c





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©
  


    

The industry was taken considering the following reasons:
gY ~ndia's booming information technology industry already hires more than a million
employees and the numbers are set to grow manifold over the years.
gY The ~ndian information technology (~T) industry has played a key role in putting ~ndia on
the global map and is now envisioned to become a US$ 225 billion industry by 2020.
gY The report estimates export revenues to gross US$ 59 billion in FY2011 and contribute 26
per cent as its share in total ~ndian exports (merchandise plus services), employing around
2 million employees.
gY ÿithin exports, ~T Services segment was the fastest growing segment, growing by 22.7 per
cent over FY2010, and aggregating export revenues of US$ 33.5 billion, accounting for 57
per cent of total exports.
gY ~t was one of the reputed companies in ~T industry.
gY The scam was biggest in ~ndian ~T industry.
gY The company was awarded with the Corporate Governance.



©   
Satyam Computer Services Ltd is one of the leading global consulting and ~T services company
that offers end-to-end ~T solutions for a range of key verticals and horizontals. Satyam Computers
has domain expertise in verticals such as Automotive, Banking & Financial Service, ~nsurance &
Healthcare, Manufacturing, Telecom, ~nfrastructure, Media, Entertainment, and Semiconductors.

Satyam has nearly 40,000 employees on its rolls, working in development centers in ~ndia, the
USA, the UK, the UAE, Canada, Hungary, Singapore, Malaysia, China, Japan and Australia.
Satyam Computers' network is spread over 55 countries across 6 continents. Satyam serves over
558 global companies including over 163 Fortune 500 corporations.

Satyam Computers was founded in June 1977 as a private limited company by Ramalinga Raju
along with one of his brothers-in-law, DVS Raju. ~n June 1991, Satyam Computers got its first
Fortune 500 Client. ~n the same year in August, Satyam Computers was recognized as a Public
Limited Company. Satyam went public in May 1992 and its issue was oversubscribed 17 times. ~n
July 1993, Satyam entered into a joint venture with Dun & Bradstreet. Satyam was awarded ~SO
9001 Certification in March 1995. ~n December 1995, Satyam ~nfoway was incorporated. ~n May
1997, Satyam became the first ~ndian ~T Company to get ~TAA Certification for Y2K Solutions.
~n November 1998, Satyam became one of the first companies to enter ~ndian ~nternet service
market with the launch of Satyam ~nfoway's ~SP Service. ~n the same year Satyam entered into a

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joint venture with GE. ~n 1999, Satyam ~nfoway became the first ~ndian ~nternet company to be
listed on NASDAQ. ~n February 2000 Satyam was declared one of '100 Most Pioneering
Technology Companies' by ÿorld Economic Forum, Davos. ~n May 2000 Satyam became the first
organization in the world to launch Customer-Oriented Global Organization training. ~n March
2001 Satyam became first ~SO 9001:2000 Company in the world as certified by BVQ~. ~n May
2001 Satyam was listed on New York Stock Exchange. ~n 2003, Satyam announced business
continuity center in Singapore, the first of its kind outside ~ndia. ~n 2004, Satyam opened new
development center in Mississauga, Canada. ~n 2005 Satyam acquired 100% stake in Singapore
based Knowledge Dynamics, a leading Data ÿarehousing and Business ~ntelligence solutions
provider.

"  ©  

gY First ~ndian ~T Company to get ~TAA Certification for Y2K Solutions.

gY Satyam ~nfoway is the first ~ndian ~nternet company to be listed on NASDAQ.
gY Declared one of '100 Most Pioneering Technology Companies' by ÿorld Economic Forum,
Davos in the year 2000.
gY First organization in the world to launch Customer-Oriented Global Organization training.
gY First ~SO 9001:2000 Company in the world as certified by BVQ~.
gY Ranked by the Brown-ÿilson Group as the number two outsourcing vendor globally in the
year 2006.

© ©  

Satyam Computer Services Ltd is in a total mess with the Former Satyam Chairman B Ramalinga
Raju surrendering before the Andhra Pradesh police under sections 120B, 409, 420, 468, 471.
Along with him his brother and the companies CFO was also arrested on Friday evening. The
Securities and Exchange Board of ~ndia [SEB~ has ordered for an enquiry to look into this matter
in detail.

Along with this news the most important point would be the stock prices dipping more and reached
6Rs/share which is seriously very low considering it was trading it 400-500Rs levels a year back.
The stock prices clearly show that the company has lost its value among the investors and
everyone is looking to sell out.

