Shri Chinai College of Commerce and Economics

Satyam Scandal
CHAPTER 1: INTRODUCTION
1.1
1.2
1.3
1.4
1.5
INTRODUCTION TO SCAM
INTRODUCTION TO SATYAM SCAM
HYPOTHESIS
ABSTRACT
HISTORY OF SATYAM COMAPANY
Satyam Scandal
CHAPTER 1: INTRODUCTION
1.1
INTRODUCTION TO SCAM
There are many kinds of scam on internet. This is somewhat subjective. But for the
purpose of the work, well define it as obtaining money by means of deception including
fake personalities, fake photos, fake template letters, non-existent addresses and phone
members, forged documents. Specifically we are concerned about those people (men and
women) who make this their practice, who are in the business of scamming men.
Professional scammers are young hackers and programmers who hire girls just to get
Western Union transfers through them.
There are many other types of deception that wont qualify a woman to be accused as a
scammer. Unfortunately people lie to each other, women are just as often the victim of
this as men. For example you if you find out that a woman youre writing to has a
boyfriend she didnt tell you about in her own country, or is corresponding secretly with
someone else- she will not be added to our blacklist. Everybody has the right for his/her
own private life.
1.2 INTRODUCTION TO SATYAM SCAM
Satyam Scandal
SATYAM means truth in Sanskrit. On January 7, 2009 in a letter addressed to the
existing Board of Directors of the Satyam Computer Services Ltd. and copied to the
Chairman of SEBI and Stock Exchanges, Raju admitted that the Companys Balance Sheet
as at September 30, 2008 carried inflated cash and bank balances, nonexistent accrued
interest, an understated liability and overstated debtors position. The companys founder
and chairman, B. Ramalinga Raju, confessed to a $1.47 billion fraud on its balance sheet,
which he and his brother, Satyams managing director, had disguised from the companys
board, senior managers and auditors for several years. It was like riding a tiger, not
knowing how to get off without being eaten, Mr Raju wrote.
The scam at Satyam Computer Services, the fourth largest company in Indias much
showcased and fiscally pampered information technology (IT) industry, has had an
unusual trajectory. It began with a successful effort on the part of investors to thwart an
attempt by the minority-shareholding promoters to use the firms 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 companys stock and a
shocking confession of financial manipulation and fraud from its chairman, B.
Ramalinga Raju.
The Satyam scam is also referred to as 'India's Enron' for its similarities to the scandal at
the US energy giant.
1.3 HYPOTHESIS
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Satyam Scandal
According to my assumption I thought 70-80% of the people must be aware about the
Satyam scam but by conducting survey I found that more than 95% of the people were
aware about the Satyam Scam
According to me I thought that 60-70% of the people would know what is the scam
about but through the survey I found that 80% were knowing that what is cam about.
According to my assumption I thought that majority of the masses would be aware about
the person behind the scam and according to the survey my assumption was right.
As I have assume that majority of the people would be agreed on the statement that
Inflation was one of the reason behind the scam. But through the survey I found out
that 90% of the people agreed with this statement and 10% of the people dissgreed.
According to me I thought that 80% of the people would say that it would be right
decision MAHINDRA IT CO. to acquire the Satyam Company but according to survey
90% of the people think it was a right decision and 10% have the opinion that it was a
wrong decision.
1.4 ABSTRACT
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Satyam Scandal
Ramalinga Raju and his brother Rama Raju, accused of committing a Rs40 billion
fraud that threaten to shake the very foundation of Satyam Computers, are in jail. The
three-member director board constituted by the Government has got down to brass
tacks. The Government has further offered financial support to bail out the beleaguered
Satyam. The 50,000 odd employees of Satyam find themselves at sea, with some IT
majors deciding against hiring displaced Satyam staff. There are fears over the adverse
fallouts of the Satyam fraud on the international reputation of the exports-driven Indian
IT industry. The picture is getting curiouser and curiouser by the day.
1.5 HISTORY OF SATYAM COMPANY
Satyam Scandal
What is the History of Satyam?
Satyam Computer Services Limited is a leading global consulting and IT services company
spanning 55 countries. It was established by Mr. B. RamalingaRaju and B. Rama Raju on
24 June 1987.
In 1991 it was recognized as a public limited company and got its first Fortune 500 client,
Deere and Co. The 90s were a time of growth for the company. It started Satyam
Renaissance , Satyam Infoway, Satyam Spark Solutions and Satyam Enterprise
Solutionsand Infoway became the first Indian internet company to be listed on the
NASDAQ.
The new milliennium saw Satyam acquire lot of businesses and expand. Satyam became
the first company in the world to start a program called Customer - Oriented Global
Organization training in the year 2000 in May. The company signed contracts with various
international players like Microsoft, Emirates, TRW, i2 Technologies and Ford. On the
way the company had various achievements like becoming the first ISO 9001:2001
company in the world, certified by BVQI, winning the Frost & Sullivan Award for
Competitive Strategy in ASP in 2001etc.
In 2001 Satyam opened offices in Singapore, Dubai and Sydney. Throughout the starting
years of the new century Satyam expanded its business to many countries and signed with
many companies.
In 2005 it acquired a 100% stake in Singapore based Knowledge Dynamic and 75% stake in
London based Citisoft Pic. Satyam is a company on the fast track to success and his
acquired itself a name for consulting in the area of strategy right through to implementing
IT solutions for customers Anonymous.
Satyam Scandal
History of Satyam Computer Services Ltd.

1986 - Created as a joint venture of Mahindra & Mahindra and British
Telecommunications (later BT Group).
1993 - Incorporation of MBT International Inc., the first overseas subsidiary
1994 - Awarded ISO 9001 certification by BVQI
1995 - Established UK branch office
2001 - Incorporated MBT GmbH, Germany incorporated. Re-certified to ISO 9001:1994
by BVQI
2002 - Assessed at Level 2 of SEI CMM by KPMG. Incorporated MBT Software
Technologies Pte. Limited, Singapore
2005 - Merged MBT with Axes Technologies (India) Private Limited,including its US
and Singapore subsidiaries.Assessed at Level 3 of SEI CMMI by KPMG
2006 - Name changed to Tech Mahindra Limited. Assessed at Level 4 of SEI PeopleCMM (P-CMM) by QAI India. Raised Rs46.5 million ($1 million) from an IPO to build
a new facility in Pune, to house about 9,000 staff. Formed a JV with Motorola Inc. under
the name CanvasM.
2007 - Acquired iPolicy Networks Private Limited. Launched the Tech M Foundation to
help underprivileged people. Assessed at Level 5 of SEI CMMI by KPMG
2009 - Tech M wins bid for fraud-hit Satyam Computer Services at Rs 58.90 per share
outdoing Larsen & Toubro, which bid at Rs 45.90. Rebrands the company to Mahindra
Satyam.
2012 - Acquires Hutchison Global Services for $87.1 million
2012 - Buys 51% stake in Comviva
2012 - Tech Mahindra acquires vCustomer BPO for $27 million
2013 - Tech Mahindra acquires Sweden-based Type Approval Lab. The lab was part of
Sony Mobile Communication's internal test function and after acquisition it became the
first European test lab of Tech Mahindra.
2013 - On June 25, Tech Mahindra and Mahindra Satyam merging process completed
and the name of the parent company was retained for the merged entity
2014 - Tech Mahindra acquires Lightbridge Communications Corporation (LCC), the
largest independent telecom services company in the world with local presence in over
50 countries
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Satyam Scandal
2015 - Tech Mahindra acquires SOFGEN Holdings, a 450-employee Swiss IT firm
serving the financial services industry.
2015 - Tech Mahindra purchases a controlling stake in Pininfarina S.p.A., an Italian
brand in automotive and industrial design
2015 - Tech Mahindra announces the launch of its Automation Framework AQT
(Automation, Quality, Time.
Satyam Scandal
CHAPTER 2: RESEARCH METHODLOGY
SATYAM COMPANY PROFILE

SATYAM COMUTER SERVICES LIMITED COMPANY
PROFILE
CHAPTER 2: RESEARCH METHODOLOGY

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Satyam Scandal
SATYAM COMPANY PROFILE
Satyam, a SEI-CMM level 5 company, offers a range of expertise in the areas of
Information Technology Software Development Services, System Investigation, ERP
Solutions, Product Development, Internet access & hosting services, Electric Commerce
and Consulting . Satyam has nearly 6,000 IT Professionals, who operate out of its stateof-the-art software development centers located in India, the USA, Japan, Singapore, and
the UK. These Centers work as an extended enterprise (IT Partner) for over 150 and
multinational, totally intAegrated IT solutions provider is engaged in application
development and maintenwance, systems integration, datamarts, conversion and migration
Euro currency and Engineering services.
Satyam Computer Services Limited Company Profile
Satyam Computer Services has turned over a new leaf. Operating as Mahindra
Satyam, the company provides onsite, offsite, and offshore IT services. It offers a wide
range of information technology services, including software development, managed IT
services, engineering design, data warehouse development, and system integration. Satyam
provides its services to customers worldwide, but most of the companys sales come from
clients in North America and Europe. Satyams customers include General Electric and the
US government. Tech Mahindra holds a controlling stake in Satyam.
First IT Company in the World Certified under ISO9001: 2000
Ranked Among Indias Top Best Employees, 2004 and 2003
Top 10 Best- Managed Companies in India.
Corporate Citizen award for Corporate Social Responsibility.
SAP Pinnacle Award 2008
United Kingdom Trade and Investment India Business Award
Mr RAJU RAMALIGAM
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Satyam Scandal
Chairman and founder of Satyam computer services Ltd.

MBA from Ohio university
IT man of the year awarded by Data quest in 2002.
Winner of the Earnest & young entrepreneur of the year awarded on 2007.
Clients of Satyam Company
MEMBERS OF SATYAM COMPANY
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Satyam Scandal
Vineet Nayyar
Mr. Vineet Nayyar is the Vice Chairman of Mahindra Satyam and he is also
the Vice Chairman of Tech Mahindra.
C. Achuthan
He was appointed to the Board as Independent Director.

T.N. Manoharan
A Member of ICIA with 26 years of standing.

