
The basic IssueIs the Satyam scandal just about a promoter manipulating the financial statements of his company to show a superior performance?
Is it about systematic siphoning of funds from the company over the years?
Emerging events seem to increasingly point to the latter.
The Story unfolds Satyam on December 16, 2008, announced acquiring of - Maytas properties and Maytas Infra
The BOD of Satyam had approved the founders proposal to buy 51 per cent stake in Maytas Infrastructure and 100 % in Maytas Properties
The total outflow for both the acquisitions was US$ 1.6 bn comprising of : US$ 1.3 bn -100% stake in Maytas Properties & US$ 0.3 bn for the 51% stake in Maytas Infra
This is the move that sparked a row over alleged violation of corporate governance laws.
Reaction of Investors on acquisition of MaytasInvestment giant Templeton and brokerage house CLSA opposed to this decision
Result of Investors ReactionPart of investors succeeded to thwart the attempt Satyam's investors lost about INR 3,400 crore in the related panic sellingSatyam's shares fell 55% on the New York Stock ExchangeThree members of the board of directors resigned on Monday 29th Dec 2008.On 7 January 2009, company Chairman Ramalinga Raju resigned after notifying its board members and the SEBI that he had falsified accounts.
Signs not noticed
The Story .Raju and his family held below 10% of the companys EquityAccounts in the names of relatives used to divert money and carry out insider tradingFunds siphoned off from Satyam to Maytas Infra, Maytas Properties & various othersDiversion of Rs. 1700 crores from an overseas bank accountThis deal was not profitable for investors . So after this announcement they started to raise their voices against the deal
The Story continues Maytas InfraThe company is run by the sons of Ramalinga Raju It was started in the late 1980s by Ramalinga Raju The main reason for the debacle of Maytas Infra is due to the debacle of Satyam
Maytas Properties LtdOne of the reasons for the debacle of Maytas properties is the ongoing economic slowdown The Company has huge land banks and the prices have dropped down in the real estate significantly
Satyams justification for Maytas buyout deal
de-risk the core business
the integrated organization would be stronger and more diversified to deal with the uncertainty of the market
feeling that in the recent times it is difficult to make a strategic deal with other IT companies.
Satyams financial statements for years were totally false, cooked upNever had Rs 5064 crores (US$ 1.05Billion) shown as cash for several yearsIts liability was understated by $ 1.23 Billions The Debtors were overstated by 400 million plusActual Operating Margin Rs.61 Cr. Reported- Rs.649 Cr ( Created an Artificial Revenue of Rs. 588 Cr.)Facts behind the story.
Role of auditors :
PWC confirmed that two auditors appointed by Satyam Computer, were not partners of the audit firm at that point of time.
Auditors do bank reconciliation to check whether the money has indeed come or not. They check bank statements and certificates.
Is it total lapse in supervision or were the bank statements forged ?
PWC has written a letter to the BOD of Satyam that its audit may be rendered "inaccurate and unreliable due to disclosures made by Raju .Questions.
Role of SEBI :The SEBI had in December,2008 given a clean chit to Satyam in the probe on violation of corporate governance law
Role of Banks :If the auditors were conned, it means that the bank statement and certificates were forged Satyam's banks -- ICICI Bank, HDFC Bank, Bank of Baroda, etc
Role of Independent Directors :Despite the shareholders not being taken into confidence, the directors went ahead with the management's decision
Role of Government :The government too is equally guilty in not having managed to save the shareholders, the employees and some clients of the company from losing heavily
Political angle : Protection Why ?? Questions.
Rich potential for scams in IndiaClear need for systems to prevent such scams.The monitoring mechanism of Auditors, Sebi and the Independent directors were either compromised or duped.Many more Satyams might be in the offing..
The Path ahead.
Quis custodiet ipsos custodes? Police the policemen ??
The US found its way SOX act. India needs to find what works here We can take lessons from US - - Personal criminal liability of Fraud - Statutory Auditors to be rotated after a period specified by regulation - Detailed financial disclosures
Quis custodiet ipsos custodes? Police the policemen ??Regulations to limit auditors from other roles like financial consulting.Detailed procedure for related party transactions.And many more