SATYAM – AN INTROSPECTIVE

PRESENTED BY :-
ANUP KUMAR AVINASH
10HM06

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 COMPANY PROFILE
 Satyam Computer Services Ltd. was founded in 1987 by Ramalinga Raju.
 The company offers information technology (IT) services spanning various sectors,
and is listed on the New York Stock Exchange and Euronext.
 In news because of the accounting scandal by its CEO Ramalinga Raju.

 Satyam's network covers 67 countries across six continents. The company employs
53,000 IT professionals.

 India’s 4th biggest software company. €On 26th August, 1991 it was converted into a
Public Limited Company and went for PUBLIC ISSUE In 1992.

 BSE IPO oversubscribed 17 times when made public.

 It was listed in BSE, NSE, NYSE and Euronext (Amsterdam).

 It serves over 654 global companies, 185 of which are Fortune 500 corporations.

What is CSR
 CSR also known as corporate citizenship, is a form of corporat-e self-regulation
integrated into a business model.

 Ideally, CSR policy functions as a built-in, self-regulating mechanism allowing

business to monitor and ensure its adhere-nce to law, ethical standards, and
international norms.

 Business would embrace responsibility for the impact of their activities on its various
stakeholders.

CSR at Satyam
 Byrraju Foundation, a non governmental organisation dedicated to social
transformation in rural areas.

 Satyam won the Asian Corporate Social Responsibilty Award under poverty
alleviation category through the Gram IT project ( a rural BPO program) an initiative
by Byrraju Foundation.

 EMRI (Emergency Management and Research Institute), is an initiative of byrraju

foundation which was initiated in August 2005.

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 Corporate Governance
 Corporate governance is the set of processes, customs, policies, laws, and
institutions affecting the way a corporation or company is directed, administered or
controlled.

 Corporate governance also includes the relationships among the many stakeholders
involved and the goals for which the corporation is governed.

Corporate Governance Of
Satyam
 Vision Statement :-

 To leverage information, knowledge and technology to enhance human endeavour.

 Core values of Satyam:-

 Belief in People

 Entrepreneurship

 Customer Orientation

 Pursuit of Excellence..

Controversies:-
 Maytas acquisition

 World Bank

 Upaid lawsuit

 Accounting scandal of 2009

World Bank Fiasco

 The World Bank had banned Satyam from doing business with it for 8 years due to
inappropriate payments to the World Bank's staff.

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 The World Bank accused Satyam of giving improper benefits to its (the Bank's) staff
and of failing to maintain documentation to support fees charged for its
subcontractors.

 However, it clarified that Satyam was not involved in incidences of data theft or
malicious attacks that
had been made on the Bank's
information systems.

Upaid Lawsuit
 UK mobile payments company Upaid Systems is suing Satyam
for over 1 billion US dollars on

 complaints of fraud,

 forgery and breach of contract.

 On 9 December 2009 Satyam has settled the lawsuit with UPAID for $70MM, of
which $45MM is payable upon regulatory approval, and the
remaining $25MM is payable a year after the initial payment.

Maytas Infrastructure
 Raju’s family hold 36.64 per cent.

 while institutional holding is 10.92 per cent.

 The company had raised Rs. 327.45 crore through IPO.

 It had a turnover of Rs 1,660 crore and net profit of Rs 100 crore in the last financial
year.

 Satyam planned to acquire 51 per cent stake for Rs 1, 440 crore or $0.3 billion.

Maytas Properties
 Raju’s family owns 35% of Maytas properties.

 Founded in 2005, it has a land of 6,800 acres.

 It has clearances for three IT SEZs based on 148 acres.

 An undisclosed stake is held by Infinite India Investment Management, a realty fund

jointly promoted by JM Financial and US-based SRM Investments, which invested Rs
600 crore in February.

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Satyam’s 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.

Reaction of Investors
 The shareholders realised that the buyout was not profitable for them.

 Satyam using there serve cash to purchase Maytas Infra and Maytas Properties was a
big risk.