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Satyam Scandal
C.P. Gurani
Gurani is the CEO of Mahindra Satyam

Uthas N. Yargop
He is Chairman of Securities
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Satyam Scandal
CHAPTER 3: OBJECTIVES OF STUDY
CHAPTER 3: OBJECTIVE OF STUDY

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Satyam Scandal
Objectives tell us why project has been taken under study. It helps us to know more
about the topic that is being undertaken and helps us to explore future prospects of that
organization. Basically it tells us what all have been studied while making the project.
OBJECTIVE OF STUDY:
To study the history of Satyam
To analyse why Satyam was not caught earlier
To know the reasons of why Raju indulged himself in fraud
How to prevent such scam
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Satyam Scandal
CHAPTER 4: Corporate Accounting Scandal at Satyam

Computer Services Limited
4.1. Emergence of Satyam Computer Services Limited

4.2. Mr. Ramalinga Raju and the Satyam Scandal
4.3. The Auditors Role and Factors Contributing to
Fraud
4.4. Aftermath of Satyam Scandal
4.5. Investigation: Criminal and Civil Charges
4.6. Corporate Governance Issues at Satyam
4.7. Lessons Learned from Satyam Scam
CHAPTER 4
Corporate Accounting Scandal at Satyam Computer
Services Limited
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Satyam Scandal
Ironically, Satyam means truth in the ancient Indian language Sanskrit [24]. Satyam
won the Golden Pea- cock Award for the best governed company in 2007 and in 2009.
From being Indias IT crown jewel and the countrys fourth largest company with highprofile customers, the outsourcing firm Satyam Computers has become embroiled in the
nations biggest corporate scam in living memory [25]. Mr. Ramalinga Raju (Chairman and
Founder of Satyam; henceforth called Raju), who has been arrested and has confessed to
a $1.47 billion (or Rs. 7800 crore) fraud, admitted that he had made up profits for years.
According to reports, Raju and his brother, B. Rama Raju, who was the Managing Director,
hid the deception from the companys board, senior managers, and auditors. The case of
Satyams accounting fraud has been dubbed as Indias Enron. In order to evaluate and
understand the severity of Satyams fraud, it is important to understand factors that
contributed to the unethical decisions made by the companys executives. First, it is
necessary to detail the rise of Satyam as a competitor within the global IT services marketplace. Second, it is helpful to evaluate the driving-forces behind Satyams decisions:
Ramalinga Raju. Finally, attempt to learn some lessons from Satyam fraud for the future.
4.1. Emergence of Satyam Computer Services Limited

Satyam Computer Services Limited was a rising-star in the Indian outsourced ITservices industry. The company was formed in 1987 in Hyderabad (India) by Mr.
Ramalinga Raju. The firm began with 20 employees and grew rapidly as a global
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Satyam Scandal
business. It offered IT and business process outsourcing services spanning various sectors.
Satyam was as an example of Indias growing success. Satyam won numerous awards for
innovation, governance, and corporate accountability. In 2007, Ernst & Young awarded
Mr. Raju with the Entrepreneur of the Year award. On April 14, 2008, Satyam won awards
from MZ Consults for being a leader in India in CG and accountability. In September
2008, the World Council for Corporate Governance awarded Satyam with the Global
Peacock Award for global excellence in corporate accountability [26]. Unfortunately,
less than five months after winning the Global Peacock Award, Satyam became the
centerpiece of a massive accounting fraud.
By 2003, Satyams IT services businesses included 13,120 technical associates servicing
over 300 customers worldwide. At that time, the world-wide IT services market was
estimated at nearly $400 billion, with an estimated annual compound growth rate of 6.4%.
The markets major drivers at that point in time were the increased importance of IT
services to businesses worldwide; the impact of the Internet on eBusiness; the emergence
of a highquality IT services industry in India and their methodologies; and, the growing
need of IT services providers who could provide a range of services. To effectively
compete, both against domestic and global competitors, the company embarked on a variety
of multipronged business growth strategies.
From 2003-2008, in nearly all financial metrics of interest to investors, the company grew
measurably. Sat- yam generated USD $467 million in total sales. By March 2008, the
company had grown to USD $2.1 billion. The company demonstrated an annual
compound growth rate of 35% over that period. Operating profits averaged 21%. Earnings
per share similarly grew, from $0.12 to $0.62, at a compound annual growth rate of 40%.
Over the same period (20032009), the company was trading at an average trailing EBITDA
multiple of 15.36. Finally, beginning in January 2003, at a share price of 138.08 INR,
Satyams stock would peak at 526.25 INRa 300% improvement in share price after nearly
five years. Satyam clearly generated significant corporate growth and shareholder value.
The company was a leading starand a recognizable namein a global IT marketplace.
The external environment in which Satyam operated was indeed beneficial to the
companys growth. But, the numbers did not represent the full picture. The case of Satyam
accounting fraud has been dubbed as Indias Enron.
4.2. Mr. Ramalinga Raju and the Satyam Scandal

18
Satyam Scandal
On January 7, 2009, Mr. Raju disclosed in a letter (see Annexure) to Satyam Computers
Limited Board of Di- rectors that he had been manipulating the companys accounting
numbers for years. Mr. Raju claimed that he overstated assets on Satyams balance sheet
by $1.47 billion. Nearly $1.04 billion in bank loans and cash that the company claimed to
own was non-existent. Satyam also underreported liabilities on its balance sheet. Satyam
overstated income nearly every quarter over the course of several years in order to meet
analyst expectations. For example, the results announced on October 17, 2009 overstated
quarterly revenues by 75 percent and profits by 97 percent. Mr. Raju and the companys
global head of internal audit used a number of different techniques to perpetrate the fraud.
Using his personal computer, Mr. Raju created numerous bank statements to advance the
fraud. Mr. Raju falsified the/,,,ygdrr bank accounts to inflate the balance sheet with balances
that did not exist. He inflated the income statement by claiming interest income from the
fake bank accounts. Mr. Raju also revealed that he created 6000 fake salary accounts over
the past few years and appropriated the money after the company deposited it. The
companys global head of internal audit created fake customer identities and generated fake
invoices against their names to inflate revenue. The global head of internal audit also forged
board resolutions and illegally obtained loans for the company [27]. It also appeared that
the cash that the company raised through American Depository Receipts in the United
States never made it to the balance sheets.
Greed for money, power, competition, success and prestige compelled Mr. Raju to ride the
tiger, which led to violation of all duties imposed on them as fiduciar- iesthe duty of
care, the duty of negligence, the duty of loyalty, the duty of disclosure towards the
stakeholders. The Satyam scandal is a classic case of negligence of fiduciary duties, total
collapse of ethical standards, and a lack of corporate social responsibility. It is human greed
and desire that led to fraud. This type of behavior can be traced to: greed overshadowing the
responsibility to meet fiduciary duties; fierce competition and the need to impress
stakeholders especially investors, analysts, shareholders, and the stock market; low ethical
and moral standards by top management; and, greater emphasis on shortterm performance
. According to CBI, the In- dian crime investigation agency, the fraud activity dates back
from April 1999, when the company embarked on a road to double-digit annual growth. As
of December 2008, Satyam had a total market capitalization of $3.2 billion dollars.
Satyam planned to acquire a 51% stake in Maytas In- frastructure Limited, a leading
infrastructure development, construction and project management company, for $300
million. Here, the Rajuss had a 37% stake. The total turnover was $350 million and a net
profit of $20 million. Rajus also had a 35% share in Maytas Proper- ties, another real-estate
investment firm. Satyam revenues exceeded $1 billion in 2006. In April, 2008 Satyam
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Satyam Scandal
became the first Indian company to publish IFRS audited financials. On December 16,
2008, the Satyam board, including its five independent directors had approved the founders
proposal to buy the stake in Maytas Infrastruc- ture and all of Maytas Properties, which
were owned by family members of Satyams Chairman, Ramalinga Raju, as fully owned
subsidiary for $1.6 billion. Without shareholder approval, the directors went ahead with the
managements decision. The decision of acquisition was, however, reversed twelve hours
after investors sold Sat- yams stock and threatened action against the management. This
was followed by the law-suits filed in the US contesting Maytas deal. The World Bank
banned Satyam from conducting business for 8 years due to inappropriate payments to
staff and inability to provide information sought on invoices. Four independent directors
quit the Satyam board and SEBI ordered promoters to disclose pledged shares to stock
exchange.
Investment bank DSP Merrill Lynch, which was appointed by Satyam to look for a partner
or buyer for the company, ultimately blew the whistle and terminated its engagement with
the company soon after it found financial irregularities [29]. On 7 January 2009, Saytams
Chairman, Ramalinga Raju, resigned after notifying board members and the Securities and
Exchange Board of India (SEBI) that Satyams accounts had been falsified. Raju confessed
that Satyams balance sheet of September 30, 2008, contained the following irregularies:
He faked figures to the extent of Rs. 5040 crore of non-existent cash and bank balances as
against Rs. 5361 crore in the books, accrued interest of Rs. 376 crore (non-existent),
understated liability of Rs. 1230 crore on account of funds raised by Raju, and an overstated
debtors position of Rs. 490 crore. He accepted that Satyam had reported revenue of Rs.
2700 crore and an operating margin of Rs. 649 crore, while the actual revenue was Rs. 2112
crore and the margin was Rs. 61 crore. In other words, Raju: 1) inflated figures for cash
and bank balances of US $1.04 billion vs. US $1.1 billion reflected in the books; 2) an
accrued interest of US $77.46 million which was non- existent; 3) an understated liability of
US $253.38 million on account of funds was arranged by himself; and 4) an overstated
debtors' position of US $100.94 million vs. US $546.11 million in the books.
Raju claimed in the same letter that neither he nor the managing director had benefited
financially from the inflated revenues, and none of the board members had any knowledge
of the situation in which the company was placed. The fraud took place to divert company
funds into real-estate investment, keep high earnings per share, raise executive
compensation, and make huge profits by selling stake at inflated price. The gap in the
balance sheet had arisen purely on account of inflated profits over a period that lasted
several years starting in April 1999. What accounted as a marginal gap between actual
operating profit and the one reflected in the books of accounts continued to grow over the
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Satyam Scandal
years. This gap reached unmanageable proportions as company operations grew
significantly, Ragu explained in his letter to the board and shareholders. He went on to
explain, Every attempt to eliminate the gap failed, and the aborted Maytas acquisition deal
was the last attempt to fill the fictitious assets with real ones. But the investors thought it
was a brazen attempt to siphon cash out of Satyam, in which the Raju family held a small
stake, into firms the family held tightly.Table 1 depicts some parts of the Satyams
fabricated Balance Sheet and Income Statement and shows the difference between
actual and reported finances.
Fortunately, the Satyam deal with Matyas was sal- vageable. It could have been saved
only if the deal had been allowed to go through, as Satyam would have been able to use
Maytas assets to shore up its own books. Raju, who showed artificial cash on his books,
had planned to use this non-existent cash to acquire the two Maytas companies. As part of
their tunneling strategy, the Satyam promoters had substantially reduced their holdings in
company from 25.6% in March 2001 to 8.74% in March 2008. Furthermore, as the
promoters held a very small percentage of equity (mere 2.18%) on December 2008, as
shown in Table 2, the concern was that poor performance would result in a takeover bid,
thereby exposing the gap. It was like riding a tiger, not knowing how to get off without
being eaten. The aborted Maytas acquisition deal was the final, desperate effort to cover up
the accounting fraud by bringing some real assets into the business. When that failed, Raju
confessed the fraud. Given the stake the Rajus held in Mat- yas, pursuing the deal would
not have been terribly dif- ficult from the perspective of the Raju family. Unlike Enron,
which sank due to agency problem, Satyam was brought to its knee due to tunneling. The
company with a huge cash pile, with promoters still controlling it with a small per cent of
shares (less than 3%), and trying to absorb a real-estate company in which they have a
majority stake is a deadly combination pointing prima facie to tunneling [30]. The reason
why Ramalinga Raju claims that he did it was because every year he was fudging revenue
figures and since expenditure figures could not be fudged so easily, the gap between
actual profit and book profit got widened every year. In order to close this gap, he had
to buy Maytas Infrastructure and Maytas Properties. In this way, fictitious profits could
be ab- sorbed through a self-dealing process. The auditors, bankers, and SEBI, the market
watchdog, were all blamed for their role in the accounting fraud.
Table 1. Fabricated balance sheet and income statement of Satyam: as of September
30, 2008.
Items Rs. in crore
Act
Rep
Diff
ual
orte
ere
d
nce
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Satyam Scandal
Cash and Bank
Balances
Accrued Interest on Bank Fixed Deposits
321
Understated Liability
123
0
216
1
Nil
536
1
376.
5
Non
e
265
1
Nil
211
2
61
270
0
649
Overstated Debtors
Total
Revenues (Q2 FY 2009)
Operating Profits
Nil
504
0
376
123
0
490
713
6
588
588
Table 2. Promoters shareholding pattern in Satyam from 2001 to 2008.