~ would recommend all the investors to still hold the stock because when they have already lost
90% of the value why not at least risk with the 10%? ~f this 10% again grows back to at least 30-
40% after some days by chance in case of the takeover/ acquisition then you have a better option
rather than regretting in the future.

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The stocks closed at 23.75Rs which is again 41% down from the last trading day and it was
originally moving up from the 6Rs figure which means that there are still many people who
believe in the company. The owners would be scammers but not the 53000 employees who worked
hard in the company to fulfill their targets and there are numerous Saytam clients who are still
willing to continue with the company and are ready to give contracts/orders.

The only problem would be that since the company is in a problem now, all their accounts would
be seized and even if the business operations are operated the payments would be struck. This is
the reason the employees are in panic stage and have already started looking out for new job
options in case the company is closed for a while. Along with the already employed staff there are
around 10000 fresher every year who are in waitlist waiting for their call from Satyam who are
also going to not get a call back and they now have to apply for other MNC¶s.

~ am sure it¶s not along Raju in this whole drama who has claimed that he is alone responsible but
how do you think a single person can do such a big fraud? ÿhat about the people are always with
him in his business operations? ÿhat about the government who gave the company public lands at
dirt cheap amounts? ÿill the public have to bear the loss made by these big scammers?

Not only the Satyam clients but their employees are also having a huge confidence in the company
and are sure that the company will continue in the long run along with better growth but the
question stands the same ± ÿhen?

One of the biggest Chartered Accountancy ± d       which is highly reputed in

~ndia because there are thousands of students trying to get into PÿC for completing their CA
Course, is also in question because this firm was handling all the Satyam¶s operations and if such a
big scam was running around how did PÿC not find out? Or were these guys also bribed by Mr
Raju in tunes of crores of rupees and will this networked chain keep continuing?

The website of Ramalinga Raju which is ramalingaraju.com is also totally down which again adds
up another negative point because if you start hiding more and more stuff from the public you are
going to be accused more for your mistakes. Not only this small site but the corporate website ie
Satyam.com was also giving problems in the last 3-4 days with no downloads given to the public
for the company data.

The retail investors amount to approx 25% who have now lost 90% of their value and along with
the already falling down stock markets Satyam has added a big loss for everyone and now
everyone is looking for either selling the stocks for almost no value or else buy some more stocks
at this low rates to average their old portfolio and hope it recovers back soon to at least the costs.
The village from which Ramalinga Raju hails still believes on him and all his known ones are
buying huge amount of stocks at the moment to prove that they believe him and there is no need to

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worry about the company. Let¶s wait and see how this whole story turns out and where does
Satyam stand after a month.

[
 
   




           

   

 
  
   
This is like catching the tiger by the tail. Unless the sales improve, the Company will have to
follow the same thing in the subsequent years as well to ensure that the profit trend is maintained.
(The auditors can detect this by matching the dates of invoices, shipment advises, gate passes,
delivery receipts. physical stock verification reports, debtors¶ confirmation etc«

     

 



 

This is again like catching the tiger by the tail as the quantum will have to be increased each year
to compensate for the additional charge coming in the subsequent year due to return sales. (The
auditors can detect this by checking the invoices, subsequent year sales returns, debtor
confirmations, stock tally etc.)

     
            
          


 Unaccounted money is laundered into the books by showing income for no
actual service rendered. (Auditors can detect this by seeing the actual documents supporting the
other income and by comparing with the expertise available in the company to provide such
services)

      

 
 !  
     
     

 
 
 
 This again has to be covered up in the subsequent year when
the creditors are to be paid. (Some of the ways in which the Auditor can find these include,
comparison of the purchases with physical stock, quantitative tally of stocks and consumption,
trend analysis of overheads between two periods, obtaining creditor¶s confirmation, bank
reconciliation statements to check for amounts paid but not accounted in books which will be
hanging as a difference between bank balance as per books and as per the bank statements for a
given cut-off date)

~n all the cases of inflation of sales in the books, the company will credit the sales account to
increase the sales and pass the debit to a debtor account to show receivables. The problem here is
that the receivables has to be squared off either by reversing the sale or by writing off as most
fraudulent companies do not introduce cash to square of the receivables for bogus sales.

However, Mr. Ramalinga Raju has introduced a new gambit in this (like we have an opening
called ³~ndian Gambit´ in chess, we can refer to this henceforth as ³Satyam Gambit´).