Result of Investor’s Reaction

 It results that part of investors succeeded to an attempt by the minority shareholding
promoters to use the firm’s cash reserves to buy out two companies owned by them
Maytas Properties and Maytas Infra.

 That aborted attempt at expansion precipitated a collapse in the price of the

company’s stock and a shocking confession
of financial manipulation and fraud from its
chairman, B. Ramalinga Raju.

 The promoters decided to inflate the revenue and profit

figures of Satyam. In the event, the company had a huge
hole in its balance sheet, consisting of non-existent assets
and cash reserves that have been recorded and liabilities
that are unrecorded.

Accounting Scam
 Satyam faced is the biggest fraud in India's corporate history.

 The company management, mainly disgraced chairman B Ramalinga Raju, kept

everyone in the dark for a decade.

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 On 7 January 2009, company’s previous Chairman Ramalinga Raju resigned after
notifying board members and the Securities and Exchange Board of India (SEBI) that
Satyam's accounts had been falsified.

 Raju confessed that Satyam’s balance sheet of 30 September 2008 contained:

 Inflated figures for cash and bank balances of Rs. 5,040 crore as against Rs 5,361
crore reflected in the books. An accrued interest of Rs. 376 crore which was non-
existent.

 An understated liability of Rs. 1,230 croreon account of funds was arranged by

himself.

 An overstated debtors' position of Rs. 490 crore (as against Rs. 2,651 crore in the
books.

The guilty

The promoters
 Since the promoters, in this case, held only
about 8 percent shares.

 Their idea to push through the Maytas acquisition deal was defeated by an angry lot
of shareholders.

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 Directors and independent
directors
 The Satyam board, including its five independent directors had approved the founder's
proposal to buy 51 percent stake in Maytas Infrastructure
and all of Maytas Properties, owned by the family members of Satyam chairman B
Ramalinga Raju.

 Despite the shareholders not being taken into confidence, the directors went ahead
with the management's decision.

 The decision of acquisition was ,however, reversed 12 hours later after investors
dumped Satyam‘s stock and threatened action against the Management.

Other company bigwigs

 Satyam's CFO Srinivas Vadlamani has already been arrested.

 But could only two or three people have

managed to cook the books for years of a
company so large.

Satyam’s auditors
 So what were the auditing company, PricewaterhouseCoopers, doing ?

 PWC has written a letter to the BOD of Satyam that its audit may be rendered
"inaccurate and unreliable" due to the disclosures made by Satyam's (ex) Chairman.

Is it real?

How could Auditors miss the

gaping hole when : -
 Auditors do bank reconciliation to check whether the money has indeed come or not.

 They check bank statements and certificates.

 So was this a total lapse in supervision or were the bank statements forged.

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 The bankers
 If the auditors were conned, it means that either the bank statement and certificates
were forged.

 Satyam's banks – ICICI Bank, HDFC Bank, Bank of Baroda, etc…

The SEBI
 The SEBI had in December given a clean chit to Satyam in the probe on violation of
corporate governance Law.

Investment Bankers
 Investment banker DSP Merrill Lynch was appointed by Satyam to look for a partner
or buyer for the company.

 DSP Merrill terminated its engagement with the company soon after it found financial
irregularities.

 Merrill Lynch also sent the information and the reason for their termination of the
contract to the Bombay Stock Exchange, SEBI and even the New York Stock
Exchange.

 However, despite the fact that DSP Merrill Lynch blew the whistle, it is not yet clear
why it took such a long time to inform the authorities, and why it did not let the public
know of Satyam's misdeeds.

The 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.

Employees
 It is nights and heartburns for the over 53,000 employees of Satyam Computers.

 As they conjure up worst case scenarios like non-payment of salaries, project

cancellations , layoffs and equally bleak prospects outside.

 As the company's management tries to reassure shocked employees, jobs sites have
got flooded from resumes of hundreds of Satyam employees.

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 Job consultants believe that in the current economic climate , Satyam employees
might have to settle for lower salaries outside.

