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Shame for Shame for corporate India corporate India

Shame for corporate India Shame for corporate India

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Page 1: Shame for corporate India Shame for corporate India

Shame for corporate Shame for corporate India India

Page 2: Shame for corporate India Shame for corporate India

Prepared by

Aranya Adhikari 13 Mukul Varma 25 Pawan Mittal 32 Satendra Agrawal 45 Sanjay Singh 43

Page 3: Shame for corporate India Shame for corporate India

The Satyam StoryThe Satyam Story

• Founded in : 1987• Profile : IT Services• Head Quarter : Hyderabad , India• Deals in : Application development & maintenance,

Extended engineering solutions,

Infrastructure management services

Business Process Outsourcing• Listed in : New York Stock Exchange

( 1st Indian IT Inc. to be listed in NASDAQ)

& Euronext

Page 4: Shame for corporate India Shame for corporate India

The Satyam StoryThe Satyam Story

• Customers : 654 global companies ( including 185 Fortune 500 Co. )

: In 67 countries across 6 continents• Development centre abroad : US , UK , UAE , Canada , Hungary , Singapore , Malaysia , China , Japan, Egypt & Australia• Development centre in India

: Hyderabad , Bangalore , Chennai , Pune, Mumbai , Nagpur , Delhi , Kolkata , Bhubaneswar , Visakhapatnam

Page 5: Shame for corporate India Shame for corporate India

Board of Directors

Executives Directors : Mr. B. Ramalinga Raju (Founder & Chairman) Mr. B. Rama Raju (Co-Founder & CEO)

Non-Executive Directors : Mr. V. P. Rama Rao, IAS (Retd.) Dr. (Mrs.) Mangalam Srinivasan

Prof. Krishna G. Palepu Mr. Vinod Dham Mr. S V Krishnan Mr. Vijay Prasad

Independent Directors : Mr. Prabhakar Gupta ( Ex-dean , ISB ) Mr. Keshab Panda Mr. Virender Agarwal Mr. A S Murthy

Page 6: Shame for corporate India Shame for corporate India

Key StatsKey Stats

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The basic IssueThe basic Issue Is the Satyam scandal just about a Is the Satyam scandal just about a

promoter manipulating the financial promoter manipulating the financial statements of his company to show a statements of his company to show a superior performance?superior performance?

Is it about systematic siphoning of funds Is it about systematic siphoning of funds from the company over the years? from the company over the years?

Emerging events seem to increasingly Emerging events seem to increasingly point to the latter. point to the latter.

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The Story unfolds• Satyam on  December 16, 2008, announced acquiring of - Maytas properties and Maytas Infra

• The BOD of Satyam had approved the founder’s proposal to buy 51 per cent stake in Maytas Infrastructure and 100 % in Maytas Properties

• The total outflow for both the acquisitions was US$ 1.6 bn comprising of : US$ 1.3 bn -100% stake in Maytas Properties & US$ 0.3 bn for the 51% stake in Maytas Infra

• This is the move that sparked a row over alleged violation of corporate governance laws.

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Reaction of Investors on acquisition of MaytasReaction of Investors on acquisition of Maytas Investment giant Templeton and brokerage house CLSA Investment giant Templeton and brokerage house CLSA

opposed to this decisionopposed to this decision

Result of Investor’s ReactionResult of Investor’s Reaction Part of investors succeeded to thwart the attempt Part of investors succeeded to thwart the attempt Satyam's investors lost about INR 3,400 crore in the Satyam's investors lost about INR 3,400 crore in the

related panic sellingrelated panic selling Satyam's shares fell 55% on the New York Stock ExchangeSatyam's shares fell 55% on the New York Stock Exchange Three members of the board of directors resigned on Three members of the board of directors resigned on

Monday 29th Dec 2008.Monday 29th Dec 2008. On 7 January 2009, company Chairman Ramalinga Raju On 7 January 2009, company Chairman Ramalinga Raju

resigned after notifying its board members and the SEBI resigned after notifying its board members and the SEBI that he had falsified accounts. that he had falsified accounts.

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Signs not noticed……

25.622.26

20.7417.35

15.6714.02

8.798.65

5.13

0

5

10

15

20

25

30

2001 2003 2005 2007 Jan-09

Stake of Promoters

Page 11: Shame for corporate India Shame for corporate India

The Story ….The Story …. Raju and his family held below 10% of the Raju and his family held below 10% of the

company’s Equitycompany’s Equity Accounts in the names of relatives used to Accounts in the names of relatives used to

divert money and carry out insider tradingdivert money and carry out insider trading Funds siphoned off from Satyam to Funds siphoned off from Satyam to

Maytas Infra, Maytas Properties & various Maytas Infra, Maytas Properties & various othersothers

Diversion of Rs. 1700 crores from an Diversion of Rs. 1700 crores from an overseas bank accountoverseas bank account

This deal was not profitable for investors . This deal was not profitable for investors . So after this announcement they started to So after this announcement they started to raise their voices against the dealraise their voices against the deal