~t shows the clever manner in which the fraud was crafted by Mr. Raju.

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As a Chartered Accountant, ~ have seen profit getting inflated by bogus booking of sales which in
turn will also inflate the debtors. These debtors will remain sticky/ irrecoverable as no real sales
support them. Companies will get rid of such debtors following one of the following three
methods,

a) ÿrite off the debtor

b) Reverse the bogus sale (and book a new one so that a new debtor is created)

c) Resort to money laundering to square off the bogus debtors

Such bogus sales, if the quantum is high, will not escape the auditors eyes as they will scrutinize
the receivables, seek for confirmation of the balance, will analyze the debtors to see if they are one
off customers or frequent buyers etc.

Showing such receivables becomes difficult in the case of a big company like Satyam as they will
have a relatively smaller number of customers contributing to significant portion of total revenues
of the company. Any bluff will be quickly caught as high profile customers will be quick to
respond to balance confirmation requests.

©  "
 #$   
 
 [          
  
    
   
    
     
 

 

How can one get actual collections from fictitious companies? No, he didn¶t make any actual
collections. He just got some more book entries made to clear the debtors and transferred the
debits to bank balances.

% 

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Ñ             !
   
Debt-Equity Ratio 0.4 0.1 0.0 0.0 0.0
Long Term Debt-Equity Ratio 0.3 0.1 0.0 0.0 0.0
Current Ratio 0.9 1.9 5.4 5.9 6.5
Fixed Assets 2.6 4.6 5.9 5.1 4.4
~nventory 10,201.0 16,812.4 0.0 0.0 0.0
Debtors 4.4 4.6 4.2 4.5 4.9
~nterest Cover Ratio 14.8 3.7 327.9 207.7 436.3
PB~DTM (%) 11.1 5.3 25.6 27.5 28.3
PBDTM (%) 10.6 4.8 25.6 27.3 28.2
CPM (%) 10.0 1.6 22.8 24.9 24.5
ROCE (%) 0.0 0.0 29.6 31.2 31.3
RONÿ (%) 0.0 0.0 26.1 28.1 26.9
PE 0.0 0.0 15.8 22.6 22.8
EB~DTA 161.2 -7,445.9 2,085.7 1,710.7 1,571.4
DivYield 0.0 2.6 0.9 0.7 0.8
PBV 4.7 -5.0 3.6 5.4 6.4
EPS 0.0 0.0 25.0 20.8 37.2

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#$ $% #&% #&% #&%  #(%  #(%  #&%
TCS 210,643.65 30.70 14.03 21.82 39.5 44.6 0.00
~nfosys Tech. 175,362.08 28.77 7.96 16.84 29.1 37.8 0.00
ÿipro 110,205.85 23.24 6.23 16.25 32.4 28.5 0.35
HCL Technologies 31,199.35 31.80 6.32 16.48 25.1 24.3 0.23
Oracle Fin.Serv. 17,108.16 21.99 4.10 22.34 17.2 19.4 0.00
MphasiS 9,211.65 9.52 3.17 10.54 40.4 43.2 0.03
Tech Mahindra 9,193.32 12.32 3.20 10.68 31.3 30.1 0.45
Satyam Computer 7,859.35 24.65 3.42 54.85 0.0 0.0 0.38

Thus, the company was among the top 5 in market capitalization after the scam it came down to
the 8th position and most of the share holders lost their money.

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©   '
The ©    ©   
was publicly announced on 7 January 2009, when
Chairman Mr. Ramalinga Raju confessed that Satyam's accounts had been falsified.

 )   
 ©  

 )   
 

     * 

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Personal and Unethical business Business

Corporate ~nputs Management Process Consequences and it
of Satyam loosed public trust

 
 
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d  


Ethics of right and duties

   






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d


   

On 7 January 2009, company Chairman Ramalinga Raju resigned after notifying board members
and the Securities and Exchange Board of ~ndia (SEB~) that Satyam's accounts had been falsified.
Raju confessed that Satyam's balance sheet of 30 September 2008 contained:

RY inflated figures for cash and bank balances of 5,040 crores (US$1.12 billion) as against
5,361 crores (US$1.19 billion) reflected in the books.
RY an accrued interest of 376 crores (US$83.47 million) which was non-existent.
RY an understated liability of 1,230 crores (US$273.06 million) on account of funds was arranged
by himself.
RY an understated debtors' position of 490 crores (US$108.78 million) (as against
2,651 crores (US$588.52 million) in the books).
Raju claimed in the same letter that neither he nor the managing director had benefited financially
from the inflated revenues. He claimed that none of the board members had any knowledge of the
situation in which the company was placed.
 
