Table of Contents

INTRODUCTION....................................................................................................... 3
ETHICS IN INFORMATION TECHNOLOGY...................................................................5
ETHICAL ISSUES FOR IT........................................................................................... 7
ETHICAL PRACTICES OF IT....................................................................................... 9
INTELLECTUAL PROPERTY RIGHTS........................................................................11
FIVE ETHICAL CHALLENGES OF INFORMATION TECHNOLOGY................................16
ETHICAL ISSUES IN IT............................................................................................ 19
CASE STUDY 1....................................................................................................... 20
CASE STUDY 2....................................................................................................... 26

INTRODUCTION
Every society forms a set of rules that establishes the boundaries of generally accepted
behaviour. These rules are often expressed in statements about how people should behave,
and the individual rules fit together to form the moral code by which a society lives.
Unfortunately, the different rules often have contradictions, and people are sometimes
uncertain about which rule to follow. For instance, if you witness a friend copy someone
elses answers while taking an exam, you might be caught in a conflict between loyalty to
your friend and the value of telling the truth. Sometimes the rules do not seem to cover new
situations, and an individual must determine how to apply existing rules or develop new ones.
You may strongly support personal privacy, but do you think an organization should be
prohibited from monitoring employees use of its email and Internet services? The term
morality refers to social conventions about right and wrong that are so widely shared that
they become the basis for an established consensus. However, individual views of what
behaviour is moral may vary by age, cultural group, ethnic background, religion, life
experiences, education, and gender. There is widespread agreement on the immorality of
murder, theft, and arson, but other behaviours that are accepted in one culture might be
unacceptable in another. Even within the same society, people can have strong disagreements
over important moral issues. In the United States, for example, issues such as abortion, stem
cell research, the death penalty, and gun control are continuously debated, and people on both
sides of these debates feel that their arguments are on solid moral ground.

ETHICS
Ethics is a set of beliefs about right and wrong behaviour within a society. Ethical behaviour
conforms to generally accepted norms, many of which are almost universal. However,
although nearly everyone would agree that certain behaviours such as lying and cheating are
unethical, opinions about what constitutes ethical behaviour can vary dramatically. For
example, attitudes toward software piracy a form of copyright infringement that involves
making copies of software or enabling others to access software to which they are not entitled
range from strong opposition to acceptance of the practice as a standard approach to
conducting business. In 2011, an estimated 43 percent of all personal computer software in
circulation worldwide was pirated at a commercial value of $63 billion (USD).5 Zimbabwe

(92%), Georgia (91%), Bangladesh (90%), Libya (90%), and Moldova (90%) are consistently
among the countries with the highest rate of piracy. The United States (19%), Luxembourg
(20%), Japan (21%), and New Zealand (22%) are consistently among the countries with the
lowest piracy rates.
As children grow, they learn complicated tasks such as walking, talking, swimming, riding a
bike, and writing the alphabet that they perform out of habit for the rest of their lives. People
also develop habits that make it easier for them to choose between what society considers
good or bad. A virtue is a habit that inclines people to do what is acceptable, and a vice is a
habit of unacceptable behaviour. Fairness, generosity, and loyalty are examples of virtues,
while vanity, greed, envy, and anger are considered vices. Peoples virtues and vices help
define their personal value system the complex scheme of moral values by which they live.

ETHICS IN INFORMATION
TECHNOLOGY
The growth of the Internet, the ability to capture and store vast amounts of personal data, and
greater reliance on information systems in all aspects of life have increased the risk that
information technology will be used unethically. In the midst of the many IT breakthroughs in
recent years, the importance of ethics and human values has been underemphasized with a
range of consequences. Here are some examples that raise public concern about the ethical
use of information technology:
Many employees have their email and Internet access monitored while at work, as
employers struggle to balance their need to manage important company assets and work
time with employees desire for privacy and self direction.
Millions of people have downloaded music and movies at no charge and in apparent
violation of copyright laws at tremendous expense to the owners of those copyrights.
Organizations contact millions of people worldwide through unsolicited email (spam) as
an extremely low-cost marketing approach.
Hackers break into databases of financial and retail institutions to steal customer
information, and then use it to commit identity theftopening new accounts and charging
purchases to unsuspecting victims.
Students around the world have been caught downloading material from the Web and
plagiarizing content for their term papers.
Web sites plant cookies or spyware on visitors hard drives to track their online purchases
and activities.
This book is based on two fundamental tenets. First, the general public needs to develop a
better understanding of the critical importance of ethics as it applies to IT; currently, too
much emphasis is placed on technical issues. Unlike most conventional tools, IT has a
profound effect on society. IT professionals and end users need to recognize this fact when
they formulate policies that will have legal ramifications and affect the wellbeing of millions
of consumers.
The second tenet on which this book is based is that in the business world, important
decisions are too often left to the technical experts. General business managers must assume
greater responsibility for these decisions, but to do so they must be able to make broadminded, objective decisions based on technical savvy, business know-how, and a sense of

