This instance illustrates the ruin of Satyam. one of the biggest IT giants in India. because of the deceitful activities carried out by its laminitis Mr. Ramalinga Raju and his associates. Business universe at that point had garnered huge regard for Satyam in footings of hazard direction and corporate administration patterns and Satyam was ranked as the 4th largest IT Company in India. This was the instance before December 16. 2008. when Satyam booster Mr. Ramalinga Raju proposed his purpose to get Matyas Infra and Matyas Properties.
When this proclamation of acquisition reached to the populace. investors had a enormously negative reaction towards Satyam’s determination. Satyam laminitis finally admitted fraud in a fiscal statement disclosure that he had been cooking the books of Satyam for rather some clip. Raju and his squad manipulated hard currency balance. bank balance. accumulated involvement figures. overstated debitors and unostentatious liability in order to pull strings the portion monetary values of the company in the market by misdirecting its investors and the populace.
After admittance of fraud. portion monetary values of Satyam aggressively fell down and Satyam was finally removed from the New York stock exchange and the Bombay stock exchange. The US investors initiated several category action suits against Satyam for its deceitful activities and top executives of Satyam were charged with misdemeanor of federal securities Torahs by publishing false and deceptive fiscal statements. The Satyam dirt has shaken the roots of the Indian fiscal market and has put a large inquiry grade on corporate administration and how far corporations ( people ) can travel to heighten their ain personal benefits.
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Major Issues in the Case Corporate administration Satyam failed to follow the corporate administration patterns that every house was meant to follow. it looked for cringle hopes that could be tweaked to heighten the company’s net income and conceal liabilities from the investors every bit good as the general populace. The Satyam Board was composed of ‘chairman-friendly’ managers who failed to oppugn management’s scheme. They were besides highly slow to move when it was known that the company was in fiscal hurt. The Board ignored critical information related to fiscal errors before the company finally collapsed.
Agency jobs The Chairman ( Ramalinga Raju ) and the CFO ( Srinivas Vadlamani ) worked together to victimize the stakeholders for their personal addition. while the investors thought that the company was bring forthing grosss. and puting in different countries. Clearly. the Chairman and CFO had personal addition in head instead than company benefit. There besides seems to be conflicting involvement of the direction and the stockholders i. e. the direction wanted to take over two building companies Maytas belongingss and Maytas Infra which was against the involvement of the stockholders. Arguments
It’s difficult to conceive of a prima company like Satyam pull stringsing its fiscal statements but in this extremely competitory industry it is necessary to stay profitable in order to last in the long-run. This is possibly the ground why Satyam resorted to pull stringsing its fiscal statement. We can see that there were big sum of use in the income statement every bit good as in the balance sheet of Satyam’s fiscal statements. Manipulation in the Income Statement The income statement consisted of some incompatibilities that were made deliberately to keep the degree of profitableness of the company.
The sum of gross revenues gross has been overstated by Rs. 588 crore i. e. was recorded as Rs. 2700 crore alternatively of Rs. 2112 crore. The operating net income border was recorded as Rs. 649 crore ( i. e. 24 % of the sale gross ) when the existent operating net income border was Rs. 61 crore ( i. e. 3 % of the gross revenues gross ) . The figure of employee was besides manipulated i. e. it was recorded as 52000 employees when the existent figure of employees was merely 43622 employees.
Manipulation in the Balance Sheet The balance sheet besides seemed to hold some degree of incompatibilities from the existent value that were done deliberately to demo a strong liquidness place of the company. The hard currency balance that was recorded as Rs. 5361 crore consisted of non-existence sum of Rs. 5040 crore i. e. the existent hard currency balance was Rs. 321 crore. The assets side besides consisted of accumulated involvement of Rs. 376 crore which was non-existent and the debitors sum was overstated by Rs. 490 crore i. e. the existent value of debitor was Rs. 2161 crore whereas the recorded value was Rs. 2651 crore. The liability side of he equilibrate sheet was understated by Rs. 1230 crore which was the sum borrowed from the known beginnings by Mr. Raju to guarantee the operations are running.