ÿhat started as a marginal gap between actual operating profit and the one reflected in the books
of accounts continued to grow over the years. ~t has attained unmanageable proportions as the size
of company operations grew significantly (annualized revenue run rate of 11,276 crores (US$2.5
billion) in the September quarter of 2008 and official reserves of 8,392 crores (US$1.86 billion)).
As the promoters held a small percentage of equity, the concern was that poor performance would
result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last
attempt to fill the fictitious assets with real ones. ~t was like riding a tiger, not knowing how to get
off without being eaten.

d'
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" 

Raju had appointed a task force to address the Maytas situation in the last few days before
revealing the news of the accounting fraud. After the scandal broke, the then-board members
elected Ram Mynampati to be Satyam's interim CEO. Mynampati's statement on Satyam's website
said:
"ÿe are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united
in their commitment to customers, associates, suppliers and all shareholders. ÿe have gathered
together at Hyderabad to strategize the way forward in light of this startling revelation."

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On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from
functioning and appoint 10 nominal directors. "The current board has failed to do what they are
supposed to do. The credibility of the ~T industry should not be allowed to suffer." said Corporate
Affairs Minister Prem Chand Gupta. Chartered accountants regulator ~CA~ issued show-cause
notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts fudging. "ÿe have
asked PwC to reply within 21 days," ~CA~ President Ved Jain said.
On the same day, the Crime ~nvestigation Department (C~D) team picked up Vadlamani Srinivas,
Satyam's then-CFO, for questioning. He was arrested later and kept in judicial custody.
On 11 January 2009, the government nominated noted banker Deepak Parekh,
former NASSCOM chief Kiran Karnik and former SEB~ member C Achuthan to Satyam's board.
Analysts in ~ndia have termed the Satyam scandal ~ndia's own Enron scandal. Some social
commentators see it more as a part of a broader problem relating to ~ndia's caste-based, family-
owned corporate environment (http://kafila.org/2009/02/13/the-caste-of-a-scam-a-thousand-
satyams-in-the-making/).
~mmediately following the news, Merrill Lynch now a part of Bank of America and State Farm
~nsurance terminated its engagement with the company. Also, Credit Suisse suspended its
coverage of Satyam. ~t was also reported that Satyam's auditing firm PricewaterhouseCoopers will
be scrutinized for complicity in this scandal. SEB~, the stock market regulator, also said that, if
found guilty, its license to work in ~ndia may be revoked. Satyam was the 2008 winner of the
coveted Golden Peacock Award for Corporate Governance under Risk Management and
Compliance ~ssues, which was stripped from them in the aftermath of the scandal. The New York
Stock Exchange has halted trading in Satyam stock as of 7 January 2009.[15 ~ndia's National Stock
Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on
12 January.[16 The founder of Satyam was arrested two days after he admitted to falsifying the
firm's accounts. Ramalinga Raju is charged with several offences, including criminal conspiracy,
breach of trust, and forgery.
Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998,
compared to a high of 544 rupees in 2008[17 . ~n New York Stock Exchange Satyam shares peaked
in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80.
The ~ndian Government has stated that it may provide temporary direct or indirect liquidity
support to the company. However, whether employment will continue at pre-crisis levels,
particularly for new recruits, is questionable.
On 14 January 2009, Price ÿaterhouse, the ~ndian division of PricewaterhouseCoopers,
announced that its reliance on potentially false information provided by the management of
Satyam may have rendered its audit reports "inaccurate and unreliable"

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On 22 January 2009, C~D told in court that the actual number of employees is only 40,000 and not
53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing ~NR 20crores rupees
every month for paying these 13,000 non-existent employees.


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' 
 

On 5 February 2009, the six-member board appointed by the Government of ~ndia named A. S.
Murthy as the new CEO of the firm with immediate effect. Murthy, an electrical engineer, has
been with Satyam since January 1994 and was heading the Global Delivery Section before being
appointed as CEO of the company. The two-day-long board meeting also appointed Homi
Khusrokhan (formerly with Tata Chemicals) and Partho Datta, a Chartered Accountant as special
advisors

"
    

On 13th April 2009, via a formal public auction process, a 46% stake in Satyam was purchased by
Mahindra & Mahindra owned company Tech Mahindra, as part of its diversification strategy.
Effective July 2009, Satyam rebranded its services under the new Mahindra management as
"Mahindra Satyam" with a new corporate website www.MahindraSatyam.com. C.P Gurnani is the
current CEO.
  