ethics. They must also try to create a working environment in which ethical dilemmas can be
discussed openly, objectively, and constructively.
Thus, the goals of this text are to educate people about the tremendous impact of ethical
issues in the successful and secure use of information technology; to motivate people to
recognize these issues when making business decisions; and to provide tools, approaches, and
useful insights for making ethical decisions.

ETHICAL ISSUES FOR IT

Software Piracy
Software piracy in a corporate setting can sometimes be directly traceable to IT professionals
they might allow it to happen, or they might actively engage in it. Corporate IT usage policies
and management should encourage users to report instances of piracy and to challenge its
practice. For example, the software piracy rate in China exceeds 80 percent, so it is clear that
the business managers and IT professionals in that country do not take a strong stand against
the practice.
Sometimes IT users are the ones who commit software piracy. A common violation occurs
when employees copy software from their work computers for use at home. When
confronted, the IT users argument might be: I bought a home computer partly so I could
take work home and be more productive; therefore, I need the same software on my home
computer as I have at work. However, if no one has paid for an additional license to use the
software on the home computer, this is still piracy.
The increasing popularity of the Android smart phone operating system has created a serious
software piracy problem. Some IT end users have figured out how to download applications
from the Android Market Web site without paying for them, and then use the software or sell
it to others. One legitimate Android application developer complained that his first
application was pirated within a month and that the number of downloads from the pirates
site were greater than his own. Professional developers become discouraged as they watch
their sales sink while pirates sales rocket.

Inappropriate Use of Computing Resources

Some employees use their computers to surf popular Web sites that have nothing to do with
their jobs, participate in chat rooms, view pornographic sites, and play computer games.
These activities eat away at worker productivity and waste time. Furthermore, activities such
as viewing sexually explicit material, sharing lewd jokes, and sending hate email could lead
to lawsuits and allegations that a company allowed a work environment conducive to racial or
sexual harassment. A survey by the Fawcett Society found that one in five men admit to
viewing porn at work, while a separate study found that 30 percent of mobile workers are
viewing porn on their Web-enabled phones. Organizations typically fire frequent
pornography offenders and take disciplinary action against less egregious offenders.

Recently, the executive director of the Pentagons Missile Defence Agency issued a memo to
its 8,000 employees warning them to stop using their work computers to access Internet porn
sites. One concern of government officials is that many pornography sites are infected with
computer viruses and other malware; criminals and foreign intelligence agencies often use
such sites as a means to gain access to government and corporate computer networks. For
example, a foreign agent can embed malware capable of stealing data or opening computer
communications ports whenever certain photos or videos are downloaded to a computer.

Inappropriate Sharing of Information

Every organization stores vast amounts of information that can be classified as either private
or confidential. Private data describes individual employeesfor example, their salary
information, attendance data, health records, and performance ratings. Private data also
includes information about customerscredit card information, telephone number, home
address, and so on. Confidential information describes a company and its operations,
including sales and promotion plans, staffing projections, manufacturing processes, product
formulas, tactical and strategic plans, and research and development. And IT user who shares
this information with an unauthorized party, even inadvertently, has violated someones
privacy or created the potential that company information could fall into the hands of
competitors. For example, if an employee accessed a co-workers payroll records via a human
resources computer system and then discussed them with a friend; it would be a clear
violation of the co-workers privacy.
In late 2010, hundreds of thousands of leaked State Department documents were posted on
the Wiki Leaks Web site. As of this writing, it appears that the source of the leaks was a lowlevel IT user (an Army private) with access to confidential documents. The documents
revealed details of behind-the-scenes international diplomacy, often divulging candid
comments from world leaders and providing particulars of U.S. tactics in Afghanistan, Iran,
and North Korea.39 The leaked documents strained relations between the United States and
some of its allies. It is also possible that the incident will lead to less sharing of sensitive
information with the United States because of concerns over further disclosures.