As on
Promoters holding
in %
March 2001
25.6
2002
22.26
4.3. The
2003
20.74
Auditors
2004
17.35
Role and
2005
15.67
Factors
2006
14.02
2007
8.79
2008
8.74
Dec. 2008
2.18
Contributing to Fraud
Global auditing firm, PricewaterhouseCoopers (PwC), audited Satyams books from June
2000 until the discov- ery of the fraud in 2009. Several commentators criticized PwC
harshly for failing to detect the fraud. Indeed, PwC signed Satyams financial statements
and was responsible for the numbers under the Indian law. One particularly troubling item
concerned the $1.04 billion that Satyam claimed to have on its balance sheet in non22
Satyam Scandal
interest- bearing deposits. According to accounting professionals, any reasonable
company would have either invested the money into an interest-bearing account, or returned
the excess cash to the shareholders. The large amount of cash thus should have been a redflag for the auditors that further verification and testing was necessary. Further- more, it
appears that the auditors did not independently verify with the banks in which Satyam
claimed to have deposits.
Additionally, the Satyam fraud went on for a number of years and involved both the
manipulation of balance sheets and income statements. Whenever Satyam needed more
income to meet analyst estimates, it simply created fictitious sources and it did so
numerous times, without the auditors ever discovering the fraud. Suspiciously, Satyam also
paid PwC twice what other firms would charge for the audit, which raises questions about
whether PwC was complicit in the fraud. Furthermore, PwC audited the company for
nearly 9 years and did not uncover the fraud, whereas Merrill Lynch discovered the fraud as
part of its due diligence in merely 10 days. Missing these red-flags implied either that the
auditors were grossly inept or in collusion with the company in committing the fraud. PWC
initially asserted that it performed all of the companys audits in accordance with applicable
auditing standards.
Numerous factored contributed to the Satyam fraud. The independent board members of
Satyam, the institutional investor community, the SEBI, retail investors, and the external
auditornone of them, including professional investors with detailed information and
models available to them, detected the malfeasance. The following is a list of factors that
contributed to the fraud: greed, ambitious corporate growth, deceptive reporting practices
lack of transparency, excessive interest in main- taining stock prices, executive
incentives, stock market expectations, nature of accounting rules, ESOPs issued to those
who prepared fake bills, high risk deals that went sour, audit failures (internal and external),
aggressiveness of investment and commercial banks, rating agencies and investors, weak
independent directors and audit committee, and whistle-blower policy not being effective.
4.4. Aftermath of Satyam Scandal

Immediately following the news of the fraud, Merrill Lynch terminated its engagement with
Satyam, Credit Suisse suspended its coverage of Satyam, and Pricewa- terhouseCoopers
(PwC) came under intense scrutiny and its license to operate was revoked. Coveted awards
won by Satyam and its executive management were stripped from the company. Satyams
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Satyam Scandal
shares fell to 11.50 rupees on January 10, 2009, their lowest level since March 1998,
compared to a high of 544 rupees in 2008. In the New York Stock Exchange, Satyam shares
peaked in 2008 at US $ 29.10; by March 2009 they were trading around US $1.80. Thus,
investors lost $2.82 billion in Satyam. Un- fortunately, Satyam significantly inflated its
earnings and assets for years and rolling down Indian stock markets and throwing the
industry into turmoil [31]. Criminal charges were brought against Mr. Raju, including:
criminal conspiracy, breach of trust, and forgery. After the Satyam fiasco and the role
played by PwC, investors became wary of those companies who are clients of PwC, which
resulted in fall in share prices of around 100 companies varying between 5% - 15%. The
news of the scandal (quickly compared with the collapse of Enron) sent jitters through the
Indian stock market, and the benchmark Sensex index fell more than 5%. Shares in Satyam
fell more than 70%. The chart titled as Fall from grace, shown in Exhibit 1 depicts the
Satyams stock decline between December 2008 and January 2009.
Immediately after Rajus revelation about the accounting fraud, new board members
were appointed and they started working towards a solution that would prevent the total
collapse of the firm. Indian officials acted quickly to try to save Satyam from the same fate
that met Enron and WorldCom, when they experienced large accounting scandals. The
Indian government immediately started an investigation, while at the same time limiting
its direct participation, with Satyam because it did not want to appear like it was responsible
for the fraud, or attempting to cover up the fraud. The government appointed a new
board of directors for Satyam to try to save the company. The Boards goal was to sell the
company within 100 days. To devise a plan of sale, the board met with bankers,
accountants, lawyers, and government officials immediately. It worked diligently to bring
stability and confidence back to the company to ensure the sale of the company within the
100-day time frame. To accomplish the sale, the board hired Goldman Sachs and Avendus
Capital and charged them with selling the company in the shortest time possible.
By mid-March, several major players in the IT field had gained enough confidence in
Satyams operations to participate in an auction process for Satyam. The Securities and
Exchange Board of India (SEBI) appointed a retired Supreme Court Justice, Justice
Bharucha, to oversee the process and instill confidence in the transaction. Several
companies bid on Satyam on April 13, 2009. The winning bidder, Tech Mahindra, bought
Satyam for $1.13 per shareless than a third of its stock market value before Mr. Raju
revealed the fraudand salvaged its operations [32]. Both Tech Mahindra and the SEBI are
now fully aware of the full extent of the fraud and India will not pursue further
24
Satyam Scandal
investigations. The stock has again stabi- lized from its fall on November 26, 2009 and, as
part of Tech Mahindra, Saytam is once again on its way toward a bright future.
Exhibit 1. Stock Charting of Satyam from December 2008 to January 2009.
4.5. Investigation: Criminal and Civil Charges

The investigation that followed the revelation of the fraud has led to charges against several
different groups of people involved with Satyam. Indian authorities arrested Mr. Raju, Mr.
Rajus brother, B. Ramu Raju, its former managing director, Srinivas Vdlamani, the
companys head of internal audit, and its CFO on criminal charges of fraud. Indian
authorities also arrested and charged several of the companys auditors (PwC) with fraud.
The Institute of Chartered Accountants of India [33] ruled that the CFO and the auditor
were guilty of professional miscon- duct. The CBI is also in the course of investigating the
CEOs overseas assets. There were also several civil charges filed in the US against Satyam
by the holders of its ADRs. The investigation also implicated several Indian politicians.
Both civil and criminal litigation cases continue in India and civil litigation continues in
the United States. Some of the main victims were: employees, clients, shareholders, bankers
and Indian government.
In the aftermath of Satyam, Indias markets recovered and Satyam now lives on. Indias
stock market is currently trading near record highs, as it appears that a global economic
recovery is taking place. Civil litigation and criminal charges continue against Satyam. Tech
Mahindra purchased 51% of Satyam on April 16, 2009, successfully saving the firm from a
complete collapse. With the right changes, India can minimize the rate and size of accounting fraud in the Indian capital markets.
25
Satyam Scandal
4.6. Corporate Governance Issues at Satyam
On a quarterly basis, Satyam earnings grew. Mr. Raju admitted that the fraud which he
committed amounted to nearly $276 million. In the process, Satyam grossly vio- lated all
rules of corporate governance [34]. The Satyam scam had been the example for following
poor CG practices. It had failed to show good relation with the shareholders and
employees. CG issue at Satyam arose because of non-fulfillment of obligation of the
company towards the various stakeholders. Of specific interest are the following:
distinguishing the roles of board and management; separation of the roles of the CEO and
chairman; appointment to the board; directors and executive compensation; protection of
shareholders rights and their executives.
4.7. Lessons Learned from Satyam Scam

