In November 2011, after spending almost 3 years in prison, Ramalinga Raju, Rama Raju and Srinivasa Vadlamani were granted bail. The reason cited by the court was that they had already served a large portion of their possible sentence since the maximum punishment for their offence was 7 years’ imprisonment. In addition, as the investigation of the case was nearing its end, it was felt that they could not influence the investigation in any manner.23 In January 2012, Satyam Computer Services, now owned by the Tech Mahindra group, filed a lawsuit against its former board of directors, certain former employees and PwC its statutory auditor, for
“perpetrating fraud, breach of fiduciary responsibility, obligations and negligence in performance of duties.” This followed a penalty of US$17.5 million imposed jointly on Satyam, PwC and its other partners by the US Securities and Exchange Commission in April 2011 for fraudulently overstating the company’s accounts.24
Discussion Questions
1. Describe India’s environment that investors should consider when investing in companies like Satyam.
2. Discuss the areas of the company culture and structure that could have raised some red flags about Satyam’s situation.
3. Satyam had a whistleblower policy in place and an employee had written to one of the directors claiming that the accounts had been manipulated. What are the challenges of effective implementation of a whistleblower policy in a company such as Satyam? How should directors react to whistleblower complaints?
4. Analyse the independence of the board and the ability of the board to exercise independent judgment on the corporate affairs of Satyam.
Given the credentials of the non-executive directors, why would they still have missed the fraud perpetrated in the company over a number of years?
5. A number of directors resigned from the company after the aborted Maytas merger and before the fraud became public. Should they have resigned and could they have done more to protect shareholders’
interests?
6. Who is responsible for the loss in shareholder value?
7. Are the regulatory reforms undertaken after the scandal likely to have a positive effect on corporate governance in India? How can the role of independent directors be enhanced without making it too onerous to be an independent director?
8. Should the non-executive and independent directors be held accountable for the fraud perpetrated in Satyam?
Endnotes:
1 Satyam, Mahindr. “Satyam Receives Golden Peacock Global Award for Excellence in Corporate Governance.” ND. 13 April, 2009.
<http://www.mahindrasatyam.com/media/pr6sep08.asp>
2 “India’s Enron”. 8 January2009. Rediff Business. 10 April 2009.
<http://www.rediff.com/money/2009/jan/08satyam-indias-enron.htm>
3 VCC Circle. “World Bank Names Wipro, Satyam Among Blacklisted Indian IT Firms”. January 13th, 2009.
<http://www.vccircle.com/500/news/world-bank-names-wipro-satyam-among-blacklisted-indian-it-firms>, accessed on December 2011.
4 Seth, K. “Satyam’s Raju IS E&Y Entrepreneur Of The Year 2007”.
21 November, 2007. 10 April 2009.
5 India Knowledge @ Wharton. “Scandal at Satyam: Truth, Lies and Corporate Governance”. 9 January 2009.
<http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4344>, accessed on 10 April 2009.
6 Nag, K. “The Double Life of Ramalinga Raju- The Story of India’s Biggest Corporate Fraud.” 2009. April 2009.
7 ISB News & Events. “Major Endowment sets CITNE on a New Wave of IT Centric Research”. 10 April, 2010. <http://www.isb.edu/media/
UsrSiteNewsMgmt.aspx?topicid=381>, accessed on April 2011.
8 “Ram Mynampati got more salary than Raju, directors!”13 January, 2009.
Nseguide. January 2012. <http://nseguide.com/press-releases/ram-mynampati-got-more-salary-than-raju-directors/>
9 Sheth,N & Range, J. “Satyam Directors Questioned Purchases.”
16-18 January, 2009. Wall Street Journal. April 2009.
10 Nag, K. “The Double Life of Ramalinga Raju- The Story of India’s Biggest Corporate Fraud.” 2009. April 2009.
11 VCC Circle. “World Bank Names Wipro, Satyam Among Blacklisted Indian IT Firms”. 13 January 2009. < http://www.vccircle.com/500/news/world-bank-names-wipro-satyam-among-blacklisted-indian-it-firms>,
accessed on December 2011.
12 Nag, K. “The Double Life of Ramalinga Raju- The Story of India’s Biggest Corporate Fraud.” 2009. April 2009.
13 Livemint.com. “Palepu quit after Satyam disclosure.” 31 December 2008.
<http://www.livemint.com/2008/12/30235615/Palepu-quit-after-Satyam-discl.
html>, accessed on January 2012.
14 Datamonitor. “Satyam Computer Services Limited Company Profile”. 2009.
10 April 2009.
15 Ibid
16 Moneycontrol.com. ND. accessed on <http://www.moneycontrol.com/stock-charts/mahindrasatyam/charts/SCS>, accessed on December 2011.
17 Domain-b.com. “Government nominees to replace Satyam board.”
9 January 2009. <http://www.domainb.com/companies/companies_s/
Satyam_Computers/20090109_satyam_board.html>, accessed on December 2011
18 Livemint.com.“ICAI to seek explanation from Satyam auditor PWC”.
7 January 2009. <http://www.livemint.com/2009/01/07165018/ICAI-to-seek-explanation-from.html>, accessed on December 2011
19 “Satyam Fudged FD’s, has 40,000 employees: Public Proscecutor”
22 January 2009. The Times of India. December 2011. <http://timesofindia.
indiatimes.com/India_Business/Satyam_fudged_FDs_has_40000_
employees_Public_prosecutor/articleshow/4015830.cms>
20 India Knowledge @ Wharton. “Scandal at Satyam: Truth, Lies and Corporate Governance”. 9 January 2009.
<http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4344>, accessed on 10 April 2009.
21 Lok Sabha, 2009. The Companies Bill. April 2010.
<http://www.mca.gov.in/Ministry/actsbills/pdf/Companies_Bill_2009_24Aug 2009.pdf>
22 Chakrabarti, Rajesh “The Drop in Number of Independent Directors in The boardroom Bodes Ill for Corporate Governance”. Economic Times.
20 August 2011. December 2011. <http://articles.economictimes.indiatimes.
com/2011-08-20/news/29909298_1_independent-directors-satyam-crisis-satyam-scandal>
23 “Satyam’s Ramalinga Raju, two others get bail.” 5 November 2011. The Economic Times. January 2012.
<http://articles.economictimes.indiatimes.com/2011-11-05/
news/30363825_1_internal-chief-auditor-b-ramalinga-raju-ch-srisailam>
24 “Satyam sues former board of directors, certain employees, Price Waterhouse.” 9 January 2012. The Economic Times. 9 January 2012.
<http://articles.economictimes.indiatimes.com/2012-01-09/news/3060 7641_1_mahindra-satyam-lovelock-lewes-price-waterhouse-bangalore>