 It is an employers' market.

Shareholders
 An accounting fraud was the last thing investors in India would have imagined as a
trigger for a reversal in investor sentiment.

 This scam is likely to affect the image of Indian companies among foreign portfolio
investors.

 The share prices of Satyam saw a sharp fall after Raju’s confession.

 The share prices fell down from190 to 30 (approximately) in a matter of a days.

Clients
 Satyam Computer’s clients include General Electric, Nissan Motors and General
Motors.

 The debacle may force the clients to review their contracts and look at other offshore
suppliers.

 Australian telecom company Telstra had already decided to split a new contract worth
$200 million among three Indian vendors.

 Another partner and customer of the company, Cisco Systems said that a proposed
investment in Satyam Global Life net could be in jeopardy.

Public
 The incident has hurt public perception of Corporate India and is likely to hurt
shareholders'
confidence in India Inc.

 It resulted in incalculable and unjustifiable damage to Brand India and Brand IT in

particular.

 It is likely to dent the public credibility about the concepts of corporate governance in
India.

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 Directors
 Satyam's CFO Srinivas Vadlamani already arrested.

 Many others after this scam, mainly due to their own mistakes of not actively
participating in the management of the organisation.

Competitors
 The competitors were mainly benefited positively from this scam.

 The Satyam Scam was also lesson to learn for the other organisations in the IT sector.

NEW BOARD APPOINTED..
 On 11 January 2009, the government nominated noted banker Deepak Parekh,
former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to
Satyam's board.

The Takeover Of Satyam

Mahindra Satyam
 Tech Mahindra paid Rs 1757 Crore for a 31% stake in the company, at Rs 58 per
share.

 Satyam Computer Services zoomed15% to Rs 54.20 ahead of the announcement of

the highest bidder for the company on April 13, 2009.

 In India this moment was full of praise for the manner and speed with which the
reconstituted board of Satyam Computer Services found a strategic investor.

Mahindra Satyam core values

 Core Values:-

 Involving People: - Volunteers, Community, Civilians, NGOs and Government.

 Applying Knowledge: - Leveraging the core competencies of Satyam Technology,

Process and Managerial competency.

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 Making Things Happen:- All initiatives are outcome oriented, scalability driven and
capable of execution.

 They have five chapters in India located at Hyderabad, Pune, Bengaluru,

Bhubaneshwar and Chennai. The Foundation focuses its activities in the core areas of
Education, Livelihoods, Health, Environment and Empowerment for Persons with
Disability.

New Policies :-
 Compliance with Laws, Rules and Regulations.

 Legal, Honest and Ethical Conduct.

 Suspected Fraudulent behavior.

Has India learnt ?

 Satyam was a wakeup call for India to clean up its act. But did India Inc wake up?

 Experts and industry watchers remain divided in the aftermath. While there is a set of
people who believe that Satyam definitely ma- de promoters sit up and make
alterations, there is an equally strong lobby that says nothing has changed in the real
sense of the term.

 One of the main factors that is prompting independent directors to sit up and take
active interest is the fear of punitive action, like the one that Satyam’s independent
directors faced after promoter Ramalinga Raju owned up to his fraud. There has
certainly been a bit of a change in the last few months in the way boards are
functioning.

 Audit committees are being more careful to ensure that the external auditors perform
their role more diligently. We also find that the chairman of the board and members of
the audit committee are being more careful and thorough in their questioning. Boards,
too, are taking care to ensure that there are no slip-ups at their end..

Mahindra Satyam….
 Mahindra Satyam has tried immensely hard not to go down the same road that Satyam
went. The company does not have a fixed vision and mission statement, but they do
have a set of well formulated rules and regulations covering almost every aspect
including fraud. We see that Mahindra Satyam is definitely one company which has
learnt from the Satyam Scandal.

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 Bibliography
 www.wikipedia.com

 www.reportjunction.com

 www.mahindrasatyam.com

 www.scribd.com

 www.wikinewforum.com

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