FT211026 DEEPAK KUMAR FT211045 MEGHANA GUNTHA FT211063 RICHY JOHN SAMUEL E FT211083 SUBHAM DAGA FT213026 DIVYA BASER FT213055 PARTH KRISHNA WHAT WAS THE PROBLEM WITH SATYAM? ▪ Satyam as a whole neglected corporate governance rules and regulations which were in place and fell victim to its own promoter's fraudulent activities ▪ Both internal and external regulatory failures contributed to this problem ▪ Despite negligible cash flows, Satyam subsidiary Maytas made huge investments which led them to deep debts ▪ Satyam's promoter, Raju, tried to cover up the deceit in Satyam's balance sheets by taking over Maytas. ▪ This move to acquire another company owned by his own family members shook investor confidence and Satyam shares fell by over 50%. This paved the way for the downfall of Satyam ▪ Satyam’s balance sheet carried inflated and non-existent cash and bank balances, Satyam reported false operating margins: 24% of revenue as opposed to the actual 3% of revenue. ▪ Raju had also inflated the size of the workforce by more than 25% and had siphoned off wages of non-existent employees ▪ World Bank blacklisted Satyam for eight years on grounds of data theft and bribing bank officials ▪ Satyam's independent directors were in fact not really independent and following the trend in most owner led companies in India, they were appointed by the promoter aka Raju himself. ▪ The international audit firm, PwC, which was in charge of conducting due diligence for Satyam also failed in its duty to accurately verify their financial statements ▪ Both inflation of cash and bank balances, and non disclosure of liabilities led to 78% drop in share prices after confession letter. BRING OUT IMPORTANT LEARNING FROM THE CASE ▪ Lack of ethics in leadership can doom any organization. ▪ It takes a chain of oversights and missteps for things to go wrong in a corporation. ▪ While the origin of the issue might be something as direct as fraud by an over- ambitious promoter, a range of internal and external factors allows the issue to snowball into a crisis ▪ Corporate Governance is incomplete without proper enforcement and without all checks and balances working in tandem efficiently ▪ Governmental intervention is often crucial in the private sector especially when the failure of a large company threatens the corporate image of the entire nation and consequently the economy ▪ Growth of a company is crucial but not at the cost of ethics. The line between a successful corporation and a ponzi scheme is a thin one if the management is not careful ▪ Conflict of interest: Choosing independent directors who are not only well- educated and qualified but also neutral and free of influence from promoters, is very important for a large organization ▪ Qualities and qualifications of an independent and non executive director must be defined ,such as they should “question intelligently, debate constructively, challenge rigorously and decide dispassionately”