As a result of the scandal, under the directions of the new Mahindra management team, Satyam
Computer Services restated its financial results for the period 2002 to 2008. These restated results
were published in September 2009.





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+&  &  

 
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&   ,"  ,
& ©,
 
 
    ©  
     

           
   
Data, Facts and Factually Factually ethical- Factually Factually in To analyzing the
Figures ethical- Right ÿrong correct correct company
financial and
other position
Laws, Acts and Legally ethical Legally un Legally Legally false ~t¶s not legally
Ordinances ethical Truthful Valid Valid prohibited
Rules of Common Technically Technically non Technically Technically To analyzing the
Good. Desirable- Desirable- Truthful. Untruthful. technical aspects
Ethical Ethical of satyam
Codes, Pacts and Parametrically Parametrically Parametrically Parametrically To analyzing the
agreement of compliant: non compliant: Truthful. Untruthful. codes. Pacts,
business conduct Corporate Corporate agreement Etc
legitimacy legitimacy
Moral standards, Deontologically Deontologically Deontologically Deontologically To analyzing the
Rights and duties moral immoral conforming non-conforming company rights
and duties
Principle of Distribution Distribution ally Distribution Distribution ally To analyze the
distributive justice ally impartial partial ally impartial- impartial- distributive
fair Unfair justice
Principle of From corrective From corrective From corrective From corrective To analyze the
corrective Justice justice view justice view point justice view justice view principle of
point fair and Unfair and Non- point fair and point Unfair and corrective
objective objective objective Non-objective justice
Statement Statement


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, Ramalinga raju is smarter than public. Because he did fraud to public
/ 
, but they dint know
 
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 This is the best company and largest Yes once upon a time it is a
/ 
 company. good company.
"
* 
 
©   The corporate fraud is a pre planed. Yes it is a pre planned and it is
* exactly copied from other
fraud company.
0
 Such corporate fraud is not allowed by law ~t is a lawful statement
*
 
 Miss using of public money by company is ~t is a true to an given culture
* not good

  
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 All human beings must fallow the companies¶ This statement is correct
* ethics.
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 The human beings should not harm to others This is a universal truth

   property.
 
 
 All human beings equal. ~t is a one of the human nature
  

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©
 2 
6he violations of four fundamental constituents of human executive personhood are as follows:

The   explains that we are corporeal in nature and are living organism and have needs
and limitations there is unity between our corporate and the real body but in case of Satyam there
was a violation where Satyam company and the people who committed fraud did not have a
corporeal unity the body or the human being has committed fraud against the corporeal body.


 explains that every person is unique combination of body and soul, mind and matter,
faculties and powers, the conscious and the unconscious, the physical and emotional, the
intellectual and the spiritual, the individual and the social and the ethical and moral part of human
personality. so the combination of all these are revelation of personhood and profound unity
between all our powers and this unity defines a person and this will move to action, and this can be
applied to corporation as a whole. So in case of SATYAM there has been violation of human
personhood in terms of individuality as the fraud committed by Ramalingaraju has effected
completely the corporate or Satyam company.

© 
explains that because of immanence and individuality human beings are social creatures
and do not live in isolations. Have knowledge and very essence of relation. Communicate with
knowledge with each other, and also to externalise our personality and our own personal
experience. Thus, sociality can be built into our otherwise competitive and anti-social corporate
personality and strategy. So in case of Satyam scandal the people did fraud had a direct effect on
the social aspects of the corporate as a whole.


   implies going beyond ones sense and experience, emotions and feelings,
knowledge and skills, capacities and limitations, in order to achieve excellence, moral integrity,
and extraordinary heights of self actualization. Similarly in case of Satyam scandal Mr.
Ramalingaraju also had transcendence to achieve profits for the company so he did a window-
dressing of the balance sheet which led to the corporate fraud.