ETHICAL PRACTICES OF IT
The growing use of IT has increased the potential for new ethical issues and problems; thus,
many organizations have recognized the need to develop policies that protect against abuses.
Although no policy can stop wrongdoers, it can set forth the general rights and
responsibilities of all IT users, establish boundaries of acceptable and unacceptable
behaviour, and enable management to punish violators. Adherence to a policy can improve
services to users, increase productivity, and reduce costs. Companies can take several of the
following actions when creating an IT usage policy.

Establishing Guidelines for Use of Company Software

Company IT managers must provide clear rules that govern the use of home computer sand
associated software. Some companies negotiate contracts with software manufacturers and
provide PCs and software so that IT users can work at home. Other companies help
employees buy hardware and software at corporate discount rates. The goal should be to
ensure that employees have legal copies of all the software they need to be effective,
regardless of whether they work in an office, on the road, or at home.

Defining the Appropriate Use of IT Resources

Companies must develop, communicate, and enforce written guidelines that encourage
employees to respect corporate IT resources and use them to enhance their job performance.
Effective guidelines allow some level of personal use while prohibiting employees from
visiting objectionable Internet sites or using company email to send offensive or harassing
messages.

Structuring

Information

Systems

to

Protect

Data

and

Information
Organizations must implement systems and procedures that limit data access to just those
employees who need it. For example, sales managers may have total access to sales and
promotion databases through a company network, but their access should be limited to
products for which they are responsible. Furthermore, they should be prohibited from

accessing data about research and development results, product formulas, and staffing
projections if they dont need it to do their jobs.

Installing and Maintaining a Corporate Firewall

A firewall is hardware or software that serves as a barrier between an organizations network
and the Internet; a firewall also limits access to the companys network based on the
organizations Internet-usage policy. A firewall can be configured to serve as an effective
deterrent to unauthorized Web surfing by blocking access to specific objectionable Web sites.
(Unfortunately, the number of such sites is continually growing, so it is difficult to block
them all.) A firewall can also serve as an effective barrier to incoming email from certain Web
sites, companies, or users. It can even be programmed to block email with certain kinds of
attachments (for example, Microsoft Word documents), which reduces the risk of harmful
computer viruses.

INTELLECTUAL PROPERTY RIGHTS

Intellectual property (IP) refers to creations of the intellect for which a monopoly is assigned
to designated owners by law. Intellectual property rights (IPRs) are the protections granted to
the creators of IP, and include trademarks, copyright, patents, industrial design rights, and in
some jurisdictions trade secrets. Artistic works including music and literature, as well as
discoveries, inventions, words, phrases, symbols, and designs can all be protected as
intellectual property.
The importance of intellectual property in India is well established at all levels- statutory,
administrative and judicial. India ratified the agreement establishing the World Trade
Organisation (WTO). This Agreement, inter-alia, contains an Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPS) which came into force from 1st January
1995. It lays down minimum standards for protection and enforcement of intellectual
property rights in member countries which are required to promote effective and adequate
protection of intellectual property rights with a view to reducing distortions and impediments
to international trade. The obligations under the TRIPS Agreement relate to provision of
minimum standard of protection within the member countries legal systems and practices.
The Agreement provides for norms and standards in respect of following areas of intellectual
property

Patents
Trade Marks
Copyrights
Geographical Indications
Industrial Designs

PATENTS
The basic obligation in the area of patents is that, invention in all branches of technology
whether products or processes shall be patentable if they meet the three tests of being new
involving an inventive step and being capable of industrial application. In addition to the
general security exemption which applied to the entire TRIPS Agreement, specific exclusions

are permissible from the scope of patentability of inventions, the prevention of whose
commercial exploitation is necessary to protect public order or morality, human, animal, plant
life or health or to avoid serious prejudice to the environment. Further, members may also
exclude from patentability of diagnostic, therapeutic and surgical methods of the treatment of
human and animals and plants and animal other than micro-organisms and essentially
biological processes for the production of plants and animals.
The TRIPS Agreement provides for a minimum term of protection of 20 years counted from
the date of filing.
India had already implemented its obligations under Articles 70.8 and 70.9 of TRIP
Agreement.
To view Trade Related Aspects of Intellectual Property Rights (TRIP) Agreement Click here
Acts related to Patents

The Patents Act, 1970

The Patents (amendment) Act, 1999
The Patents (amendment) Act, 2002
ThePatents (amendment) Act, 2005

