Satyam Fiasco2

Corporate
Governance
Presented by:-
1. Gaurav Jain
2. Jayesh mukhraya
3. Ashish patil
4. Tajender singh
5. Navneet
6. Tarunum naaz
Satyam Fiasco
Corporate Governance
Corporate governance is characterized by a firm commitment and

adoption of ethical practices by an organization across its entire value
chain and in all of its dealings with a wide group of stakeholders
encompassing employees, customers, vendors, regulators and
shareholders (including the minority shareholders), in both good and
bad times. To achieve this, certain checks and practices need to be
whole-heartedly embraced.
Raju`s letter to board members
Satyam- Maytas
Maytas Infra, a 23-year old company, is engaged in the business of infrastructure construction
and asset development encompassing core areas of India's economic growth viz., highways,
metro/railways, ports, transport management systems, airports, power, oil & gas, irrigation,
water treatment, etc. The company's track record of delivering excellence has created a niche for
itself with innovative business models capturing a strategic and significant share of the action in
the infrastructure space.
Dec: 16
 The board of directors of Satyam Computer Services has approved proposals to acquire 100%
stake in Maytas Properties and 51% In Maytas Infra.
The total outflow for both the acquisitions is expected to be US$ 1.6 billion comprising of US$
1.3 billion for the 100% stake In Maytas Properties and US$ 0.3 billion for the 51% stake in
Maytas Infra.
Why Mr. Raju want to Buy Maytas
• Raju wanted to acquire Maytas in order to cover up the scam he was

cooking, raju had inflated the figures of accounts and had put bogus
sales and other incomes to show the high margin profits of company.
• Raju was trying to keep Satyam stock value high so that he can pledge
as well as sell Satyam’s shares for higher price & Invest the same
money for creating the assets.
Inflated figures
• Marginal gap between actual operating profit and the one reflected in the
books continued to grow over the years. It had attained unmanageable
proportions as the size of the company’s operations grew over the years.
• Inflated cash & bank balances of Rs.5040 crore (As against Rs.5361
crore reflected in the books).
• An accrued interest of Rs.376 crore which is non-existent.
• Under stated liability of Rs.1230 crore on account of Funds arranged by

Mr. Raju.
• Over stated debtors position of Rs. 490 crore.
Inflated figures
• In Q2 of 2008 Satyam reported a revenue of Rs.2700 crore and a Operating
Margin of Rs. 649 Crore (24% of the revenues) as against the actual revenues of
Rs. 2112 crore and actual profit margin of Rs.61 crore (3% of revenues). This has
resulted artificial cash and bank balance of Rs. 588 crore in Q2 alone.
• The investigating agency during the probe found that the accused relied heavily on
technology to generate nearly 7,000 fake invoices to the tune of Rs 4,500 crore.
• The gap in balance sheet has arisen purely on account of inflated profits over a
period of last several years.
• Actual number of employees were only 40,000 and not 53,000 Mr. Raju was
allegedly withdrawing INR 20 crores every month paying these non-existent
employees.
Sr. No. Inflated Figures Effect in Balance Sheet
1. Inflated (non-existent) Cash and The cash will be reduced by

bank balances of Rs. 5040 Rs.5040 crore and the second
Crore. effect would be reduction from
reserve.
2. An accrued interest of Rs.376 Accrued interest will be reduced

crore, which is non-existent. by Rs. 376 crore and the second
effect would be reduction from
reserve.
Sr. No.
3. An understated liability of Rs. The liability will increase and the

1230 crore on account of the second effect would be
funds arranged by Raju. reduction from reserve.
4. An overstated debtors position Debtors will be reduced by

of Rs.490 crore. Rs.490 crores and the second
effect would be reduction from
reserve.
ITMXMBA09 13
Directors role in company
• The independent directors are expected to function on behalf of the

shareholders and investors to protect their interests. Their duties fall
under two broad categories: the duty of loyalty to the shareholders
and the duty of taking utmost care in approving any proposals of the
management of a firm.
• Independent directors are appointed to company boards to ensure
fair play in company affairs as they do not have vested interest in
the company.
• In satyam board It raises several doubts over the role of the Board
of Directors and the integrity of independent directors.
Spotlight on directors role in Satyam fraud
• The role of independent directors is now under close scrutiny.

This has happened due to one of the less reported nexus
between the Indian promoters, senior bureaucrats especially
those from IAS, and senior bankers especially those from large
PSUs. Retired civil servants are used as glorified liaison officers.
• Independent directors of Satyam Computers, who agreed to the

company's proposal of buying out two promoter-related
companies, failed to be independent in 'spirit',
• Independent directors need to be vigilant in protecting minority

interest and be `brave' enough to take adequate steps. "It is
cumulative responsibility of the independent directors to protect
the interest of shareholders and strategy of the organisation.
Satyam – Corporate non- Governance
• India did need a blow-out on a scale like Satyam to bring home the painful reality of the
generally rotten state of corporate governance and the vicious promoter-politician nexus
endemic across different sectors of the economy.
• It would be naive to believe in the comments by select industry leaders and select politicians
that the Satyam case is one-off and that the entire Indian IT sector (or for that matter, the
entire Indian business fraternity) cannot be tarred by the same paintbrush.
• Satyam most certainly is not a only one-off high profile situation that India has been forced to
face. It is not the first one in the last 25 years, and will certainly not be the last of the high
profile ones in the next few years.
• To start with, we must accept that Satyam is our problem and we are expected to find the
solution ourselves.
• It may be easy to blame Price Waterhouse, that they did not perform their duties as auditors
correctly. We must accept that there would be many very large audit firms, who may also be
routinely turning a blind eye to the shenanigans of various promoters.
• We hope, that now, & perhaps finally, the regulatory systems and bodies responsible for
ensuring compliance will start to function as they should have done before the Satyam
blowout.
suggestions
• More vigilant directors
• Auditors rotation
• Use of investigative audit techniques & forensic audits
• Stricter norms for independent directors
• Audit conduction in accordance with the Auditing and
Assurance Standards (AAS)
• Identifying and assessing the risk of material misstatement in
financial statements & contacting major customers/suppliers
• Black listing of Chartered Accountants by ICAI for indulging in
fraudulent accounting practices.
Thank you

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Corporate

Corporate governance is characterized by a firm commitment and

• Raju wanted to acquire Maytas in order to cover up the scam he was

• Under stated liability of Rs.1230 crore on account of Funds arranged by

1. Inflated (non-existent) Cash and The cash will be reduced by

2. An accrued interest of Rs.376 Accrued interest will be reduced

3. An understated liability of Rs. The liability will increase and the

4. An overstated debtors position Debtors will be reduced by

• The independent directors are expected to function on behalf of the

• The role of independent directors is now under close scrutiny.

• Independent directors of Satyam Computers, who agreed to the

• Independent directors need to be vigilant in protecting minority

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