A Study on the Corporate Governance Issues at SATYAM COMPUTERS CONSULTANCY LTD
Subject: Business Ethics
CONTENTS
PARTICULARS
PAGE NO.
Introduction to Corporate Governance Relevance in the present Scenario Introduction to Satyam computers consultancy ltd Details of the case Importance & learning of the study
1-4 5 6-7 8-11
CORPORATE GOVERNANCE Corporate Governance is typically perceived as dealing with problems that result from the separation of leadership & control. Shareholder Board Managemen t Employees
DEFINITION:Corporate Governance may be defined as holding a balance between economic & social goals & between individual & commercial goals. A good corporate governance is one where a firm commits & adopts ethical practices across its entire value chain & in all of its dealing with a wide group of stakeholders encompassing employee, customer, venders, regulators & shareholders in both good and bad times.
DESIDERATA OF CORPORATE GOVERNANCE Right of Shareholders: The right of shareholders are namely as below:
They should secure ownership of their shares.
They have voting rights.
They have right to full disclosure of information.
They can participate in decision on sale or any other change in corporate assets & new shares. 1
Equitable treatment of shareholders: shareholders: All the shareholders including minority
and foreign shareholders should get equal treatment.
Disclosure & Transparency: The disclosure and dissemination of key
information about the company to all those entitled for such information.
Responsibilities Responsibilities of the Board: The functions of the board include
protecting the company, its shareholders & all its other stakeholders. The functions would include concerns about corporate strategy, risk, executive compensation & performance, accounting & reporting system, monitoring effectiveness & changing them, if needed.
ISSUES IN CORPORATE GOVERNANCE GOVERNANCE
Distinguishing Distinguishing the roles of Board & Management: Management:
The functions of the board include the below
Select, decide the remuneration & evaluate on a regular basis, and if necessary, change the CEO
Oversee the conduct of the company’s business
Review & where necessary approve the company’s financial objectives & major corporate plans & objectives.
Provide advice & counsel to top management.
Select & recommend candidate to shareholder’s for electing them to board of directors
Review any other functions to be performed by law.
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Seperation of the roles of the CEO & the Chairman: The roles of the
CEO and the Chairman are different. The CEO takes care of the senior management whereas the chairman takes care of the board.
Appointment to the board & reappointment: The board or its specially
appointed committee selects & appoints the prospective director and gets the person formally elected by the shareholders at the ensuring Annual General Body Meeting.
Directors & Executives Remuneration: Remuneration: This is one of the mixed & vexed
issues of corporate governance that first came to the center stage. The key issues would include
Transparency
Justifiability of the pay in the context of performance
The process adopted in determining it
Severance payments
Non-executive directors’ pensions
3 Protection of Shareholders rights & their executives:
There are a number of questions relating relating to this issue as
1.
Should companies adhere to 1 share 1 vote principle always?
2.
Should companies retain voting by a show of hands or by poll?
3.
Can shareholders resolution be bundled?
4.
Should shareholders approval be required for all major transactions?
MAJOR THRUST AREAS OF CORPORATE GOVERNANCE
The six major thrust areas of corporate governance are as bellows:
1. They call upon government to put in place an effective institutional and legal framework to support good corporate governance practices. 2.
They call for a corporate governance framework that protects and facilitates the exercise of shareholders rights
3.
They strongly support equitable treatment of all shareholders including minority & foreign shareholders.
4.
They recognize the importance of the role of stakeholders
5.
They stress the importance of timely, accurate and transparent disclosure mechanism.
6.
They deal with the board structures & responsibilities.
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RELEVANCE TO THE PRESENT SCENARIO Satyam scam was not an easy issue. It has its own complexities as it involved 1400 14 000 0 cror croree scam scam.. Saty Satyam am scam scam had had been been the the exam exampl plee for for foll follow owin ing g po poor or governance Practices. It had failed to show good relation with the shareholders and employees.
So as to throw a light on the poor governance practice at one of the major IT giants, the need to study such case is made important. Taking this scam as a role model, it could be suggested that there is a need to frame up good governance rules and see to the proper proper implementation implementation of it.