Rules pertaining to Patents

The Patents Rules 2003
The Patents (Amendment) Rules 2005
The Patents (Amendment) Rules 2006

TRADEMARKS
Trademarks have been defined as any sign, or any combination of signs capable of
distinguishing the goods or services of one undertaking from those of other undertakings.
Such distinguishing marks constitute protectable subject matter under the provisions of the
TRIPS Agreement. The Agreement provides that initial registration and each renewal of
registration shall be for a term of not less than 7 years and the registration shall be renewable
indefinitely. Compulsory licensing of trademarks is not permitted.
Keeping in view the changes in trade and commercial practices, globalisation of trade, need
for simplification and harmonisation of trademarks registration systems etc., a comprehensive
review of the Trade and Merchandise Marks Act, 1958 was made and a Bill to repeal and

replace the 1958 Act has since been passed by Parliament and notified in the Gazette on
30.12.1999. This Act not only makes Trade Marks Law, TRIPS compatibility but also
harmonises it with international systems and practices. Work is underway to bring the law
into force.
Trade Marks Acts
Trade Marks Act, 1999
New Elements in the Trade Marks Act, 1999

COPYRIGHTS
Indias copyright law, laid down in the Indian Copyright Act, 1957 as amended by Copyright
(Amendment) Act, 1999, fully reflects the Berne Convention on Copyrights, to which India is
a party. Additionally, India is party to the Geneva Convention for the Protection of rights of
Producers of Phonograms and to the Universal Copyright Convention. India is also an active
member of the World Intellectual Property Organisation (WIPO), Geneva and UNESCO.
The copyright law has been amended periodically to keep pace with changing requirements.
The recent amendment to the copyright law, which came into force in May 1995, has ushered
in comprehensive changes and brought the copyright law in line with the developments in
satellite broadcasting, computer software and digital technology. The amended law has made
provisions for the first time, to protect performers rights as envisaged in the Rome
Convention
Several measures have been adopted to strengthen and streamline the enforcement of
copyrights. These include the setting up of a Copyright Enforcement Advisory Council,
training programs for enforcement officers and setting up special policy cells to deal with
cases relating to infringement of copyrights.

Rules and Acts related to Copyrights

The Copyright (Amendment) Act, 2012
Copyright, Act 1957
Copyright Rules, 1958
Copyright Handbook
International Copyright Order, 1999
Copyright Piracy in India
Amendments in the Act

GEOGRAPHICAL INDICATIONS
The agreement contains a general obligation that parties shall provide the legal means for
interested parties to prevent the use of any means in the designation or presentation of a good
that indicates or suggests that the good in question originates in a geographical area other
than the true place of origin in a manner which misleads the public as to the geographical
origin of the goo. There is no obligation under the Agreement to protect geographical
indications which are not protected in their country or origin or which have fall en into disuse
in that country.
A new law for the protection of geographical indications, viz. the Geographical Indications of
Goods (Registration and the Protection) Act, 1999 has also been passed by the Parliament and
notified on 30.12.1999 and the rules made there under notified on 8-3-2002.

INDUSTRIAL DESIGNS
Industrial designs refer to creative activity which result in the ornamental or formal
appearance of a product and design right refers to a novel or original design that is accorded
to the proprietor of a validly registered design. Industrial designs are an element of
intellectual property. Under the TRIPS Agreement, minimum standards of protection of
industrial designs have been provided for. As a developing country, India has already
amended its national legislation to provide for these minimal standards.
The essential purpose of design law it to promote and protect the design element of industrial
production. It is also intended to promote innovative activity in the field of industries. The
existing legislation on industrial designs in India is contained in the New Designs Act, 2000
and this Act will serve its purpose well in the rapid changes in technology and international
developments. India has also achieved a mature status in the field of industrial designs and in
view of globalization of the economy, the present legislation is aligned with the changed
technical and commercial scenario and made to conform to international trends in design
administration.
This replacement Act is also aimed to in act a more detailed classification of design to
conform to the international system and to take care of the proliferation of design related
activities in various fields.

Obligations envisaged in respect of industrial designs are that independently created designs
that are new or original shall be protected. Individual governments have been given the
option to exclude from protection, designs dictated by technical or functional considerations,
as against aesthetic consideration which constitutes the coverage of industrial designs. The
right accruing to the right holder is the right to prevent third parties not having his consent
from making, selling or importing articles being or embodying a design, which is a copy or
substantially a copy of the protected design when such acts are undertaken for commercial
purposes. The duration of protection is to be not less than 10 years.