The 2009 Satyam scandal in India highlighted the ne- farious potential of an improperly
governed corporate leader. As the fallout continues, and the effects were felt throughout the
global economy, the prevailing hope is that some good can come from the scandal in terms
of lessons learned [35]. Here are some lessons learned from the Satyam Scandal:
1
Investigate All Inaccuracies:

The fraud scheme at Satyam started very small, eventually growing into $276
million white-elephant in the room. Indeed, a lot of fraud schemes initially start out small,
with the perpetrator thinking that small changes here and there would not make a big
difference, and is less likely to be detected. This sends a message to a lot of companies: if
your accounts are not balancing, or if something seems inaccurate (even just a tiny bit), it is
worth investigating. Dividing responsibilities across a team of people makes it easier to
detect irregularities or misappropriated funds.
Ruined Reputations:
Fraud does not just look bad on a company; it looks bad on the whole
industry and a country. Indias biggest corporate scandal in memory threatens future
foreign investment flows into Asias third largest economy and casts a cloud over growth in
26
Satyam Scandal
its once-booming outsourcing sector. The news sent Indian equity markets into a tail-spin,
with Bombays main benchmark index tumbling 7.3% and the Indian rupee fell. Now,
because of the Satyam scandal, Indian rivals will come under greater scrutiny by the
regulators, investors and customers.
Corporate Governance Needs to Be Stronger:

The Satyam case is just another example supporting the need for stronger
CG. All public-companies must be careful when selecting executives and top-level
managers. These are the people who set the tone for the company: if there is corruption at
the top, it is bound to trickle-down. Also, separate the role of CEO and Chairman of the
Board. Splitting up the roles, thus, helps avoid situations like the one at Satyam.
The Satyam Computer Services scandal brought to light the importance of ethics and its
relevance to corporate culture. The fraud committed by the founders of Satyam is a
testament to the fact that the science of conduct is swayed in large by human greed,
ambition, and hunger for power, money, fame and glory.
CHAPTER 5: AFTER SATYAM SCANADAL
27
Satyam Scandal
5.1 IMPACT OF SATYAM ON ITS SHARES
5.2 WHY DID RAJU COMMITTED FRAUD?
5.3 HOW DO ANALYST VIEW TECH MAHINDRA-SATYAM
MERGER?
5.4 INVESTORS STUNNED
5.5 THREE PHASES OF SATYAM SCAM
5.1 IMPACT OF SATYAM SCAM ON ITS SHARES
Satyams share price started to fell after the news of the scam came in. Satyam's shares
made a low of 11.50 rupees on 9 January 2009, their lowest level since March 1998,
compared to a high of 544 rupees in 2008.
Satyam stock was removed from its S&P CNX Nifty 50-share index from Jan 12, 2009.
Satyam was also excluded from the CNX 100 index, CNX 500 index and the CNX IT
index. Reliance Capital Ltd replaced Satyam in the main index. Satyam lost more than
10000 Crore rupee in a single day trading. $8 Crore changed hands at BSE and 33 Crore
changed hands at NSE.
28
Satyam Scandal
The following Fund Houses sold shares heavily in the open market after the announcement
of the scam :
Swiss Finance Corp Mauritius Ltd: Sold 7786759 shares at Rs.74.61
Aberdeen International India Opportunities Mauritius Ltd:Sold 9830811 shares of the
company at Rs.43.41.
Aberdeen Asset Managers Ltd Aberdeen Global Asia Pacific fund: Sold 4179064 shares at
Rs.43.41.
The NYSE also halted trading ADRs of Satyam after the scam.
5.2 : WHY DID RAJU COMMITTED THE FRAUD?

What is known as of now is that over an extended period of time, the promoters decided
to inflate the revenue and profit figures of Satyam. In the event, the company has a huge
hole in its balance sheet, consisting of non-existent assets and cash reserves that have been
recorded and liabilities that are unrecorded. According to the confessional statement of
Mr. Raju, the balance sheet shortfall is more than Rs.7000 crore.
Why did a leading company in one of Indias most successful industries of recent years
need to inflate profits? After all, the revenues of Indias IT industry have grown at a
scorching compound annual rate of almost 30 per cent in the past eight years, driven by
exports.
29
Satyam Scandal
Why then did the fourth largest IT company choose to take the criminal route of falsifying
accounts and indulging in fraud? One possible cause could be the desire to drive up stock
values. The benefits derived by promoters from high stock values are obvious, allowing
them to buy into real wealth outside the company and giving them the invasion money to
acquire large stakes in other firms. This tendency was epitomised by the benefits derived by
America Online when it merged with Time Warner. Although the latter had more assets,
revenues, and customers, AOLs higher market capitalisation led to that company and its
chairman, Steve Case, getting more out of the deal than did long-time giant Time Warner.
There is some suspicion that Mr. Raju and his family may have sought similar benefits. The
family chose to build its shareholding in Satyam Computer Services and shed it when
required. For example, in year 2000 Satyam Computer merged with a related company,
Satyam Enterprises. Rajus cousin, C. Srinivasa Raju, who held 800,000 shares, or 19 per
cent, in Satyam Enterprises, was reportedly allotted an equivalent number in Satyam
Computer, leading to criticism that relative prices did not justify the 1:1 swap.
But the original promoters share held by the Raju family and their subsequent acquisitions
were not for keeping. Though the precise numbers quoted vary, according to observers the
stake of the promoters fell sharply after 2001 when they held 25.60 per cent of equity in the
company. This fell to 22.26 per cent by the end of March, 2002, 20.74 per cent in 2003,
17.35 per cent in 2004, 15.67 per cent in 2005, 14.02 per cent in 2006, 8.79 in 2007, 8.65 at
the end of September 2008, and 5.13 per cent in January 2009 (Business Line, January 3,
2009). The most recent decline is attributed to the decision of lenders from whom the
family had borrowed to sell the shares that were pledged with them. But the earlier declines
must have been the result either of sale of shares by promoters or of sale of new shares to
investors. According to audited balance sheet figures (if they are to be trusted) available
from the CMIEs database, the paid-up equity in Satyam Computer Services rose from Rs.
56.24 crore in March 2000 to just Rs. 64.89 crore by March 2006 and further to Rs. 133.44
crore in March 2007. Overall, the number of shares held by the promoter group fell from
7.16 crore (22.8 per cent) to 5.8 crore (8.6 per cent) between September 2001 and
September 2008. This points to a conscious decision by the promoters to sell shares, which
may have been used to acquire assets elsewhere. The more inflated the share values, the
more of such assets could be acquired. It is quite possible that the assets built up by the
eight other Raju family companies under scrutiny, including Maytas Properties and Maytas
Infra, partly came from the resources generated through these sales. If true, this makes
Rajus confession suspect, since he stated that neither myself, nor the Managing Director
(including our spouses) sold any shares in the last eight years excepting for a small
proportion declared and sold for philanthropic purposes.
30
Satyam Scandal
This may not have been the only way in which resources were transferred out of Satyam
Computer Services into other arms of the expanding Raju family empire. Money could have
been siphoned out through opaque transactions with beneficiaries who were paid sums not
warranted by their business profile. Satyams business strategy did involve unusual
transactions. One example was the acquisition in 1999 by group company Satyam Infoway,
which was the largest private Internet Services Provider in the country at that time, of
IndiaWorld Communications, for a sum of $115 million. The acquired company operated
popular portals such as samachar.com and khel.com that had no clear revenue model, and
was the principal beneficiary just as in the AOL deal. According to reports, the owner of
IndiaWorld was himself charged with intellectual property violations by his erstwhile
employer IndiaWorld.com, an Internet services company managed by U.S.-based ASAP
Solutions Inc. Satyam Infoways position was that it was aware of the claim being made by
ASAP Solutions, but that its interest was not in IndiaWorld.com but was limited to the
URL indiaworld.co.in and the other portals under its banner, for which it had of course paid
a huge sum. There is reason to suspect that this acquisition delivered little to the company,
raising questions about the motivation.
Mr. Rajus confession is also suspect for another reason, which has been widely discussed
in the media. Even if he and his colleagues were inflating revenues and profits, the actual
revenue earning capacity of the company, as confessed by him, seems to be extremely low.
He claims that the huge difference between actual and reported profits in the second quarter
of 2008-09 was because the ratio of operating margins to revenues was just 3 per cent rather
than the reported 24 per cent. But even if Satyam Computer Services was cooking its books,
it was engaged in activities similar to that undertaken by other similarly placed IT or ITeS
companies and it too had a fair share of Fortune 500 companies on its client list. It is known
that many of these companies have been showing operating margins that are closer to the 24
per cent reported by Satyam than the 3 per cent revealed in Mr. Rajus confession. Thus in
financial year ending March 2008, the ratio of profits before tax of Infosys was 32.3 per
cent of its total income, that of TCS 23.1 per cent, of Satyam 27.8 per cent, and that of
Wipro 19.2 per cent.
This suggests that either Mr. Raju is exaggerating the hole in his balance sheet or there is
some other, more complex, and more disturbing explanation. But whatever it is, the
difference between 24 per cent and 3 per cent seems too large to be the industry standard.
Despite its award-winning reputation for corporate governance, its impeccable board with
high-profile independent directors, and its appointment of big-four member PwC as its
auditor, this still mysterious accounting fraud occurred. The full truth, it appears, is not yet
out.
.
31
Satyam Scandal
5.3 : HOW DO ANALYST VIEW TECH MAHINDRA-SATYAM
MERGER ?
The Mahindra Group, the new owner of Satyam and the largest shareholder in Tech
Mahindra, is set to merge the two companies to transform the combined entity into an
Information and Communication Technology (ICT). The merger can happen any time in the
near future since the accounts of Satyam have been re-stated.
The merger of Tech Mahindra and Mahindra Satyam (Satyam Computer Services) is largely
seen as a positive deal by analysts, considering that the combined entity will become sixth
largest software services provider and will have a balanced revenue mix as it would lower
client concentration.
British Telecom's share of total revenue will now come down to about 18% from 35% and
the overall telecom sector contribution will fall to 47% from 96%, thus reducing risks.
Tech Mahindra and Mahindra Satyam's boards approved merger of the two firms on
Wednesday. The combined entity will have revenue of USD 2.4 billion, 75,000 employees
and 350 clients.
The swap ratio for the merger of Mahindra Satyam with Tech Mahindra has been fixed at
8.5 shares of Satyam for every one share of Tech Mahindra.
Mahindra Satyam shares were up over 4% at Rs 80.85 on NSE on Thursday in noon trade.
Tech Mahindra also gained 4.2% at Rs 713.90.
Here's how analysts view Tech Mahindra-Satyam merger:
Edelweiss: We expect the combined entity to become a formidable competition in the scale
player league with complementary skill sets and a well balanced revenue mix.
MF Global: Investor concerns regarding the merger ratio have been allayed with the
merger ratio being largely in tandem with the current market price. While we believe that
the combined entity will benefit from synergies with respect to size and mix, it is too early
to say whether it will result in superior growth rates in the near term. Rating: Neutral
(Tech Mahindra).
Motilal Oswal: The joint entity will have a unified 'go-to-market' strategy and a more
diversified revenue footprint geographically. The combination will benefit from operational
synergies, economies of scale, sourcing benefits, and standardization of business processes.
Rating: Neutral (Tech Mahindra).
Prabhudas Lilladher: We see improved ability of the merged entity to bid for the larger
projects, but the crux would be a seamless integration of the entities and reaping the
32
Satyam Scandal
benefits. We see a daunting task for the management ahead, hence would wait before
flagging a re-rating. Rating: Accumulate (Tech Mahindra).
5.4 : INVESTORS STUNNED:

For the last couple of days outside the Bombay Stock Exchange, all anyone can talk about
at the chai stalls and sandwich stores is how Ramalinga Raju, the former boss of Satyam
Computers, managed to rack up a billion-dollar fraud right under their noses.
Investors in Indian shares were stunned by Mr Raju's revelation, in a letter to the stock
exchange this Wednesday, when he confessed his wrongdoing and admitted that he had
effectively cooked the books of his firm for the last several years.
Satyam's shares plummeted on the news by 75%, dragging down India's stock main market
by 7%.
"I can't believe it," says investor Rajiv Gupta outside the stock market.
"It's very worrying, and it's happened at the worst possible time. Markets here were just
started to look like they were recovering. But this news - it is very very bad."
Ashok Bakliwal, another investor, agrees:
"This will put the spotlight on Indian companies, and overseas investors will be wary of
putting their money here without taking a good, hard look at the company's books."
"As if India wasn't going through enough of a bad time - now this? I really don't know what
will happen next. How could a fraud of this magnitude take place and go unnoticed? "
What went wrong?
It's a question that everyone is asking.
The controversy has got many in corporate circles here wondering whether it was India's
new found love affair with capitalism that led to Satyam's downfall.
In the letter to his shareholders, Mr Raju says that he was trying to cover up the losses at
Satyam, and in doing so got caught up in a vicious cycle of lies and debts.
He says this attempt to hide the losses from investors and shareholders was like "riding a
tiger, not knowing how to get off without being eaten".
According to Mr Raju's statement, about $1bn (0.65bn), or 94% of the cash on the
company's books, was made up - and analysts say it was the manipulation of the cash flow
which could have been one reason why the deceit was undetected.
33
Satyam Scandal
Many analysts also say that the chase for huge profits, and the desire to keep up with the
break-neck speed of India's $50bn outsourcing industry's growth rates that may have been
behind Mr Raju's motivation in fudging the accounts at his firm.
Disappeared
But trying to get any answers from Mr Raju since his confession letter is proving to be
impossible - he has disappeared.
A company spokesperson has been quoted as saying that his whereabouts remain unclear
for now.
At a company press conference on Thursday, the acting chief executive Ram Mynampati
told journalists that he and other board members had no knowledge of the financial fraud
and were hoping to get back to business as soon as possible.
"Our only aim at this time is to ensure that the business continues," Mr Mynampati says.
But it will be some time before it is business as usual for the troubled tech firm.
Indian media is reporting that financial regulators have despatched investigators to
Hyderabad to launch a formal investigation into the case.
India's main stock exchanges have announced they are removing Satyam Computers from
their indices as of January 12 because of the stunning revelations
Leading members of Indian industry have also expressed their shock and disappointment
that such an audacious act of deception could take place.
Chanda Kochar, the joint managing director of ICICI Bank, one of India's biggest lenders,
says she is shocked by the news.
How this could be avoided in future? /Recommendations:
relevance to corporate culture. The fraud committed by the founders of Satyam is a
ambition, and hunger for power, money, fame and glory. The Satyam scandal is a classic
case of
Negligence of fiduciary duties,
Total collapse of ethical standards,
Lack of corporate social responsibility.
It is human greed and desire that led to fraud. This type of behavior can be traced to:
Greed overshadowing the responsibility to meet fiduciary duties,
34
Satyam Scandal
Fierce competition and the need to impress stakeholders especially investors, analysts,
shareholders, and the stock market,
Low ethical and moral standards by top management,
Greater emphasis on short term performance.
Some of the initiatives/ steps which an organisation can undertake in order to avoid future
Satyam are:
Lasting solutions can only be found by transforming human consciousness through an inner
discipline and higher moral reasoning. A company can build sustainable competitive
advantage through ethics, values, excellence, quality, social responsibility and human
development. An integrated, value based vision of leadership and governance will go along
in creating corporate governance.
A transformed organizational culture which pays highest attention to ethical conduct and
moral values will strengthen sustainable roots of the company.
Transparency and effective auditing and regulatory checks through internal and external
auditors and monitoring agencies will help establish long lasting credibility for any
company.
Companies should gather feedback, measure effectiveness, and continually improve their
code of conduct.
The top management should always distinguish between opportunities and temptations. No
matter what heights a person may reach, character must be maintained at any cost.
Companies must take a step back when presented with challenging decisions and
individual must listen to the little voice in their head in complying with law and to their
heart in dealing with people. When making corporate decisions, it is important to not lose
sight of the individuals ethical reasoning. Personal ethics, self-discipline, and high moral
reasoning are critical to avoiding unethical behavior.
Transparency in financial reporting as a moral duty and ethical conduct is also very
important for companies to adhere to in order to uphold ethical standards. Benefits from
such engagement include higher trust and loyalty from stakeholders, increased goodwill,
and higher investor confidence.
It is also important for companies to establish an organizational culture which supports
ethical conduct through a code of conduct and properly laid out corporate governance
policies and procedures. Advantages of this approach include fostering ethical behavior
from employees, increased inner discipline, and providing value based corporate vision.
35
Satyam Scandal
A lot of fraud schemes start out small, with the perpetrator thinking that small changes here
and there won't make a big difference- and is less likely to be detected. This sends a
message to a lot of companies: if your accounts aren't balancing or if something seems
inaccurate, even just a tiny bit, it's worth investigating. Break down tasks so that there are
checks in each area. Dividing responsibilities across a team of people makes it easier to
Companies must be careful when selecting executives and top level managers. These are
the people who set the tone for the company- if there's corruption at the top; it's bound to
trickle down. Each employee must be accountable for their actions, regardless of the role
they play in the company. Separate the role of CEO and Chairman of the Board. When the
same person takes on both roles, who left to check up on the CEO? Splitting up the roles
helps avoid situations like the one at Satyam.
5.5 THREE PHASES OF SATYAM SCAM

For nearly three years since 1999, the firm rode on the Y2K phenomenon, which saw
Indias software industry get huge orders and earn good profits.
New Delhi: An analysis of the report by the Serious Fraud Investigation Office (SFIO) on
the swindle at Satyam Computer Services Ltd shows manipulation of software, and lack of
audit controls and systemic review.
The fraud can be divided into three phases. For nearly three years since 1999, the firm rode
on the Y2K phenomenon, which saw Indias software industry get huge orders and earn
good profits.
The second phase began in 2001. According to the SFIO report, the falsification of accounts
started then to keep Satyams share price high. The company had gone public in 1992.
Riding on the high price, Satyam promoters offloaded their shareholding in the market and
used the proceeds to buy land. In fact, founder B. Ramalinga Raju had set up as many as
374 infrastructure firms and eight investment companies to help him become a land baron,
the report has found. This phase continued till 2004, which was when things started going
wrong.
The third and final phase started sometime in mid-2007 and continued till Rajus confession
on 7 January this year. During this period, the company showed huge cash balances and
fixed deposits in several banks of international repute. It was, however, actually starved of
funds and the promoters were desperate to raise money to keep the company afloat.
36
Satyam Scandal
On 18 December last year, two days after the Satyam board met and decided to acquire two
group firmsMaytas Infra Ltd and Maytas Properties Ltdindependent director Krishna
Palepu received an anonymous email.
The writer went by an alias, Joseph Abraham, and has been declared the whistle blower in
the case. This email laid bare the fraud.
Palepu forwarded the email to another independent director, M. Rammohan Rao, who
chaired the Satyam audit committee. Rao forwarded this email to S. Gopalakrishnan,
partner at Price Waterhouse, the companys auditors.
Gopalakrishnan told Rao over phone that there was no truth to the allegations and assured
him of a detailed reply in a proposed presentation before the audit committee on 29
December.
That meeting never took place. A new date10 Januarywas fixed.
Raju knew the clock was ticking for that audit meeting could have seen the committee
members pose tough questions. Raju had not taken Raos calls seeking an answer to the
allegations in the whistle blowers email.
Three days before the meeting, Raju confessed to Indias biggest corporate fraud.
37
Satyam Scandal
CHAPTER 6:
HOW TO AVOID SUCH SCAMS
CHAPTER 6:
HOW TO AVOID SUCH SCAMS
relevance to corporate culture. The fraud committed by the founders of Satyam is a
ambition, and hunger for power, money, fame and glory. The Satyam scandal is a classic
case of
38
Satyam Scandal
Negligence of fiduciary duties,
Total collapse of ethical standards,
Lack of corporate social responsibility.
It is human greed and desire that led to fraud. This type of behavior can be traced to:
Greed overshadowing the responsibility to meet fiduciary duties,
Fierce competition and the need to impress stakeholders especially investors, analysts,
shareholders, and the stock market,
Low ethical and moral standards by top management,
Greater emphasis on short term performance.
Some of the initiatives/ steps which an organisation can undertake in order to avoid future
Satyam are:
Lasting solutions can only be found by transforming human consciousness through an inner
discipline and higher moral reasoning. A company can build sustainable competitive
advantage through ethics, values, excellence, quality, social responsibility and human
development. An integrated, value based vision of leadership and governance will go along
in creating corporate governance.
A transformed organizational culture which pays highest attention to ethical conduct and
moral values will strengthen sustainable roots of the company.
Transparency and effective auditing and regulatory checks through internal and external
auditors and monitoring agencies will help establish long lasting credibility for any
company.
Companies should gather feedback, measure effectiveness, and continually improve their
code of conduct.
The top management should always distinguish between opportunities and temptations. No
matter what heights a person may reach, character must be maintained at any cost.
Companies must take a step back when presented with challenging decisions and individual
must listen to the little voice in their head in complying with law and to their heart in
dealing with people. When making corporate decisions, it is important to not lose sight of
the individuals ethical reasoning. Personal ethics, self-discipline, and high moral reasoning
are critical to avoiding unethical behavior.
Transparency in financial reporting as a moral duty and ethical conduct is also very
important for companies to adhere to in order to uphold ethical standards. Benefits from
39
Satyam Scandal
such engagement include higher trust and loyalty from stakeholders, increased goodwill,
and higher investor confidence.
It is also important for companies to establish an organizational culture which supports
ethical conduct through a code of conduct and properly laid out corporate governance
policies and procedures. Advantages of this approach include fostering ethical behavior
from employees, increased inner discipline, and providing value based corporate vision.
A lot of fraud schemes start out small, with the perpetrator thinking that small changes here
and there won't make a big difference- and is less likely to be detected. This sends a
message to a lot of companies: if your accounts aren't balancing or if something seems
inaccurate, even just a tiny bit, it's worth investigating. Break down tasks so that there are
checks in each area. Dividing responsibilities across a team of people makes it easier to
Companies must be careful when selecting executives and top level managers. These are the
people who set the tone for the company- if there's corruption at the top; it's bound to trickle
down. Each employee must be accountable for their actions, regardless of the role they play
in the company. Separate the role of CEO and Chairman of the Board. When the same
person takes on both roles, who left to check up on the CEO? Splitting up the roles helps
avoid situations like the one at Satyam.
40
Satyam Scandal
CHAPTER 7:
ANALYSIS ON SURVEY
CHAPTER 7: ANALYSIS ON SURVEY

