Ruturaj Kale CG Research Paper Review

NAME – Ruturaj R.
Kale
ROLL NO.- 93
SUBJECT CODE – 310
SUBJECT- CORPORATE GOVERNANCE
STD – MBA 2ND YEAR (III SEM)
Topic – Review of research paper
Review of the research paper
Introduction :
Corporate frauds are illegal and generally are the ones which are
tainted by the breach of trust of persons holding fiduciary relationship
with the company. Satyam Scam is one such corporate fraud. This
article very clearly explains the whole scam viz. the reason of the
scam, how the scam happened. The author ultimately concludes the
article by providing the steps taken by various authorities to prevent
such scams from happening in the future.
Fraud is an act which takes place in almost every sector. Corporate
frauds are illegal and are generally the ones which are tainted by the
breach of trust of persons holding fiduciary relationship with the
company. Fraud is also defined as those acts which ascertain to create
such misrepresentations in the eyes of the third party that can be lethal
for the company in the long run and it further creates unlawful benefits
for the person committing it. The organization shall make endeavours
to deal with frauds and to prevent all such circumstances which can
lead to fraudulent activities in a company. It shall also develop
procedures and systems which can monitor the functions and identify
any kind of illegal or illicit activity in the system. Fraud can take
place either at managerial level and is known as “managerial fraud” or
the ones that takes place at employees’ level and is coined as “fraud by
employee’s association. This article majorly focuses on the Satyam
Scam that took place in India in the year 2002. The article further
discusses about nuances, reasons for commission of such crimes, order
by different authorities in the case and changes in corporate
governance aftermath.
Summary :
The Satyam Computer Service scam is a corporate fraud of Rs. 7,000
crores committed by the promoters of Satyam Computer Services in
the year 2009. The Satyam Computers was at its peak and kept
flourishing with years. It was also known as “IT Crown Jewel of
India.” The Satyam Company Services Limited (hereinafter referred as
SCSL) was incorporated as a private company on 24 th June 1987 in
Hyderabad with a strength of 20 employees. It originally had two
shareholders viz.B.Ramalinga Raju and D.V. Satyanarayana Raju.
These two were also the promoters of the company. The company
became public in the year 1992 by getting itself listed on the Bombay
Stock Exchange (hereinafter referred as BSE). The SCSL was a
company that majorly dealt in full range of IT services. It also served
business process outsourcing services. The company operated on a
global level and it was incorporated in more than 55 countries with
more than 30,000 employees who served more than 500 companies of
the corporation. Out of 500 companies, 150 companies constituted a
part Fortune 500 companies. In 1999, it was declared to be the fastest
growing IT company in India. Mr. Ramalinga Raju was also awarded
“Entrepreneur of the Year” by Ernest & Young in 2007. It was also
awarded “Global Peacock Award “by World Council for corporate
governance in September 2008. Just after 5 months of being awarded
Global Peacock award, the Satyam scam was unfolded, and it was also
termed as “India’s Enron” and “debacle of Indian Financial System.”
Opinion :
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 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 investor’s 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. This is really what effective governance is about.

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NAME – Ruturaj R.

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