FIVE ETHICAL CHALLENGES OF

INFORMATION TECHNOLOGY
As much as information technology is important to our lives, it is facing some serious ethical
challenges and it is up to the IT experts and users of information technology to be ready for
these challenges. As more emerging information technologies pop up on the market, most of
the IT experts and users do not know how to go about the challenges brought about by these
technologies. Information technology is facing major challenges which are lack of privacy,
security, copyright infringement and increased computer crimes. Criminals have been eagerly
utilising the many loop holes technology offers. Since information technology greatly aids
the speed, flow and access of information, cyber crime has become an ever rising profession.
Many businesses and organizations are at risk of becoming a cyber victim on a daily basis, as
most, if not all business are based on some digital network.
There is also the possible threat of unfaithful or vengeful employees that can use information
technology to achieve their personal goals which might be harmful to an organization. IT is
not bad in itself, but the way humans use the tools provided by information technology has
brought some serious challenges.
The five challenges are:
Security: With tools like the internet, hackers have found it very easy to hack into any
computer or system as long as it is connected on internet. Hackers can easily use an IP
(Internet Protocol) address to access a users computer and collect data for selfish
reasons. Also the wide spread of internet cookies which collect information whenever
we use the internet , has exposed IT users to high risks of fraud and conflicting
interests. Many big companies use these cookies to determine which products or
service they can advertise to us. When it comes to online banking, the transfer of
money can easily be interrupted by a hacker and all the money will be transferred to
their desired accounts , which affects both the bank and the customers who is using
online banking technology.

 Privacy Issues: As much as information technology has enabled us to share and find
relevant information online,. It has also exploited our freedom of privacy. Their so
many ways our privacy is exploited,
o Use of internet webcams, experienced computer users can turn on any webcam
of any computer online and they will have access to your private life, many
celebrities have been victims of these online stalkers. A good example is
Dharun Ravi a former Rutgers University student who was spying on his
roommate through a webcam.
o Use of social networks, the main concept of these networks is to connect with
new and old friends then share your life with them, however, the loop hole in
this, is that whenever someone access your shared life data like photos, they
can like it and send it their friends who are not your friends, which might
expose you to users with wrong intentions to use your data, also some
companies are known for spying on their employees via these social networks.

Copyright Infringement: Information technology has made it easy for users to

access any information or artefact at any given time. With the increased development
of music sharing networks and photo bookmarking sites, many original creators of
these works are losing the credibility of their works, because users of IT can easily
gain access and share that data with friends. Free music and file downloading sites are
popping up on internet every day, lots of original work like music albums, books, are
being downloaded for free. In this case one legitimate user will purchase the book,
software, web template or music album, and they will submit it to a free download
site where others will simply just download that data for free. It is good news for the
users because it saves them money, but it harms the original creator of these works.
The government has closed some of these sites like Megaupload.com, but many are
popping up using funny URLs.

 Increased pressure on IT experts. Since information technology systems have to

run all the time, pressure is mounted on IT experts to ensure the accuracy and
availability of these systems. Many big organizations which need to operate 24 hours
will require a standby IT team to cater for any issues which might arise during the
course of operation. This pressure results into stress and work overload which
sometimes results into Imperfection.

Digital divide: Information technology has many opportunities and it has shaped
many industries in developed countries; however, developing countries have
difficulties of enjoying the same benefits of Information technology. To get these
benefits they have to train their labour and users should also adopt the new culture
which is a bit costly in these developing countries. In some remote areas they do not
even have power, so information technology tools like computers cannot be used. In
other sectors like education, most of these developing countries have poor old
education systems, so a student will not be aware of new information technologies.

ETHICAL ISSUES IN IT
Ethical challenges facing the tech industry include issues in areas such as security,
privacy, ownership, accuracy and control; for example, the question of whether a tech
company has a duty to protect its customers' identities and personal information is an
example of an ethical challenge relating to security and privacy. Some of these ethical
issues are defined by laws relating to information security, intellectual property and
financial transactions but, as with ethics relating to other areas of the human experience,
the law is not necessarily the same thing as a set of ethics. Some information technology
professionals feel that ethical behaviour is essential for the industry regardless of how that
behaviour adheres to the law.
The wide availability of personal information thanks to the Internet, data collection and
cloud storage presents a set of ethical challenges for the tech sector and IT professionals.
A recent scandal involving the "hacking" of personal photographs from celebrities' iCloud
accounts highlights the ease with which personal information can be accessed and
distributed with a modicum of IT knowledge. Issues like this one highlight the need for a
set of ethical standards within the tech industry. Are companies responsible for protecting
their users' information? This is an ethical question that the tech industry is working to
answer as data security becomes increasingly important.