6he nature of corporate fraudulent acts by the volitionalist, motivationalist, social- interactionalist
and determinist paradigms of human action are as follows:
~n case of 
 
: the humans are endowed with intellect and volitive faculties, each
characterised by autonomy or freedom. The model roots act in the power of his will thus providing
the executive sense of power, agency and control along all the stages of the human act, an
experience of a transcendent internal- external unity in his decisions, and a sense of responsible of
all 16 stages and their consequences. Thus in case of Satyam fraud Mr Ramalingaraju while doing
the fraud had his will power to do the fraud and it was his decision.


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   paradigm of human action: motivation is converted to intention and an intention to
action or behaviour by the power of will aided by experience, cognition and memory. Similarly the
intention of Ramalingaraju was to shoe that the reputation of the company and goodwill is high so
that lead to the window dressing of balance sheets hiding the debts and losses and showing profits.

© 
    
 paradigm: action traces the origin of any action to its social heredity,
history and environment and only secondarily to motivation. The origin of the motivation was to
impress the shareholders in order to get more income or profits into the organisation by showing
them the unreal profits as they had many debts to cover from various banks.

     action denies free will and reduces all acts and actions to historical
determinism, social determinism or bio-psychological determinism or genetic heredity. The
Satyam fraud was totally based on the historical determinism as well as social determinism.
historical determinism because Satyam company has lots of debts to cover which were incurred in
the past due to bank loans and social determinism because in order to show that the company is
making profits Ramalingaraju manipulated with the balance sheet.

6he deliberation, explanation and justification could the corporate executives use to rationalise
their fraudulent behaviour and with effect are as follows:


   is a form of reasoning that responds two questions what is the factual or moral
reason why ~ should do a particular thing among competing other and what is the casual efficiency
of that reason in moving or obliging me to do such a thing ?both are needed in morality. Similarly
in Satyam case the effect of fraud was deliberate wherein the moral reason behind the fraud was to
protect the company against the debts and loss and maintain its good will.


&
  the reason why i do or did this is a particular fact or a moral principle and that was
the sole or decisive factor that motivated me to do this . the sole and decisive factor for fraud was
to hide the loss of the companies in front of the shareholders. The explanation for the fraud was to
cover up all the losses in front of the shareholders in order to procure more revenue from the
shareholders.

*    after argue that this was the best course of the action open to me at the time and
under circumstances and ~ did it, but cannot be condemned for it held accountable for it. The
justification for the Satyam fraud by Ramalingaraju was that the did it due to the losses faced by
the company and if the losses were not covered up then company might have been wound up. And
the best course of action available was to do a window dressing to deceive the current shareholder
and to get more shareholders.



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" /  ":

Praxeological economics and the philosophy of human flourishing are complementary and
compatible disciplines. Economics teaches us that social cooperation through the private property
system and division of labour enables most individuals to prosper and to pursue their flourishing
and happiness. ~n turn, the worldview of human flourishing informs men how to act. ~n making
their life-affirming ethical and value-based judgments, men can refer to and employ the data of
economic science.

A conceptual and moral defense of a political and economic system must be grounded on
the best reality-based ethical system that a reasoning individual can discover. A true paradigm or
body of theoretical knowledge about reality must address a broad range of issues in metaphysics,
epistemology, value theory, ethics, and so on in a systematic fashion. The concern of the system-
builder is with truth as an integrated whole. Such a body of knowledge is circumscribed by the
nature of facts in reality including their relationships and implications. ÿhen constructing a
paradigm, it is legitimate to take a selective approach with respect to existing philosophical
positions because a paradigm¶s consistency with reality is all that really matters. ~t is thus
appropriate for us to extract what is true and good from the writings of Mises, Menger, Rand, and
others and use those components as a basis for a better integration that allows for a deeper
understanding of what would constitute a morally right socioeconomic system. By integrating and
synthesizing essential elements of the ideas of the Austrian School of Economics with those from
Ayn Rand¶s philosophy of Objectivism we can come closer to a comprehensive, logically
consistent view of the world and a foundation and justification for laissez-faire capitalism.

©&d     

gY ÿin/ÿin
gY Lose/Lose
gY ÿin/Lose
gY ÿin
gY Lose/ÿin
gY ÿin/ÿin or No Deal

ÿ ÿ

gY Agreements or solutions are mutually beneficial

gY A belief in the Third Alternative -- a better way

ÿ 0 

gY Use of position, power, credentials, possessions or personality to get one's way.

gY The win/lose mentality is dysfunctional to interdependence.

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0  ÿ

gY Lose/ÿin people are quick to please or appease.

gY Capitulation -- giving in or giving up.