Page 12: Shame for corporate India Shame for corporate India

The Story continuesThe Story continues

Maytas InfraMaytas Infra The company is run by the sons of Ramalinga Raju The company is run by the sons of Ramalinga Raju It was started in the late 1980’s by Ramalinga Raju It was started in the late 1980’s by Ramalinga Raju The main reason for the debacle of Maytas Infra is The main reason for the debacle of Maytas Infra is

due to the debacle of Satyamdue to the debacle of Satyam

Maytas Properties LtdMaytas Properties Ltd One of the reasons for the debacle of Maytas One of the reasons for the debacle of Maytas

properties is the ongoing economic slowdown properties is the ongoing economic slowdown The Company has huge land banks and the prices The Company has huge land banks and the prices

have dropped down in the real estate significantlyhave dropped down in the real estate significantly

Page 13: Shame for corporate India Shame for corporate India

Satyam’s justification for Maytas buyout dealSatyam’s justification for Maytas buyout deal

de-risk the core businessde-risk the core business

the integrated organization would be stronger and the integrated organization would be stronger and more diversified to deal with the uncertainty of the more diversified to deal with the uncertainty of the marketmarket

feeling that in the recent times it is difficult to make feeling that in the recent times it is difficult to make a strategic deal with other IT companies.a strategic deal with other IT companies.

Page 14: Shame for corporate India Shame for corporate India

Satyam’s financial statements for years were Satyam’s financial statements for years were totally false, cooked uptotally false, cooked up

Never had Rs 5064 crores (US$ 1.05Billion) Never had Rs 5064 crores (US$ 1.05Billion) shown as cash for several yearsshown as cash for several years

Its liability was understated by $ 1.23 Billions Its liability was understated by $ 1.23 Billions The Debtors were overstated by 400 million plusThe Debtors were overstated by 400 million plus Actual Operating Margin Rs.61 Cr.Actual Operating Margin Rs.61 Cr.

Reported- Rs.649 Cr Reported- Rs.649 Cr

( Created an Artificial Revenue of Rs. 588 Cr.)( Created an Artificial Revenue of Rs. 588 Cr.)

Facts behind the story….Facts behind the story….

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Role of auditorsRole of auditors : : PWC confirmed that two auditors appointed by

Satyam Computer, were not partners of the audit firm at that point of time.

Auditors do bank reconciliation to check whether the money has indeed come or not. They check bank statements and certificates.

Is it total lapse in supervision or were the bank statements forged ?

PWC has written a letter to the BOD of Satyam that its audit may be rendered "inaccurate and unreliable“ due to disclosures made by Raju . .

Questions…….Questions…….

Page 16: Shame for corporate India Shame for corporate India

Role of Role of SEBI : The SEBI had in December,2008 given a

clean chit to Satyam in the probe on violation of corporate governance law

Role of BanksRole of Banks : If the auditors were conned, it means that

the bank statement and certificates were forged

Satyam's banks -- ICICI Bank, HDFC Bank, Bank of Baroda, etc

Questions……….Questions……….

Page 17: Shame for corporate India Shame for corporate India

Role of Independent Directors :Role of Independent Directors : Despite the shareholders not being taken

into confidence, the directors went ahead with the management's decision

Role of Government :Role of Government : The government too is equally guilty in not

having managed to save the shareholders, the employees and some clients of the company from losing heavily

Political angle : Political angle : Protection – Why ?? Protection – Why ??

Questions……….Questions……….

Page 18: Shame for corporate India Shame for corporate India

Rich potential for scams in IndiaRich potential for scams in India Clear need for systems to prevent such Clear need for systems to prevent such

scams.scams. The monitoring mechanism of Auditors, The monitoring mechanism of Auditors,

Sebi and the Independent directors were Sebi and the Independent directors were either compromised or duped.either compromised or duped.

Many more Satyams might be in the Many more Satyams might be in the offing…..offing…..

The Path ahead….The Path ahead….

Page 19: Shame for corporate India Shame for corporate India

‘‘Quis custodiet ipsos custodesQuis custodiet ipsos custodes? ? ’’

Police the policemen – ?? Police the policemen – ??

The US found its way – SOX act.The US found its way – SOX act.

India needs to find what works hereIndia needs to find what works here

We can take lessons from US -We can take lessons from US -

- Personal criminal liability of Fraud- Personal criminal liability of Fraud

- Statutory Auditors to be rotated after a - Statutory Auditors to be rotated after a period specified by regulationperiod specified by regulation

- Detailed financial disclosures- Detailed financial disclosures

Page 20: Shame for corporate India Shame for corporate India

‘‘Quis custodiet ipsos custodesQuis custodiet ipsos custodes? ? ’’

Police the policemen – ?? Police the policemen – ??

Regulations to limit auditors from Regulations to limit auditors from other roles like financial consulting.other roles like financial consulting.

Detailed procedure for related party Detailed procedure for related party transactions.transactions.

And many more…………And many more…………

Page 21: Shame for corporate India Shame for corporate India

ThanksThanks