CASE STUDY 1
The case examines the corporate governance issues at the India based IT services company,
Satyam Computer Services Limited (Satyam). In mid-December 2008, Satyam announced
acquisition of two companies - Maytas Properties and Maytas Infrastructure owned by the
family members of Satyam's founder and Chairman Ramalinga Raju (Raju). It planned to
acquire 100% and 50% stakes in Maytas property and infra for $1.6B. Due to adverse
reaction from institutional investors and the stock markets, the deal was withdrawn within
12 hours. Questions were raised on the corporate governance practices of Satyam with
analysts and investors questioning the company's board on the reasons for giving consent for
the acquisition as it was a related party transaction.

After the deal was aborted, four of the prominent independent directors resigned from the
board of the company. In early January 2009, Raju revealed that the revenue and profit
figures of Satyam had been inflated for past several years. The following were the inflated
figures:

Inflated cash and bank balance Rs.5040cr

Nonexistent accrued interest Rs376cr

Understated liability of Rs.1230cr

Overstated Debtor position of Rs.490cr

Inflated staff by 12000 ( Actual were 40000)

Revenue of Rs.2700cr (Actual were Rs.2112cr)

Operating margin to be 6494 cr ( Actual were 61cr)

INDIAS LARGEST FRAUD- Rs.7800crore( now estimated as 14000 crore)

As per the definition of corporate governance discussed above, a good corporate governance
is one where a firm commits & adopts ethical practices across its entire value chain & in all
of its dealing with a wide group of stakeholders encompassing employee, customer, vendors,
regulators & shareholders in both good and bad times.

Corporate governance includes various parties:

1) shareholders
2) employees
3) management
4) bankers
5) government
Governance issue at Satyam arose because of non fulfilment of obligation of the company
towards the various stakeholders. It proved a poor relationship with all the stakeholders.
It is well known that a shareholder has a right to get information from the organization,
such information could be with respect to the merger and acquisition. Shareholders expect
transparent dealing in an organization. They even have right to get the financial reporting
and records.
In the case of satyam, the above obligations were never fulfilled. The acquisition of
maytas infrastructure and properties were announced,
without the consent of shareholders. They were even provided with false inflated financial
reports. The shareholders were cheated.
It is well known that the collapse of any organizations reputation has a direct impact on
the employees job. As per the case, employees were shown with a inflated figure. The
excess of employees in the organization were kept under VIRTUAL POOL who received
just 60% of their salaries and several were removed.

The entire scam had its impact on management. Questions were raised over the credibility
of management.
Any organization has its obligation towards the Government by means of timely payment
of taxes and abiding by the rules and laws framed up by the Government. As per the case
with satyam , the company did not pay advance tax for the financial year 2009. As per the
rule, the advance tax is to be paid 4 times a year; such was not fulfilled by them.
Finally the satyam computer consultancy limited didnt have good relationship with bank
too. SCS was blacklisted by world Bank over charges of Bribery. It was declared
ineligible for contracts to providing:
1) Improper benefit to bank staff.
2) Failing to maintain documentation to support fees.
The revelation further deepened concerns about poor corporate governance practices at the
company. The case describes the corporate governance structure at Satyam, its code of
conduct, roles and responsibilities of different committees under the board, whistle blower
policy etc. It highlights the role played by the independent directors of Satyam in approving
the Maytas deal and discusses their limitations.

CONCLSION
As earlier stated that corporate governance consists of four parties. In case of satyam fraud,
board is unable to fulfil its role & responsibilities.
Now we discuss the responsibilities that should be followed ethically by board and what is
actually did

Ethical responsibilities

governing the organization by establishing broad policies and objectives;

selecting, appointing, supporting and reviewing the performance of the chief executive;
ensuring the availability of adequate financial resources;
approving annual budgets;
accounting
to
the
stakeholders
for
the
organization's
performance.