0  0 

gY Result of encounters between two ÿin/Lose individuals.

gY Also the philosophy of highly dependent people.

ÿ

gY ÿin at all costs. Other people don't matter.

gY The most common approach in everyday negotiation.

ÿ ' 3

gY Most situations are part of an interdependent reality.

gY ÿin/ÿin solutions are synergistic.

ÿ ÿ  


gY ~f we can't find a solution that would benefit both parties, we agree to disagree.
gY Most realistic at the beginning of a relationship or enterprise.

/  ÿ ÿ

gY Character. The foundation of ÿin/ÿin

PY ~ntegrity. The value we place on ourselves.
PY Maturity. The balance between courage and consideration.
PY Abundance Mentality. There is plenty out there for everybody.
gY Relationships. Courtesy, respect and appreciation for the other person and his point of
view.
gY Agreements. Cover a wide scope of interdependent action.
PY Desired results
PY Guidelines
PY Resources
PY Accountability
PY Consequences
gY Supportive Systems. Reward systems must reflect the values of the mission statement.
gY Processes. The route to ÿin/ÿin:
PY See the problem from another point of view.
PY ~dentify the key issues and concerns involved.
PY Determine what results would constitute a fully acceptable solution.
PY ~dentify possible new options to achieve those results.

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©
  4

  
 " is a form of judgment, specifically purposeful and reflective judgment. Using
critical thinking one makes a decision or solves the problem of judging what to believe or what to
do, but does so in a reflective way. ~t is a tool that we can use to evaluate incoming information.

  is a major branch of philosophy, encompassing right conduct and good life. ~t is

significantly broader than the common conception of analyzing right and wrong. Ethics and morals
are respectively akin to theory and practice. Ethics denote the theory of right action and the greater
good, while morals indicate their practice. Ethics are in essence a set of choices we make toward
how we live our life.

The rules of critical thinking are as follows:




3  
      
 

$
  © publicly announced on 7 January 2009, when
Chairman Ramalinga Raju confessed that Satyam's accounts had been falsified.

Raju confessed that Satyam's balance sheet of 30 September 2008 contained:

gY inflated figures for cash and bank balances of 5,040 crores(US$1.12 billion) as against
5,361 crores (US$1.19 billion) reflected in the books.
gY an accrued interest of 376 crores (US$83.47 million) which was non-existent.
gY an understated liability of 1,230 crores (US$273.06 million) on account of funds was
arranged by himself.
gY an understated debtors' position of 490 crores (US$108.78 million) (as against 2,651
crores (US$588.52 million) in the books).

Raju claimed in the same letter that neither he nor the managing director had benefited financially
from the inflated revenues. He claimed that none of the board members had any knowledge of the
situation in which the company was placed.


 
3"      
 $
&
           ÿhat started as a marginal gap between
actual operating profit and the one reflected in the books of accounts continued to grow over the
years. ~t has attained unmanageable proportions as the size of company operations grew
significantly (annualized revenue run rate of 11,276 crores (US$2.5 billion) in the September
quarter of 2008 and official reserves of 8,392 crores (US$1.86 billion)). As the promoters held a
small percentage of equity, the concern was that poor performance would result in a takeover,
thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the

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fictitious assets with real ones. ~t was like riding a tiger, not knowing how to get off without being
eaten.

  3
     
&
 

   

      $On 10 January 2009, the Company Law
Board decided to bar the current board of Satyam from functioning and appoint 10 nominal
directors. "The current board has failed to do what they are supposed to do. The credibility of the
~T industry should not be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta.
Chartered accountants regulator ~CA~ issued show-cause notice to Satyam's auditor
PricewaterhouseCoopers (PwC) on the accounts fudging

   3
     


  
  $         
         
      reliance on potentially false information provided by the management of
Satyam may have rendered its audit reports "inaccurate and unreliable".

 
 
3  
 & 
 
, 
     
 

 

&
  
,
      
&   
$

"  

On 5 February 2009, the six-member board appointed
by the Government of ~ndia named A. S. Murthy as the new CEO of the firm with immediate
effect. Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading
the Global Delivery Section before being appointed as CEO of the company. The two-day-long
board meeting also appointed Homi Khusrokhan (formerly with Tata Chemicals) and Partho Datta,
a Chartered Accountant as special advisors. As it was found that again when the case was seen
properly the statements given by Ramalingaraju was ture that he had falsified the statements of
company.