Even after such uses the regulative governments. the independent executive and the external hearers were non able to raise the ruddy flag which shows that there is a immense hole in the corporate administration. The company besides seems to be holding conflicting involvement between the direction and the stockholders. The company was looking to diversify its concern by taking over the building companies Maytas Properties and Maytas Infra at a cost of 1. billion dollars. Satyam was looking to come in the real-estate concern but this was a surprising strategic determination for the stockholders. The stockholders wanted Satyam to spread out in related concerns.
The negative reaction of the stockholders toward the determination caused the portion monetary values to fall by 70 % in a merely a few yearss of the determination. Managerial Implication Agency job The job of actuating one party to move on behalf of another can be called the principal-agent job or bureau job for short. ( Wikipedia. 2013 ) Agency jobs arise in a assortment of different contexts.
The bureau job normally refers to a struggle of involvement between a company’s direction and the company’s shareholders. The director. moving as the agent for the stockholders. or principals. is supposed to do determinations that will maximise stockholder wealth. However. the determination must be in the favour of all parties but it was non the instance with Satyam. Satyam decided to get Maytas Properties and Maytas Infra. The stockholders resisted the determination claiming it to be unrelated concern and acquisition should non take topographic point with Maytas which became a finishing blow to the company.
Corporate administration and concern moralss Corporate administration refers to the system by which corporations are directed and controlled. The administration construction specifies the distribution of rights and duties among different participants in the corporation ( such as the board of managers. directors. stockholders. creditors. hearers. regulators. and other stakeholders ) and specifies the regulations and processs for doing determinations in corporate personal businesss. ( Wikipedia. 2013 ) Governance is a mechanism for supervising the actions. policies and determinations of corporations.
On a quarterly footing. Satyam’s net incomes grew. Mr. Raju admitted that the fraud which he committed amounted to about $ 276 million. In the procedure. Satyam violated all the regulations of corporate administration. The Satyam cozenage has been an illustration for following hapless administration patterns. The issue of administration rose at Satyam because of non fulfilment of the duty of the company towards its stakeholders like dividing functions of board and direction. and besides the function of CEO and president.
Business moralss reflects the doctrine of concern. one of whose purposes is to find the cardinal intents of a company. Business moralss are implemented in order to guarantee that a certain needed degree of trust exists between consumers and assorted signifiers of market participants with concerns ( Investopedia. 2013 ) . The civilization in Satyam. particularly dominated by the board. symbolized such an unethical civilization. Satyam as the smallest of the four participants was under force per unit area to demo good consequences in order to last.
Apart from this there was greed doing them to indulge in unethical behaviour. On the one manus. Raju’s rise to stardom in the corporate universe joined with huge force per unit area to affect investors made him a compelled leader to present outstanding consequences. On the reverse. Mr. Raju had to stamp down his ain ethical motives and values in favour of the greater good of the company. The enticement of large compensation to members farther encouraged such behaviour. In the terminal the fraud came to an terminal and the deductions were great. Options
The failure of company like Satyam which had been awarded for its corporate administration and hazard direction creates a quandary for the investors as to which company to believe and put. Hence. investors. board. authorities intercession. accounting criterions and moralss and Code of behavior must all work manus in manus to decide the issue. Investors play an of import function in observing deceitful activities of a company. They must guarantee that information about the company is latest and from trustable beginning. Hence. they should take more attention and compare the tendency of the company with the industry before puting.
Board must supervise the ethical policies and the manner they are being maintained in the company. Transparency and effectivity in scrutinizing and regulative cheques through internal and external hearers and monitoring bureaus should be maintained as it helps to construct and keep trust and trueness from stakeholders. addition good will and investor’s assurance and set up long permanent credibleness for the company. Government should play an active function in company’s matter. often cheques of the company’s public presentation and take necessary stairss to deter malpractice and disproof.
There is a demand to make strong steps to forestall deceitful activities from go oning in future and the auditing houses besides need to be brought under the regulative umbrella. Furthermore. all companies need to pattern ethical behaviour. Every company should besides hold its ain fraud sensing mechanism. It is besides of import for companies to set up an organisational civilization. which supports ethical behavior through a codification of behavior and decently laid out corporate administration policies and processs.
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