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

Simple manipulation of revenues and earnings To show superior performance
Raising fictitious bills for services that were never rendered.
To increase the Cash & bank balance correspondingly.
Operating profits were artificially boosted from the actual Rs 61 crore to Rs 649 crore.

Its financial statements for years were totally false, cooked up and...

Never had Rs 5064 crores (US$ 1.05 Billion) shown as cash for several years.
Its liability was understated by $ 1.23 Billions.
The Debtors were overstated by 400 million plus.
The interest accrued and receivable by 376 Millions never existed.

So when the case came in light following are the actions that has been taken:

 Nassau sets up panel to avoid satyam like case in future- formed a corporate Governance
& ethics committee, chaired by N.R.Narayana Murthy (chairman and chief mentor of
Infosys.)
Hinduja Global chalks out 100 day plan for satyam.
8 Year ban on satyam to be reviewed.
Govt. orders CBI to probe fraud ( concerned about 52000 employees) - agencies ( 3
months time to probe)

Serious fraud investigation office(SFIO)

Market regulation SEBI,

Institute of chartered accountancy India (ICAI)

Andhra police

The Sebi had in December given a clean chit to Satyam in the probe on violation of corporate
governance law.
The government has realized the need of code of conduct & whistleblower policy, now we
will discuss what is these terms and how they played an important role.

CODE OF CONDUCT
This Code of Business Conduct covers a wide range of business practices and procedures. It
does not cover every issue that may arise, but it sets out basic principles to guide all
employees and officers of the Company. Those who violate the standards in this Code will be
subject to disciplinary action, including possible dismissal. Furthermore, violations of this
Code may also be violations of the law and may result in civil or criminal penalties for you,
your supervisors and/or the Company. The basic principles discussed in this Code are subject
to any Company policies covering the same issues:

Compliance with Laws, Rules and Regulations

Conflicts of Interest
Corporate Opportunities
Competition and Fair Dealing
Political Contributions
Discrimination and Harassment

Health and Safety

Confidentiality

CASE STUDY 2
"The truth is as old as the hills" opined Mahatma Gandhi, christened the Father of the Nation
by Indians. So a company named "Satyam" (Truth, in Sanskrit) is supposed to inspire trust.
Satyam Computer Services was one of the largest and was the one listed on the Indian and
US Stock Exchange. On 7 January 2009, the Chairman of Satyam, Mr. B. Ramalinga Raju
issued a letter (the 7 January letter) to the Board of Satyam and the Indian stock exchanges
and confessed that the books of Satyam reflected non-existent cash and bank balances,
fictitious accrued interest, an overstated debtor position and understated liability in an
aggregate amount of Rs.71,360 million (approximately US$1.5 billion).
The September 2008 quarterly accounts did not reflect the true position of the companys
revenues and operating margins and resulted in artificial cash and bank balances of Rs.5,880
million (approximately $120 million). Mr. Raju stated that the financial statements showed
inflated profits over a period of several years. Satyams stock price had been under pressure
since mid-December 2008, when its Board announced the proposed acquisition of two
companies owned and controlled by Mr. Rajus sons, Maytas Infra Limited (a listed
company) and Maytas Properties Limited, for an aggregate purchase price of approximately
US$1.6 billion. These two companies were in the infrastructure and real estate sectors and the
proposed acquisition was of secondary shares held by the existing shareholders. The
acquisition proposal was withdrawn after adverse investor reaction and four independent
directors on the Board resigned subsequently. In the 7 January letter, Mr. Raju admitted that
the proposed acquisition of the Maytas companies was an attempt to hide the gap in Satyams
balance sheet by acquiring real assets. The stock market reaction to the 7 January letter was
immediate. The share price fell from a high of Rs.188 to a closing price of approximately
Rs.30 during the day.
On 7 January 2009, the Indian stock market regulator, the Securities and Exchange Board of
India (SEBI) commenced investigations under various SEBI regulations. The Ministry of
Corporate Affairs of the Central Government separately initiated a fraud investigation
through its Serious Fraud Investigation Office (SFIO). In addition, the Ministry of Corporate
Affairs filed a petition before the Company Law Board (CLB) to prevent the existing
directors from acting on the Board and to appoint new directors. On 9 January 2009, the CLB
suspended the current directors of Satyam and allowed the Government to appoint up to 10

