Beruflich Dokumente
Kultur Dokumente
07/01/2012
In this paper, we will analyze and discuss the following issues: Satyam corporate governance The controversial decision and its circumstances Analysis and recommendations
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Satyam Spark Solutions and Satyam Enterprise Solutions; Satyam Info way (Sify) incidentally became the first Indian internet company to be listed on the NASDAQ4. On 2009, the BoD of Satyam was composed by nine members comprising five independent directors: Dr. Srinivasan, a management consultant and a visiting professor at several US universities. Prof. Papelu, a professor at the famous Harvard Business School Dham: renown to be father of the Pentium Prof. RAO , dean of the Indian Scholl of Business T. R. PRASAD, Former politician Prof. Raju: chairman of the naval research board
Regarding the qualifications of the board members, it appears that the independent directors are imminent personalities who dont have seemingly any interest link with Satyam operations. Its also clear that they dont have a wide knowledge in the IT and BPO area and the Satyam operations, so we can assume that they must rely completely upon the advice, information and judgment of executive management for any decision. Analysis of attractive commissions and stock options allocated by Satyam to the independents directors for 2007-08, leads to question the real independence of these members. Indeed, stock options were given with a striking discount of nearly IN 498 per Share for a ruling price of INR 500 per share4. The case of Prof. Papelu who get a interesting INR . 9.2 million Professional commission for conducting training programs for Satyam employees undermines seriously its total independence from the management. In the case of executives board members, later investigations conducted by the Andhra Pradesh police and Central agencies have confirmed that the promoters had indulged in insider trading of the companys shares to raise money used to their individual benefits, failing to their legal and fiduciary duty to protect the assets of the company5. The audit committee, though headed by an independent director, failed to detect such practices.
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projects. The Satyam CEO family own about 38% of the two firms, while they hold only 8,5% in the Satyam company. The board blindly preferred to serve the interest of minor shareholders, ignoring to submit such a major decision to the approval of the stakeholders majority, especially when similar case in 1992 had been actively denounced by shareholders and the board had then promised never to invest in CEO family run businesses6. Institutional investors reacted vehemently against this decision stating that the two firms are largely overvalued against their book worth of only $ 225 million; indeed the real estate sector globally faces a major slowdown because of the financial crisis. At a strategic level, its reasonable to discuss the soundness of this decision of Satyamone of the world's largest implementers of SAP systems- to enter a risky non-IT segment, when HCL a major competitor of Satyam invest $800 million to acquire a SAP consulting firm1. It was a real threat to Satyam market-share and the board is supposed to respond to it by strengthening the company in this segment. The defection of four independent directors after the withdrawal of the decision leads us to ask about their real intentions and contribution in the fiasco. We think that they should have stayed in the board to solve the problem instead of leaving and thus weakening more the Satyam position.
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- Other processes relating to the functioning of independent directors may induce greater credibility in board decision making. These include: The requirements of lead independent directors, Executive sessions among independent directors without the
independent directors to advise them on significant transactions involving a company. Such advice would be provided independent of the management or controlling shareholders. Regarding the fraud and the audit process, there is clearly a case for reforms in the audit system such as:
the controlling shareholders to the independent audit committee so that auditors do not owe any allegiance whatsoever to the controlling shareholders, and that the process of appointment and removal of auditors is effected in a manner that is truly independent of controlling shareholder
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influence.
- There is a case for the establishment of a body such as the Public Company Accounting Oversight Board (PCAOB) (that was established in the U.S. a few years ago), as that body would review the intensity and the integrity of audits by auditors on an annual basis. - There is need for auditor rotation as it prevents creation of any affinity between auditors and controlling shareholders, and avoids capture of the audit process by insiders in companies. - Auditor liability is currently an unresolved question, and the affixation of liability for malfeasance needs to be clearly defined. In some countries, the public regulatory authorities (such as the securities regulator) could directly initiate action against auditors and the merits of such an approach require careful consideration.
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Conclusion
The Satyam case raised questions about corporate governance in a major Indian IT company and impacted adversely the Indian Market as a preferred destination for IT outsourcing and investment. In our point of view, the chairman and executives directors, dishonestly failing to their fiduciary duty, took a major responsibility in this scandal. By their passive acting, the independents directors failed to perform their duty and to live up to the stakeholders expectations, and thus accelerated the Fiasco. Reforms in corporate governance of Indians company should be performed by regulators in order to prevent such scandals in the future.
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References:
1. Scandal at Satyam: Truth, Lies and Corporate Governance, Publ i s hed: J anuary 09, 2009 i n I ndi a K nowl edge@Wharton 2. 3. 4. 5. "Report of tbe SEBI Committee on Corporate Governance, February 2003". SEBI Committee on Corporate Governance. http://www.sebi.gov.in/commreport/corpgov.pdf. www.sebi.gov.in/circulars/2005/dil0105.html SATYAMANYTHING BUT SATYAM by A.C. Fernando , 2010,LIBA (Loyala Institute of Business Administration) 5Satyam investigators uncover systemic insider trading, 21 April 2009, http://www.bobsguide.com/guide/news/2009/Apr/21/Satyam_investigators_uncover_%22systemic %22_insider_trading.html. Page 15 of the present case Recommendations came mainly from the following blog: http://indiacorplaw.blogspot.com/2009/02/beyond-satyam-analyzing-corporate.html
6. 7.
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