Here you ever heard about the Satyam Scam?
o YES
o NO
41
Satyam Scandal
Majority of the masses are aware about The Satyam Scam i.e 100%
100% of people are aware about Satyam Scam because it was first biggest
Corporate in Indian History
What was the Satyam Scam about?

o Yes
o No
42
Satyam Scandal
Percentage
No; 20%
Yes; 80%
20% of the people is of the opinion that it was the fraud done by the company and 80% is of
the opinion that it was the false representation of the balance sheet which was done by Mr.
Raju Ramalingam
Who was responsible for Satyam Scam?
o KNOWN
o UNKNOWN
43
Satyam Scandal
Knoun and Unknown for Satyam Scam
Known
Unknown
100%
100% of the masses are aware of the person behind the Satyam scam
Do you think Satyam Scam was one of the reason behind the inflation?
o Yes
44
Satyam Scandal
o No
Percentage
Yes
No
20%
80%
80% of the population think that Satyam scam was one of the reason behind the inflation
and 20% are of the opposite decision
Do you think the decision taken by Mahindra IT Company to acquire the Satyam Company
was right? If YES/NO than why?
45
Satyam Scandal
o Yes
o No
Percenage
Right
Wrong
10%
90%
90% of the masses agree to this decision because it provided job to employees of the
Satyam Company which have been removed due to 10% of people disagree.
46
Satyam Scandal
CHAPTER 8:
CURRENT POSITION OF MAHINDRA SATYAM
47
Satyam Scandal
CHAPTER 8: CURRENT POSITION OF SATYAM

COMPANY
Mahindra Satyam, the rebranded Satyam Computer Services, is set to position itself as an
information and communication technologies (ICT) company.
Tech Mahindra (the parent company) has unique skills in communications, while Satyam
is strong in IT and enterprise services. We are going to the market with a bundled approach
to bring in the 'C' component to our enterprise customers and we are successfully
demonstrating this value preposition with two reference customers, the company's chief
executive officer, C P Gurnani, told reporters here today during an informal chat.
Gurnani said the company had appointed Bain and Company, the US-based management
consultants, to help it in driving some of its processes. That includes better servicing of
existing clientele, regaining some lost clients and looking at the value offered to customers.
The company has formed a Win Room led by Atul Kanwar (Satyams Europe president),
who is closely working with Bain, he added.
Satyam Computers had 500-odd customers; close to 100 dropped their contracts with the
then fourth-largest IT outsourcer after the confession by the now-jailed founder, Ramalinga
Raju, that he had cooked the companys accounts for several years.
We found Satyam pricing to be in line with that of the industry and I dont think our
customers have any reason to question it. Neither have we asked a higher pricing and nor
has any customer sought any reduction," Gurnani said.
48
Satyam Scandal
He said my lips are sealed, as the company is still in a long silent period till the accounts
are restated on being asked to comment on the New York Stock Exchange (NYSE) saying
it would include Satyam in its late filers list and could commence delisting proceedings at
any time if circumstances warrant, and on the Satyam-Upaid disparagement case. Adding:
There is no move to delist from the NYSE and we will continue to be listed on the
exchange. We are actively in discussion with them (Upaid).
On the current market scenario, Gurnani said the overall market signs are positive. We are
part of the same pond and the temperature indicators are good. Terming Australia, China,
Egypt, Malaysia and Budapest (Hungary) as cheap destinations, he said the company was
intending to expand their operations in these geographies.
After rationalising staff costs, Mahindra Satyam is now focusing on reducing its real estate
expenditure. It plans to terminate lease contracts with property owners and consolidate its
operations, with its own campuses. Close to 30 per cent of Mahindra Satyams office space
is unutilised. We have already moved out of six leased facilities in Hyderabad. We will be
closing two leased offices in Bangalore by this month end, a company spokesperson said.
Satyams scrip ended the trade at Rs 109.50 on the Bombay Stock Exchange on Monday,
down 1.13 per cent as against the previous close of Rs 110.75.
Mahindra Satyam's Key Fundamentals
Parameter
Values
Market Cap (in Cr.)
0.00
Earning Per Share (EPS TTM) ()
7.66
Price To Earnings (P/E) Ratio
0.00
Book Value Per Share ()
28.16
Price To Books (P/B) Ratio
0.00
EBIT Margin (%)
21.26
PAT Margin (%)
20.17
ROCE (%)
31.71
49
Satyam Scandal
PAT Growth (%)
1042.63
Total Debt to Equity (D/E) Ratio
0.38
Mahindra Satyam's Financial Summary
Parameter
MAR'12
( Cr.)
MAR'11
( Cr.)
YoY
%Change
Share Capital
235.40
235.30
0.04%
Total Non-Current Liabilities
1,248.40
1,390.60
-10.23%
Total Current Liabilities
2,307.00
2,381.40
-3.12%
Total Liabilities
6,869.60
5,933.20
15.78%
Total Non-Current Assets
1,556.00
1,163.90
33.69%
Currents Investments
73.10
445.70
-83.60%
Cash and Bank
2,689.80
2,641.60
1.82%
Total Current Assets Excluding Current Investments
5,240.50
4,323.60
21.21%
Total Assets
6,869.60
5,933.20
15.78%
Operating Income
5,964.30
4,776.10
24.88%
Net Sales
5,964.30
4,776.10
24.88%
PBIDT (Excl OI)
906.80
365.70
147.96%
Balance Sheet:
Profit and Loss:
50
Satyam Scandal
PAT
1,202.80
-127.60
-1042.63%
Mahindra Satyam's Shareholding Pattern
Description
Percent of Share (%)
Promoters
42.64
Individuals
21.78
Institutions
6.74
FII
20.81
Govt.
0.29
Others
7.74
Share Holding Pattern (% of Shares Held)

CATEGORY OF
SHAREHOLDER
Total Number of Shares
Percentage ShareHolding (%)
Indian Promoter
50,18,43,740
42.63
Foreign Promoter
0.00
Total Promoter
50,18,43,740
42.63
Promoter
Non Promoter
51
Satyam Scandal
CATEGORY OF
SHAREHOLDER
Total Number of Shares
Percentage ShareHolding (%)
Mutual Funds / UTI
6,21,90,229
5.28
FI/Bank/Insurance
4,14,66,268
3.52
Govt
34,80,879
0.30
FII
35,73,51,789
30.35
Other
0.00
Total Institutions
46,44,89,165
39.45
Bodies Corporate
1,81,84,402
1.54
Individuals (upto Rs. 1 lakh)
15,74,86,403
13.38
Individuals (in excess of Rs. 1