new nominee directors. Subsequently, the new, six-member Board has appointed a Chief
Executive Officer and external advisors, including the accounting firms KPMG and Deloitte
to restate the accounts of Satyam.
Following the 7 January letter and in accordance with the requirements under the Indian and
the United States accounting standards, PricewaterhouseCoopers (PwC), Satyams auditors,
issued a letter stating that the audit reports and the opinion prepared by them for Satyam
should not be relied upon. Government agencies including the Income Tax Department (for
income tax violations), the Enforcement Directorate (foreign exchange violations) and the
Provident Fund authorities (non-payment of compulsory contributory pension and insurance
dues) also investigated Satyam.
As the details of one of the biggest accounting frauds in India came to light, heads began to
roll. Ramalinga Raju and his brother were fleetly arrested on various criminal charges and an
investigation was initiated by the CID. Merrill Lynch and Credit Suisse terminated their
engagements with the company. The New York Stock Exchange halted trading in Satyam
stock on the same day. India's National Stock Exchange has announced that it will remove
Satyam from its S&P CNX Nifty 50-share index on January 12. The scrip fell faster than a
dive-bomber on steroids and Satyam investors lost clumps of money in the ensuing
bloodbath. The credibility of Satyams statutory auditors, Price Water house Coopers (PWC)
took a severe beating. PWC partners in charge of the Satyam account were suspended. SEBI
initiated an inquiry into its audit process and threatened cancellation of its India license.

Conclusion
Failure in corporate governance is actually a real threat to the future of any
corporation/organisation. With
effective corporate governance based on core values of integrity and trust (reputational value)
who was an
companies will have competitive advantage in attracting and retaining talent and generating
positive reactions in the marketplace if you have a reputation for ethical behaviour in
todays marketplace it engenders not only customer loyalty but employee loyalty. Effective
corporate governance can be achieved by adopting a set of principles and best practices. A
great deal depends upon fairness, honesty, integrity and the manner in which companies
conduct their affairs.
Companies must make a profit in order to survive and grow, however, the pursuit of profits
must stay within ethical bounds. Companies should adopt policies that include environmental
protection, whistle blowing, ethical training programs and so on. Such compliance
mechanisms help develop and build corporate image and reputation, gain loyalty and trust
from consumers and heightens commitment to employees. Ethical compliance mechanisms
contribute to stability and growth since it instils confidence; management, leadership, and
administration are essentially ethical tasks. The focus of the virtues in governance is to
establish a series of practical responses which depend on the consistent application of core
values and principles as well as commitment to ethical business practice. Virtues are powerful
means to personal betterment and bring about social reform Because of its strong appeal to
reason, it diffuses passion, prejudice, pride and self-interest and is a civilizing force in
bringing about justice. Ethics is truly an essential ingredient for business success and it will
continue to serve as the blueprint for success in the 21st century. Many of our traditional role
models have fallen, and so it is more important for us to set a strong ethical example for
future generations. Some answers to the following questions can serve as a basis for future
research endeavours. Were the recent scandals in the US and India are the result of corporate
greed and collusion, or were companies driven by market forces which they were unable or
unwilling to resist? Do we need a radical overhaul of corporate governance and codes or can
companies be relied upon to regulate themselves?
The Satyam incident, though unfortunate, exposed some big loopholes in the system. Just as
the United States needed the Enron Scandal to clean up its act, perhaps India needed the
Satyam fiasco to introduce sweeping changes in its own financial reporting system. It cannot

be denied that the Satyam episode was a stark failure of the code of Corporate Governance in
India. Corporate governance refers to an economic, legal and institutional environment that
allows companies diversify, grow, restructure and exit, and do everything necessary to
maximise long term shareholder value. It is not something which can be enforced by mere
legislation; it is a way of life and has to imbibe itself into the very business culture the
company operates in. Ultimately, following practices of good governance leads to all round
benefits for all the parties concerned. The companys reputation is boosted, the shareholders
and creditors are empowered due to the transparency Corporate Governance brings in, the
employees enjoy the improved systems of management and the community at large enjoys
the fruits of better economic growth in a responsible way. The loyalty of a typical Indian
investor is far greater than his counterparts in the USA or Britain. But, our companies must
not make the mistake of taking such loyalty as a given. To nurture and strengthen this loyalty,
our companies need to give a clear-cut signal that the words your company have real
meaning. That requires well functioning boards, greater disclosure, better management
practices, and a more open, interactive and dynamic corporate governance environment.
Quite simply, shareholders and creditors support are vital for the survival, growth and
competitiveness of Indias companies. Such support requires us to tone up our act today.