Satyam – the Enron of India

INTRODUCTION The case study ‘Satyam – the Enron of India’ looks at Satyam Computer Services Limited and its involvement in corporate fraud leading to one of India’s largest white-collar crimes. The Satyam scandal marks as one of India’s biggest corporate scandals where its stakeholders were continually fed misleading financial information from its late chairman Ramalinga Raju. This once promising, global IT company provided its services for some of the largest companies in Australia and the United States, such as Telstra, Suncorp and Qantas, to mention a few.

The following case study analysis looks at the failure of Satyam Computer Services Limited due to fierce competition and the need to impress stakeholders, along with inaccurate, misleading accounting statements, unethical behaviour and poor leadership. PART 1: Management issues in the Satyam case study From reviewing the case, the management issues in the case study are unethical behaviour and poor leadership. As there was no approval needed form shareholders it gave Raju and his brother the ability to make all managerial decisions.

The lack of leadership and abuse of power let independent directors and audit committee feel intimidated enough to trust in the managerial decisions without question. The need for power and money led to negligence of fiduciary duties and inaccurate deceptive accounting on Raju’s behalf. Raju’s total disregard for managerial ethics just to make short term figures to impress Satyam’s stakeholders resulted in a complete lack of corporate social responsibility.

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Raju’s greed led to the manipulation of financial records to show increased earnings, payment of salaries to ‘ghost staff’, diversion of funds to purchase property in family member names and fabricated profits¬¬¬¬. It is believed PricewaterhouseCooper failed to perform its role correctly and therefore this failure to follow fiduciary responsibilities lead to Raju’s manipulation of the businesses statements and cash flow was go undetected. PART 2: Why the issues are problematic? In the first instance we examine the unethical behaviour and the conflict of interest with family members in high company roles.

Since the company was founded and owned by Raju himself, the chairman, and his brother occupying the role of managing director, which gave them and overwhelming majority and a psychological advantage into the decision making of the company. This advantage is how the company books were able to be cooked and inflated profits by selling inflated stakes for went undetected for so long. Without the approval of from the shareholder the directors were able to use company funds to be diverted into family real estate investments.

Raju’s expectations for power and ambitious corporate growth also contributed to the fraud. Whist there is no right or wrong way to behave due to Raju’s lack of moral leadership Satyam’s stakeholders, clients and employees were also greatly affected by the demise. Rationalisation and justification lead to negative emotions which could have caused Raju to act emotionally and unethically without any regard for his stakeholders. The damage to the credibility of the company forced the cancellation of projects which in turn lead to the employee’s loss of wages, jobs and self esteem.

The mistrust would have had clients question accountability and would have sought business with Satyums competitors. Shareholders would have lost money in the form of investments. Deceptive reporting practices and complete lack of transparency in the finances damaged the company’s future credibility. As PricewaterhouseCooper failed to detect the discrepancies I believe they also hold some accountability in the downfall of the company. As the falsifying of Satyam’s books would lower its stock values, which inturn would lead lower profits and less investors.

However to leave the auditor out of the equation would be a mistake. As a result of negligence with both PricewaterhouseCooper and Raju, the outsourcing company suffered a massive blow in trust and leave further investment in the company questionable. However whilst the scandal put pressure on the Indian government and other Indian outsourcing, this type of scandal wouldn’t be limited to just India as a culture, as It comes down having a good global manager that exercises good ethical behaviour.

As all mangers are human it’s the ability of mangers to be self disciplined and handle pressure to provide total quality management. PART 3: Recommendations. In Satyam’s case the need to merge or sell the company would be the first step to restore some faith in the company. What happened with Satyam served as a reminder that a universal, quality corporate governance mechanism is needed to ensure future companies don’t follow in Raju’s footsteps. Complete transparencies in finances would also avoid any temptation for unethical behaviour along with more deterring punishments for frauds of this scale.

This would ensure higher loyalty and trust from stakeholders. Henri Fayol’s contribution to management thinking would be a great concept to start with, his five principles; I. Planning – Establishing objectives and goals. Recognising obstacles, these can be internal or external, and how to control them. Forming, implementing and following up of plans. II. Organising – Identification, classification, coordination III. Commanding – The delegation of duties to correct workers, successful leadership. IV.

Coordinating – Make decisions and ensure all information is shared and to monitor the works involved. V. Controlling – Monitoring and making sure all things are running according to plan. Employee performance reviews Whilst policing manager personality traits would be a perfect solution the reality of policing this is near impossible therefore management accountability and responsibility would be a good start. Having a universal Code of Ethical Conduct and setting out universal teachings or courses in global ethics may also provide a solution.

By obtaining a better understanding of cultural diversity, understanding the abilities, vales and personality types of different cultures ultimately it is up to the manager to be fully accountable. REFERENCE LIST Schermerhorn, Davidson, Poole, Simon, Woods, Chau, 2011, Management Foundations and Applications http://www. mahindrasatyam. com/investors/documents/Annual-Repor-for-the-year-2011-12. pdf http://www. vrl-financial-news. com/accounting/intl-accounting-bulletin/issues/iab-2009/iab441/satyam-scandal-where-to-from. aspx http://www. telegraph. co. uk/finance/4161198/Satyam-accounting-scandal-could-be-Indias-Enron. html

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