CORPORATE GOVERNANCE FAILURE AT SATYAM
India has seen corporate scandals in the past, but never one of this magnitude. A software company, touted as a success story, the 4th largest software company in India and one that services around 1/3rd of the Fortune 500 companies, the events of the past one month have been a total shock. They have called into question the entire range of issues related to ethics, corporate governance, fiduciary responsibilities, professional auditing, and so on. There will be a lot more soul-searching that will happen, a lot more inspection and suspicion of other companies, search for more skeletons in the cupboard, and so on.
Mr. Raju brought forward. Starting ...view middle of the document...
By now the independent board members had started resigning.
There was a lot of news about how attractive Satyam could be because of its huge holdings of cash and high book value vs. the value of shares, and then there were even more reports questioning whether Satyam really did hold onto these reserves.
And, finally the CEO of Satyam has revealed all. The company was cooking its books, and once started, there was no going back, and hence the company eventually has declared reserves to be $1.5 billion more than what they actually hold.
All this came as a huge shock to the people of the country; how can such respected promoters actually commit this huge fraud, can one really believe them now when they say that they did not benefit? This was money that was supposed to be coming into the company, how can senior management (besides the promoters) claim that they did not know? There are too many questions, and one wonders as to whether all this will really become clear?
Now what happens? Well, it is not like Satyam is bankrupt – it still has a large number of clients (although some of them would want to bail out), it has a huge number of people on its rolls (50,000), it is a huge part of the reputation of Hyderabad as a big IT city, and there are still institutions who hold a huge amount of the company’s shares. It is difficult to let such a company go out of business, and one expects that there will be pressure to ensure that while the investigation goes on, the company is retained as a going concern.
SEBI Team Look Into Insider Trading In Satyam
Though Ramalinga Raju has mentioned in his confession letter, that Satyam’s inflated profit was just to build investor confidence and no profits were made by insider trading by any of Satyam’s promoters, SEBI is still probing into the matter of insider trading.
Market regulator SEBI’s special team, set up to probe into the financial irregularities in Satyam Computers, has set its focus among other things on alleged ‘insider trading’ carried out by top executives in the IT firm in the recent past, sources said today.
“Our major concerns in this case include any insider trading activities that might have occurred in Satyam shares and all aspects of fraud committed in the company’s book,” Sebi sources told reporters here today.
The market regulator formed an investigation team soon after Ramalinga Raju confessed that he cooked the company’s balance sheet for seven years with inflated profit numbers and understated liabilities.
The three-member team, led by senior SEBI official A Sunilkumar, is understood to be progressing with its probe at Satyam headquarters in Hyderabad.
The team is primarily inspecting the irregularities committed by Rajus and other manipulators in stock market.
However, the probe team has not been given any time-frame to submit its findings, sources said.
The Government had scrapped the erstwhile board of Satyam and appointed three new members– HDFC Chairman Deepak...