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Satyam Scam: People Involved in The Scandal
Satyam Scam: People Involved in The Scandal
In one of the biggest frauds in India’s corporate history, B. Ramalinga Raju, founder and CEO of
Satyam Computers, India’s fourth-largest IT services firm, announced on January 7, 2008 that
his company had been falsifying its accounts for several years, overstating revenues and
inflating profits by $1.47 billion. Nearly $1.04 billion in bank loans and cash that the company
claimed to own was nonexistent. Satyam also underreported liabilities on its balance sheet. Mr.
Raju falsified the 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 6,000 fake salary accounts over the past few years and
appropriated the money after the company deposited it. The company's 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.
• Greed
• Executive incentives
Individual and situational factors that have been most important in causing
the scandal
Individual factors
1. Greed: Greed is something that cannot be avoided until it is fulfilled. In Satyam scam
greed was one of the individual factors that aspired the Mr. Raju to go for such
malpractices.
2. Ambitious Corporate growth: In a short span of time, Satyam Computers services ltd
became a leading global consulting and IT services company spanning 55 countries. It
was one of the few Indian IT services companies listed on the New York Stock Exchange.
It was ranked as India‘s fourth largest software exporter, after TCS, Infosys and Wipro.
But In spite of that much success in shorter span of time Mr. Raju wasn’t satisfied with
the level of the growth and he continued to falsify the balance sheet and Income
statement.
Situational factors
1. Excessive interest in maintaining stock prices: Stock prices plays important in role in
developing a company and its brand. So Satyam was very much fascinated in maintain
and increasing the share price in order to get attention of investors and increase
confidence in investors.
2. Audit failures‐ Internal & External: Global auditing firm Price Waterhouse Coopers ("PWC")
audited Satyam's books from June 2000 until the discovery of the fraud. Several
commentators criticized PWC harshly for failing to detect the fraud. Satyam also paid
PWC twice what other firms would charge for the audit, which raises questions about
whether PWC was complicit in the fraud.
Recommendations for how to avoid such a situation recurring in future
1. Strengthening of systems and processes : What the Satyam case exposed were
weaknesses in our regulatory system and lack of adequate investor protection. Since
then SEBI and other regulatory agencies have plugged loopholes for which they must
get credit. Investor protection is better than what it was in 2009.
2. Revival and growth: The manner in which the company was eventually sold was
exemplary. Mahindra’s won it fair and square in a transparent bidding process.
Mahindra’s merged their existing IT holdings into Satyam to form Tech Mahindra,
which is today one of the fastest growing Tier I Indian IT firms.
3. Wheels of justice may grind slowly but they do surely: In a country where there is a
huge backlog of cases that takes decades to arrive at closure, a verdict has been
pronounced in a relative short span of six years in a case on white-collar corporate
fraud ( Satyam scam).
4. Good corporate governance practices: It also brought upfront what a board can do in
ensuring good corporate governance practices. Diversity in the boardroom and not just
people lending their names has meant sharper scrutiny of managements.