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INTRODUCTION TO SATYAM COMPUTER CONSULTANCY LIMITED SATYAM COMPUTER CONSULTANCY LIMITED was established on June 24 1987. the founder of such organization was mr.Ramalinga Raju. Chief executive officer at the time of the scam was Mr. Ram Mynampati And chief financial officer of such was mr. Valdamani Srinivas.Non executive directors were Krishna Palepu & Vinod.K.Dham. satyam computer consultancy limited has its headquarter at Hyderabad.
Satyam computer services limited has its several subsidiaries:
1) Satyam BPO
Citisoft
CA Satyam
STI
Bridge Consultancy
The various services offered by the satyam compute consultancy limited Included:
Application Software
Business process outsourcing
Business value enhancement
Consulting and Enterprise Solution 6
Infrastructure Management Service
Integrated Engineering Solution
Product and Application Testing
Six Sigma Consulting
Offices of satyam computer consultancy limited are located global at America, Europe, Middle East Africa.
SCS had achieved several awards and achievements for its meritorious work. To name a few: 1)
UK trad tradee and and Inve Invest stme ment nt Indi Indiaa bus busin ines esss awa award rd for for “ CORP CORPOR ORAT ATE E SOCIAL RESPONSIBILITY” RESPONSIBILITY”
2)
Ranked No.1 in American society for and development best award 2007.
After the scam of rs.14000 crore came into light, the board of members were Replaced temporarily by experts. Several board members retired voluntarily. Even the auditing company, named KPMG was penalized. Several bidding took place for acquiring satyam by several companies. The final three bidders for satyam were L&T, Spice group and tech mahindra.
After the successful bidding, Tech mahindra acquired satyam and the new chief executive officer is Mr. C.P. Gurnani. The two independent
directors are C.Achuthan and T.N.Manoharan. working directors included Mr. C.P.Gurnani and MR.Vineet Nayyar.
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DETAILS ABOUT THE CASE- SATYAM SCAM The case case examin examines es the corpo corporat ratee gov govern ernanc ancee issues issues at the India India based based IT services company, Satyam Computer Services Limited (Satyam). In mid-December 2008, 200 8, Satyam Satyam announ announced ced acquis acquisiti ition on of two compan companies ies - Maytas Maytas Prope Properti rties es and Mayt Maytas as Infr Infras astr truc uctu ture re owne owned d by the the fami family ly memb member erss of Saty Satyam am's 's foun founde derr and and Chairman Ramalinga Raju (Raju). It planned to acquire 100% and 50% stakes in Maytas Maytas prope property rty and infra infra for for $1.6B. $1.6B. Due to advers adversee reacti reaction on from from instit instituti utiona onall investors and the stock markets, the deal was withdrawn within 12 hours. Questions were were raised raised on the corpo corporat ratee gov govern ernanc ancee pract practice icess of Satyam Satyam with with analys analysts ts and investors questioning the company's board on the reasons for giving consent for the acquisition as it was a related party transaction.
After the deal was aborted, four of the prominent independent directors resigned from the board of the company. In early January 2009, Raju revealed that the revenue and profit figures of Satyam had been inflated for past several years. The following were the inflated figures:
Inflated cash and bank balance Rs.5040cr
Non existent accrued interest Rs376cr
Understated liability of Rs.1230cr
Overstated Debtor position of Rs.490cr
Inflated staff by 12000 ( Actual were 40000)
Revenue of Rs.2700cr (Actual were Rs.2112cr)
Operating margin to be 6494 cr ( Actual were 61cr) 8
INDIA’S LARGEST FRAUD- Rs.7800crore( now estimated as 14000 crore) As per the definition of corporate governance discussed above, A good corporate governance is one where a firm commits & adopts ethical practices across its entire value chain & in all of its dealing with a wide group of stakeholders encompassing employee, customer, vendors, regulators & shareholders in both good and bad times.
Corporate governance includes various parties: 1) shar shareh ehol olde ders rs 2) empl employ oyee eess 3) mana manage geme ment nt 4) bankers 5) go gove vern rnme ment nt Governance issue at Satyam arose because of non fulfillment of obligation of the company towards the various stakeholders. It proved a poor relationship with all the stakeholders.
