Session 1, 2013
FINS 3626 p International Corporate Governance
Week 12 Case‐study & Final Examination Review
Dr Gloria Y. Tian School of Banking & Finance firstname.lastname@example.org
Satyam Computers Ltd.
Satyam Computers Ltd., the winner of Golden
Case‐study: Governance Failure Satyam Computers Ltd.
Peacock Award for Excellence in Corporate Governance, ironically became a black mark in the history of corporate governance in India, when Ramalinga Raju (f li j (founder, CEO and the chairman) d d h h i ) admitted fraud in his resignation letter. Satyam, founded by Ramalinga Raju and his brother, became a publicly listed company in 1992. The company expanded into foreign countries in 1996, and Satyam has been cross‐listed in the U.S (as ADR) since 1999. 4
Satyam Computers Ltd. (Cont.)
Satyam: Board Composition (pre‐crisis)
Affiliation Executive chairman, Promoter‐director Managing director, Promoter‐director Executive director, Declared interim CEO Non‐executive director , consultant Non‐executive director, independent Non‐executive director, independent Non‐executive director, independent Non‐executive director, independent Non‐executive director, independent Qualification MBA MBA MCA Ph.D. Ph.D. Occupation Promoter of Satyam Computers Promoter of Satyam Computers Employee and executive director on board of Satyam Professor at Harvard Business School Management consultant and advisor to Kennedy School of Management Director of New Path Ventures LLC,NEA—Indo U.S. Ventures LLC Ramalinga Raju Rama Raju Ram Mynampati Prof. Krishna G.Palepu Dr.(Mrs) Mangalam Srinivasan Mr. Vinod K.Dham Prof. M. Rammohan Rao Mr, T.R. Prasad
The company had some (foreign) institutional investors. The company had a board with majority independence,
and Raju brothers were the only “promoter shareholders” sitting on the board. The audit and remuneration committees were independent. ti itt i d d t In 2008, ranked as one of the largest software development and information technology consulting company in India, Satyam Computers Ltd. was recognized for its outstanding corporate governance practice. 5
B.E /M.E.(Electrical) Ph.D.
Prof. V.S. Raju
Former dean , Indian School of Business M.Sc.Physics/F.I.E.(Fello Retired Bureaucrat(cabinet w Institution of secretary, Government of India) Engineers ‐ India) Ph.D. Chairman of the Naval Research Board,Defense Research and Development Organization,Government of India
Acquisition of (family) related firms:
Satyam: Ownership Structure (pre‐crisis)
• Opposition by (institutional) investors • Drop in share prices
Negative reactions from investors & other parties:
• World bank suspended its business contracts • IL&FS Trust sold Satyam shares that were pledged for loans
Troubled corporate governance:
• Independent directors resigned • Anonymous e‐mail from former senior executive: irregularities and fraud
• Ramlinga Raju’s resignation letter ‐‐ confirmation of fraud.
Satyam: “Stated” Reasons for Fraud
To fend off (potential) hostile takeovers; To maintain its pride as an industry leader; Raju never personally profited from the high share
Satyam: True Reasons for Fraud
Significant financial manipulation & fraud; A web of family‐controlled companies; Raju brothers have decreased shareholdings over
prices because he never sold any of his shares; “It was like riding a tiger not knowing how to get off without being eaten.”
time, and used shares as pledges to obtain loans;
Poor corporate governance: inadequate supervision &
lack of questioning culture.
Satyam: The Audit Committee
Responsibility Did the Audit Committee fulfil its responsibility?
Satyam: The Internal Auditor
Responsibility Did the Internal Auditor fulfil its responsibility?
Exercise care, diligence and skill in reporting of financial ...
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