lakh)
1,42,69,668
1.21
NRIs/OCBs
1,75,39,864
1.48
Others
17,52,34,065
14.90
Total Non-Institution
21,09,58,331
17.92
Total Non Promoter
67,54,47,496
57.37
Depository Receipts
0.00
Total
1,17,72,91,236
100.00
Institutions
Non-Institution
Tech Mahindra and Mahindra Satyam Merger Announced
52
Satyam Scandal
The Board of Directors of Tech Mahindra (Tech M) and Mahindra Satyam (Satyam) have
approved the merger of both the companies along with their wholly owned subsidiaries,
Venturbay Consultants Pvt. Ltd., C&S System Technologies Pvt. Ltd., CanvasM
Technologies Ltd. and Mahindra Logisoft Business Solutions Ltd. The swap ratio approved
by the board of both the companies is 2:17, i.e., 2 shares of Tech M (face value of `10 each)
for every 17 shares of Satyam (face value of `2 each). The merger process could take up to
nine months to complete and will be effective from April 1, 2011.
Shareholding pattern: On a pro forma basis, Mahindra Group will own 26.3% in the
combined entity, British Telecom (BT) will own 12.8%, 10.4% will be held as treasury
stock, 34.4% will be held by public shareholders of Mahindra Satyam and the balance
16.1% will be held by public shareholders of Tech M. The intention of creating a treasury
stock is to allow the company greater liquidity when needed. This, especially in the matter
of acquisitions, is on the agenda of both the companies. Tech M will issue 10.34cr new
shares, thereby increasing its outstanding shares to 23.08cr and its equity capital to `230.8cr.
Well-diversified revenue mix: The combined entity will have revenue run-rate of
US$2.4bn+ this size will enable the company to participate in larger deals and improve
deal win rates. The combined entity will have a broader service offering. As of now, Tech
Ms entire revenue comes from the telecom vertical, which has been shrinking over the past
couple of years. After the merger, contribution from telecom would come down to sub-50%
(47-48%). The combined entity will have a broad-based play across industries such as
manufacturing, BFSI, telecom, technology, media and entertainment, retail, transport and
logistics and lifesciences and healthcare.
53
Satyam Scandal
Geography wise, the revenue portfolio will be well balanced with a diversified global
footprint that would boast of contribution from Americas at 42%, Europe at 35% and
emerging markets at 23%. Also, Tech Ms dependence on BT, its top client, would come
down considerably as the combined entity would derive ~17% of its revenue from BT,
while Tech M currently derives 35% of its revenue from BT. The combined entity would
have 75,000 employees, across 54 countries, and over 350 customers. Post the merger, the
entity would have net cash surplus of `1,600cr-1,800cr.
Outlook and valuation: The benefits of the combined entity will start being reflected only
after few quarters of the mergers completion. The combined entity is expected to post a
10.7% CAGR over FY2011-13E, with growth of 8.9% yoy in FY2013. PAT of Tech M and
Satyam is expected to be at `674cr and `900cr for FY2013, respectively. Considering the
new share count, the consolidated EPS comes in at `68.2. We value Tech M at 11x
FY2013E EPS of `68.2 (23% discount to HCL Techs target multiple of 13.5x due risks
such as: 1) Tech M still generates 17% of its revenue from one client, which is high; 2) 47%
of its revenue comes from the telecom vertical, which is still elevated; and 3) Tech M needs
to scale up revenue from high-growth services like infrastructure management and
consulting and package implementation). We maintain or Accumulate view on the stock
with a target price of `750.
Shareholding pattern
On a pro forma basis, Mahindra Group will own 26.3% in the combined entity, BT will own
12.8%, 10.4% will be held as treasury stock, 34.4% will be held by public shareholders of
Mahindra Satyam and the balance 16.1% will be held by public shareholders of Tech M.
The intention of creating a treasury stock is to allow greater liquidity to the company when
needed. This, especially in the matter of acquisitions, is on the agenda of both the
companies. Tech M will issue 10.34cr new shares, thereby increasing its outstanding shares
to 23.08cr and its equity capital to `230.8cr.
Well-diversified revenue mix
The combined entity will have revenue run-rate of US$2.4bn+ this size will enable the
company to participate in larger deals and improve deal win rates. The combined entity
would have 75,000+ employees, across 54 countries, and over 350 customers.
Vertical-wise revenue mix: The combined entity will have a broader service offering. As of
now, Tech Ms entire revenue comes from the telecom vertical, which has been shrinking
over the past couple of years. After the merger, contribution from telecom would come
54
Satyam Scandal
down to sub-50% (47-48%). The combined entity will have a broad-based play across
industries such as manufacturing, BFSI, telecom, technology, media and entertainment
(TME), retail, transport and logistics and lifesciences and healthcare.
Geography-wise revenue mix: The revenue mix of Tech M is skewed towards Europe
(45%) because of its largest client, BT, while Satyam derives ~50% of its revenue from
America. Geography wise, the revenue portfolio of the merged entity will be well balanced
with a diversified global footprint that would boast of contribution from Americas at 42%,
Europe at 35% and emerging markets at 23%.
Client concentration risk to come down: Tech M currently derives 35% of its revenue
from its top client BT. In the merged entity, the dependence on BT would come down
considerably to 17%.
Management of both the companies intends to create a single go-to-market strategy with
benefits of scale and enhanced depth and breadth of capabilities, translating into increased
business opportunities and reduced expenses. Management indicated that the combined
entity would leverage Tech Ms expertise in mobility, system integration, delivery of large
transformations and to better penetrate the opportunity presented by Mahindra Satyams
diverse set of clients across multiple verticals. Similarly, Satyams expertise in enterprise
solutions will enable a more complete value proposition to be delivered to Tech Ms clients.
The combination will benefit from operational synergies, economies of scale, sourcing
benefits, and standardization of business processes. The focus will be on account mining
with the opportunity to cross-sell the services to the existing clientele.
Outlook and valuation

The synergy benefits of the combined entity will start being reflected only post few quarters
of the mergers completion. From Tech M per se, we expect the non-BT business to post a
CQGR of 2.4% over 3QFY2012-4QFY2013, with BTs quarterly revenue expected to be
flat from here. We expect revenue CAGR of 7.6% over FY2011-13E for Tech M.
For Satyam, we expect USD revenue CAGR of 13.6% over FY2011-13E. The combined
entitys revenue CAGR is expected to be at 10.7% over FY2011-13E, with growth of 8.9%
yoy in FY2013.
PAT of Tech M and Satyam for FY2013 is expected to be at `674cr and `900cr, respectively.
Considering the new share count, the consolidated EPS comes in at `68.2. If we exclude the
impact of restructuring fees of `50cr, which Tech M is getting every quarter from BT, the
EPS would come down to `59.7. We value Tech M at 11x FY2013E EPS of `68.2 (23%
discount to HCL Techs target multiple of 13.5x due risks such as: 1) Tech M still generates
55
Satyam Scandal
17% of its revenue from one client, which is high; 2) 47% of its revenue comes from the
telecom vertical, which is still elevated; and 3) Tech M needs to scale up revenue from
high-growth services like infrastructure management and consulting and package
implementation).
Tech Mahindra
Tech Mahindra Limited is an Indian multinational provider of information technology
(IT), networking technology solutions and Business Process Outsourcing (BPO) to the
telecommunications industry. Anand Mahindra is the founder of Tech Mahindra, which is
headquartered at Pune, India.
Part of the Mahindra Group, Tech Mahindra is a US$4.03 billion company with 105,000+
employees across 51 countries. It provides services to customers which include Fortune 500
companies. It is also one of the Fab 50 companies in Asia, a list compiled by Forbes. Tech
Mahindra was ranked #5 in India's software services (IT) firms and overall #111 in Fortune
India 500 list for 2012. Tech Mahindra, on 25 June 2013, announced the completion of a
merger with Mahindra Satyam.
Tech Mahindra has more than 800 active clients as of 2016.
Foundation
Mahindra & Mahindra started a joint venture with British Telecom in 1986 as a technology
outsourcing firm. British Telecom initially had around 30 percent stake in the Tech
Mahindra company. In December 2010, British Telecom sold 5.5 per cent of its stake in
Tech Mahindra to Mahindra & Mahindra for Rs 451 crore. In August 2012, British Telecom
sold 14.1 per cent of its stake to institutional investors for about Rs 1,395 crore. In
December 2012, British Telecom sold its remaining 9.1 per cent (11.6 million shares)
shareholding to institutional investors for a total gross cash proceeds of Rs 1,011.4 crore.
This sale marked the exit of British Telecom from Tech Mahindra.
Acquisition of Satyam Computer Services Ltd.
After the Satyam scandal of 2008-09 Tech Mahindra bid for Satyam Computer Services,
and emerged as a top bidder with an offer of Rs 58.90 a share for a 31 per cent stake in the
company, beating a strong rival Larsen & Toubro. After evaluating the bids, the
government-appointed board of Satyam Computer announced on 13 April 2009: "its Board
of Directors has selected Venturbay Consultants Private Limited, a subsidiary controlled by
56
Satyam Scandal
Tech Mahindra Limited as the highest bidder to acquire a controlling stake in the Company,
subject to the approval of the Hon'ble Company Law Board." Through a subsidiary, it has
emerged victorious in Satyam sell-off, a company probably two times its size in number of
people. This was one of the largest merger deals in India's tech industry.
Merger with Mahindra Satyam
Mahindra Group V-C Anand Mahindra

Tech Mahindra announced its merger with Mahindra Satyam on March 21, 2012, after the
board of two companies gave the approval,to build a 2.5 billion $ IT Company in India. The
two firms had received the go-ahead for merger from the Bombay Stock Exchange and the
National Stock Exchange. On June 11, 2013, Andhra Pradesh High Court gave its approval
for the merger of Mahindra Satyam with Tech Mahindra,after Bombay high court already
gave its approval.
Vineet Nayyar said that technical approvals from the Registrar of Companies(RoC) in
Andhra Pradesh and Maharashtra are required which will be done in two to four weeks, and
within 8 weeks,new merged entity will be in place,a new organisation chart would also
come into force led by Anand Mahindra as Chairman, Vineet Nayyar as Vice Chairman and
C. P. Gurnani as the CEO and Managing Director. On June 25, 2013,Tech Mahindra
announced completion of Mahindra Satyam's merger with itself to create nation's fifth
largest software services company with a turnover of USD 2.7 billion. Tech Mahindra got
57
Satyam Scandal
the approval from the registrar of companies for the merger late in the night at 11:45 pm on
June 24, 2013. July 5, 2013 has been determined as record date on which the Satyam
Computer Services ('Mahindra Satyam') shares will be swapped for Tech Mahindra shares
under the approved scheme, which was approved by both the boards. Mahindra Satyam
(Satyam Computer Services), was suspended from trading with effect from July 4, 2013,
following its merger with Tech Mahindra . Tech Mahindra completed share swap and
allocated its shares to the shareholders of Satyam Computer Services on July 12, 2013. The
stock exchanges have accorded their approval for trading the new shares effective July 12,
2013. Tech Mahindra posted net profit of Rs 686 crore for the first quarter ended June 30,
2013, up 27% compared to the corresponding quarter last year.
History
1986 - Created as a joint venture of Mahindra & Mahindra and British
Telecommunications (later BT Group).
1993 - Incorporation of MBT International Inc., the first overseas subsidiary
1994 - Awarded ISO 9001 certification by BVQI
1995 - Established UK branch office
2001 - Incorporated MBT GmbH, Germany incorporated. Re-certified to [ISO
9001:1994] by BVQI
2002 - Assessed at Level 2 of SEI CMM by KPMG. Incorporated MBT Software
Technologies Pte. Limited, Singapore
2005 - Merged MBT with Axes Technologies (India) Private Limited,including its US
and Singapore subsidiaries.Assessed at Level 3 of SEI CMMI by KPMG
2006 - Name changed to Tech Mahindra Limited. Assessed at Level 4 of SEI PeopleCMM (P-CMM) by QAI India. Raised Rs46.5 million ($1 million) from an IPO to build
a new facility in Pune, to house about 9,000 staff. Formed a JV with Motorola Inc. under
the name CanvasM.
2007 - Acquired iPolicy Networks Private Limited. Launched the Tech M Foundation to
help underprivileged people. Assessed at Level 5 of SEI CMMI by KPMG
58
Satyam Scandal
2009 - Tech M wins bid for fraud-hit Satyam Computer Services at Rs 58.90 per share
outdoing Larsen & Toubro, which bid at Rs 45.90. Rebrands the company to Mahindra
Satyam.
2012 - Acquires Hutchison Global Services for $87.1 million
2012 - Buys 51% stake in Comviva
QAX
2012 - Tech Mahindra acquires vCustomer BPO for $27 million