It is well known that a shareholder has a right to get information from the organization, such information could be with respect to the merger and acquisition. Shareholders expect transparent dealing in an organization. They even have right to get the financial reporting and records. 9 In the case of satyam, satyam, the above obligations obligations were never fulfilled. fulfilled. The acquiuisition of maytas infrastructure and properties were announced, without the consent of shareholders. They were even provided with false inflated financial reports. The shareholders were cheated. It is well known that the collapse of any organization’s reputation has a diect impact on the employee’s job. As per the case, employees were shown with a inflated figure. The excess of employees in the organization were kept under VIRTUAL POOL who received just 60% of their salaries and several were removed. The entire scam had its impact on management. Questions were raised over the credibility of management. Any organization has its obligation towards the Government by means of timely payment of taxes and abiding by the rules and laws framed up by the Government. As per the case with satyam , the company did not pay advance tax for the financial year 2009. As per the rule, the advance tax is to be paid 4 times a year; such was not fulfilled by them.
Finally the satyam computer consultancy limited didn’t have good relationship iwt bak too. SCS was blacklisted by world Bank over charges of Bribery.It was declared ineligible for contracts to providing: 1) improper benefit to bankstaff.
2) Failing Failing to maintain maintain document documentation ation to support support fees. fees. 10
The revelation further deepened concerns about poor corporate governance practices at the company. The case describes the corporate governance structure at Satyam, its code of conduct, roles and responsibilities of different committees under the board, whistle blower policy etc. It highlights the role played by the independent directors of Satyam in approving the Maytas deal and discusses their limitations.
11 CONCLSION: As earlier stated that corporate governance consist of four parties. In case of satyam fraud, board is unable to fulfill its role & responsibilities. SHARE HOLDERS BOARD
MANAGEM ENT
EMPLOYEES
Now we discuss the responsibilities that should be followed ethically by board and what is actually did – Ethical responsibilities: •governing the organization by establishing broad policies and objectives; •selecting, appointing, supporting and reviewing the performance of the chief executive; •ensuring the availability of adequate financial resources; •approving annual budgets; •accounting to the stakeholders for the organization's performance. performance.
Actual scenario: Despite the shareholders not being taken into confidence, the directors went ahead with the management's decision.
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.
Simple manipulation of revenues and earnings To show superior performance
Raising fictitious bills for services that were never rendered.
To increase the Cash & bank balance correspondingly. correspondingly.
Operating profits were artificially boosted from the actual Rs 61 crore to Rs 649 crore.
Its financial statements for years were totally false, cooked up and... Never had Rs 5064 crores (US$ 1.05 Billion) shown as cash for several years.
Its liability was understated by $ 1.23 Billions.
The Debtors were overstated by 400 million plus.
The interest accrued and receivable by 376 Millions never existed.
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So when the case came in light following are the actions that has been taken: Nasscum sets up panel to avoid satyam like case in future- formed a corporate Governance & ethics committee, chaired by N.R.Narayana Murthy (chairman and chief mentor of Infosys.)
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Hinduja Global chalks out 100 day plan for satyam.
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8 Year ban on satyam to be reviewed.
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Govt. orders CBI to probe fraud ( concerned about 52000 employees) - agencies ( 3 months months time to probe)-
Serious fraud investigation office(SFIO)
Market regulation SEBI,
Institute of chartered accountancy India (ICAI)
Andhra police
The Sebi had in December given a clean chit to Satyam in the probe on violation of corporate governance law. The government has realized the need of code of conduct & whistleblower policy, now we will discuss what is these terms and how they played an important role. CODE OF CONDUCT: This Code of Business Conduct covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide all employees and officers of the Company. Those who violate the standards in this Code will be subject to disciplinary action, including possible dismissal . Furthermore, violations of this Code may also be violations of the law and may result in civil or criminal penalties for you, your supervisors and/or the Company. The basic principles discussed in this Code are subject to any Company policies covering the same issues: •
Compliance with Laws, Rules and Regulations
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Conflicts of Interest
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Corporate Opportunities
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Competition and Fair Dealing
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Political Contributions
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Discrimination and Harassment
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Health and Safety
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Confidentiality
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Protection and Proper Use of Company Asset
BIBLIOGRAPHY 1) 2)
3)
www.google.com www.wikipedia.org Busi Bu sine ness ss et ethi hics cs:: con conce cept ptss and and case casess- vela velasq sque uez. z.