2013 - Tech Mahindra acquires Sweden-based Type Approval Lab. The lab was part of
Sony Mobile Communication's internal test function and after acquisition it became the
first European test lab of Tech Mahindra.
2013 - On June 25, Tech Mahindra and Mahindra Satyam merging process completed and
the name of the parent company was retained for the merged entity.
2014 - Tech Mahindra acquires Lightbridge Communications Corporation (LCC), the
largest independent telecom services company in the world with local presence in over
50 countries
2015 - Tech Mahindra acquires SOFGEN Holdings, a 450-employee Swiss IT firm
serving the financial services industry
2015 - Tech Mahindra purchases a controlling stake in Pininfarina S.p.A., an Italian brand
in automotive and industrial design
2015 - Tech Mahindra announces the launch of its Automation Framework AQT
(Automation, Quality, Time)
59
Satyam Scandal
60
Satyam Scandal
CHAPTER 9:
CASE STUDY ON SATYAM SCAM
CHAPTER 9:
CASE STUDY ON SATYAM SCAM
Harvards new case study- Indias Satyam saga
By Silicon India
Friday,18 December 2009, 07: 35 IST
61
Satyam Scandal
Bangalore: Harvard Business School has done a care study on Indias crises management.
India can now offer a unique vertical globally in crises management lessons learnt from
Satyam Saga, a unique story of how a company with $1.8-n billion hole in its balance sheet
was turned around in 100 days, Shardul S Shroff, Managing Partner of Amarchand
Mangaldas Shroff told the Economic Times.
Although India has a good crises management system, there should be an early warning
system embedded in the financial arena to prevent the frauds. It is perhaps the only
company in corporate history to come out of such a major fraud. The Satyam saga has
nearly a dozen lessons for Indian industry and for the world, said Shroff. It tells how the
countrys entire regulatory mechanism was harnessed and tweaked to achieve it. Also.
Satyam employees and even its competitors like Wipro, Infy and TCS helped it. The role of
invited directors came into question. This has also led to new voluntary code of corporate
governance to be adopted on December 21, Depending on its success, the code will be
made mandatory.
Individuals at Satyam were scanned to gather data from 2002. It yielded some two terabytes
of information! No warehouse in India could store it. So all information had to be send to
the UK where accounting firms could hire locations for its storage. An army of 80 people
scanned every single entry. The idea was to detect a pattern which was finally traced right
back to the Chairmans office.
Another little known fact was eight different means were adopted to check falsification of
Satyam 53,000 employees base, like employee bonds, mails and mail IDs. With barely
Rs.100 crore left in balance, against a January wage bill of Rs 400 crore, the new directions
and the Satyam Employees worked their hearts out to generate Rs 700-900 crore in
receivables, including future ones. All this situation,where 300-600 of its core, trained staff
were resigning every week! Satyams competitors, Wipro, Infy, too chipped in, when they
decided against against poaching Satyam staff. Added Shroff.
The Lesson here is to set temporary, shortterm goals when faced with a crises in people,
contracts and cash, said Shroff. He also added that the companies need to establish trust.
62
Satyam Scandal
LEARNINGS
Satyam fraud spurred the government of India to tighten corporate norms to prevent
recurrence of similar frauds in future. The government took action to protect the interest of
the investors and safeguard the credibility of India and the nations image across the world.
It has forced the government to rewrite corporate governance rules and tightens the norms
for chartered accountants. Some of the regulations include:
Promotion of shareholders democracy with protection of rights of minority
Shareholders.
Responsible self-regulation with adequate disclosure and accountability and
63
Satyam Scandal
Lesser government control over internal corporate processes,

Voluntary corporate governance code,
Certificate of independence for independent directors,
An institution of mechanism for whistle blowers,
Cap at 10 percent on the revenues coming from a single client to an audit firm. Promoters
should be prohibited from interfering in the recruitment of independent directors.
Independent directors should have challenging, skilled IDs, who have time to devote to the
business, rather than well-known faces.
Additional lessons include having an effective whistle blower policy in place, education on
ethical values, criteria for remuneration to key personnel, and strengthening of quality
review. Corporate governance framework needs to be implemented in letter as well as spirit.
The increasing rates of white collar crimes demands stiff penalties and punishment. The
small distortions created by few immoral executives lad far reaching negative
consequences. Hopefully, creating an awareness of the large consequences of small lies may
help some to avoid this trap.
CONCLUSION
The Satyam fraud has shattered the dreams of different categories of investors, shocked the
government and regulators alike and led to questioning the accounting practices of statutory
auditors and corporate governance norms in India. Severe corporate governance problems
emerge out of the above-mentioned corporate wreckage. Many of these governance
problems were noticed in several other such corporate failures in USA, UK and Europe.
These countries reacted strongly to the corporate failures and codes & standards on
corporate governance came to the centre stage. Corporate scandals especially in the United
64
Satyam Scandal
States triggered reforms in corporate governance, accounting practices and disclosures the
world over. Enron debacle in 2001 and number of other scandals involving large US
companies around that period set in motion the corporate governance reform process and
resulted in the passing of the Sarbanes-Oxley Act, 2002. The main objective of the Oxley
Act is to repose investors confidence by preventing corporate frauds and ensuring
transparency and disclosures. Similar kinds of corporate governance reforms are needed in
India too. There is need to reform corporate governance in India by taking harsh policy
measures. Even though corporate governance mechanisms cannot prevent unethical activity
by top management completely, but they can at least act as a means of detecting such
activity before it is too late. When an apple is rotten there is no cure, but at least the rotten
apple can be removed before the infection spreads and infects the whole basket.65 This is
really what effective governance is about.
65
ANNEXTURE
1. Have you ever heard about Satyam Scam?

2. Who was responsible for Satyam scam?
3. Who was responsible for satyam scam?
4. What was impact on the stock market, Employees, General Public?
5. Do you think Satyam Scam one of the reason behind the inflation?
6. Do you think the decision taken by Mahindra IT company to acquire
the Satyam Company, was right? If YES/NO than why?
66
BIBLIOGRAPY
Magazines
The Economic Times 26th June 2013

Business Line 25th June 2013
News Paper
The Times Of India 7th January 2009

Indian Express 9th January 2009
NDTV 15th January 2009
Websites
www.hindu.com
www.satyam.com
67

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Satyam Scandal

1.2 INTRODUCTION TO SATYAM SCAM

1.5 HISTORY OF SATYAM COMPANY

History of Satyam Computer Services Ltd.

CHAPTER 2: RESEARCH METHODLOGY

SATYAM COMPANY PROFILE

CHAPTER 2: RESEARCH METHODOLOGY

Satyam Computer Services Limited Company Profile

Chairman and founder of Satyam computer services Ltd.

MEMBERS OF SATYAM COMPANY

He was appointed to the Board as Independent Director.

A Member of ICIA with 26 years of standing.

Gurani is the CEO of Mahindra Satyam

CHAPTER 3: OBJECTIVES OF STUDY

CHAPTER 3: OBJECTIVE OF STUDY

CHAPTER 4: Corporate Accounting Scandal at Satyam

4.1. Emergence of Satyam Computer Services Limited

4.1. Emergence of Satyam Computer Services Limited

4.2. Mr. Ramalinga Raju and the Satyam Scandal

Table 2. Promoters shareholding pattern in Satyam from 2001 to 2008.

4.4. Aftermath of Satyam Scandal

Exhibit 1. Stock Charting of Satyam from December 2008 to January 2009.

4.5. Investigation: Criminal and Civil Charges

4.7. Lessons Learned from Satyam Scam

Investigate All Inaccuracies:

Corporate Governance Needs to Be Stronger:

CHAPTER 5: AFTER SATYAM SCANADAL

5.1 IMPACT OF SATYAM SCAM ON ITS SHARES

5.2 : WHY DID RAJU COMMITTED THE FRAUD?

5.4 : INVESTORS STUNNED:

5.5 THREE PHASES OF SATYAM SCAM

CHAPTER 7: ANALYSIS ON SURVEY

What was the Satyam Scam about?

Who was responsible for Satyam Scam?

CHAPTER 8: CURRENT POSITION OF SATYAM

Mahindra Satyam's Key Fundamentals

Market Cap (in Cr.)

Earning Per Share (EPS TTM) ()

Price To Earnings (P/E) Ratio

Book Value Per Share ()

Price To Books (P/B) Ratio

EBIT Margin (%)

PAT Margin (%)

Total Debt to Equity (D/E) Ratio

Mahindra Satyam's Financial Summary

Total Non-Current Liabilities

Total Current Liabilities

Total Non-Current Assets

Cash and Bank

Total Current Assets Excluding Current Investments

PBIDT (Excl OI)

Profit and Loss:

Mahindra Satyam's Shareholding Pattern

Percent of Share (%)

Share Holding Pattern (% of Shares Held)

Total Number of Shares

Percentage ShareHolding (%)

Total Number of Shares

Percentage ShareHolding (%)

Mutual Funds / UTI

Individuals (upto Rs. 1 lakh)

Individuals (in excess of Rs. 1

Total Non Promoter

Tech Mahindra and Mahindra Satyam Merger Announced