 3
     

 

  
,
  

the burden of proof for any claim rests on the claimant,

Extraordinary claims demand extraordinary evidence, and
Evidence based upon authority and/or testimony is always inadequate for any paranormal claim

On 13th April 2009, via a formal public auction process, a 46% stake in Satyam was purchased by
Mahindra & Mahindra owned company Tech Mahindra, as part of its diversification strategy.
Effective July 2009, Satyam rebranded its services under the new Mahindra management as
"Mahindra Satyam" with a new corporate website www.MahindraSatyam.com
Because of the scandal, under the directions of the new Mahindra management team, Satyam
Computer Services restated its financial results for the period 2002 to 2008. These restated results
published in September 2009.The claim of the fraud was fully on Ramalingaraju.

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©
 5 

d    

1.Y The virtue of business profession is excellence. Virtue as excellence is a perfection of a

power in relation to its end.
2.Y There are certain social goods that are good for their own sake and not for what they will
do to us individually. Thus, the acts of generosity, justice and compassion are done for the
sake of others and are worth doing in and for them. ~t is only through acquisition and
exercise of these virtues that corporate executives and their stakeholder communities can
flourish in a specifically human mode.
3.Y Corporate executive virtues are intellectual when their end is truth and they are moral when
their end is the good life.
4.Y Pursuing good for oneself as a human being needs much practice of the virtue of making
right choices about right means to achieve right ends. Such choices demand a capacity to
judge and to do the right thing in the right place at the right time and the right way.
5.Y Real life happiness must manifest over a full, long-lasting adult life and not merely for
brief periods.
6.Y Moral goodness always requires that we strive to realize the right. Failure to strive to
realize the right is moral failure.

³ÿho should ~ be?´ rather than ³ÿhat should ~ do?´ ~ts concern is with character and personal
disposition rather than right conduct. ~n addition, virtue ethics links readily to other trends in
current philosophical thought. ~t is illustrated by the notion of the company or the workplace as a
collective with a common purpose.

The fraud scheme at Satyam started small, eventually growing into a 1.04 billion pound elephant in
the room. A lot of fraud schemes start out small, with the perpetrator thinking that small changes
here and there won't make a big difference- and is less likely to be detected. This sends a message
to a lot of companies: if your accounts aren't balancing or if something seems inaccurate, even just
a tiny bit, it's worth investigating. Break down tasks so that there are checks in each area. Dividing
responsibilities across a team of people makes it easier to detect irregularities or misappropriated
funds.

An ethical problem cannot be resolved unless it is first recognized as a dilemma. ³Reward or

punishment to ethical integrity and moral courage decide the act of an individual.´ The existence
of rules, policies, job descriptions and cultural norms will discourage individuals from unethical
behavior even if they have a feeble moral sense. But, in the presence of unethical organizational
culture and structure, even highly moral individuals may become corrupt. The culture at Satyam,
especially dominated by the board, symbolized such an unethical culture. ~n the case of Mr. Raju,
Satyam, as the smallest of the big four players, was under pressure to show extraordinary results in

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order to survive. Apart from that there was greed, perhaps reckless greed, causing the brothers to
indulge in illegal and unethical activities.

On one hand, his rise to stardom in the corporate world coupled with immense pressure to impress
investors made Mr. Raju a compelled leader to deliver outstanding results. On the contrary, Mr.
Raju had to suppress his own morals and values in favor of the greater good of the company. The
board connived with his actions and stood as a blind spectator. The lure of big compensation to
members further encouraged such behavior. But, in the end, truth is sought and those violating the
legal, ethical, and societal norms are taken to task.

The fraud finally had to end and the implications were far reaching. The public confession of
fraud by Ramalinga Raju speaks of integrity still left in the individual. His acceptance of guilt and
blame for the whole fiasco shows a bright spot of an otherwise tampered character.
After quitting as Satyam's Chairman, Raju said, "~ am now prepared to subject myself to the laws
of land and face consequences thereof." Mr. Raju had many ethical dilemmas to face, but his
persistent immoral reasoning brought his own demise.

~n order to define the moral issue, it is important to address who has been hurt by Raju¶s action. ~n
this case, Satyam¶s stakeholders, shareholders, and employees have been affected, as well as, ~ndia
as a whole. The shareholders have been deceived because of the lack of transparency in Raju¶s
reporting of Satyam¶s finances. Raju understated the liability, overstated debtors¶ positions, and
claimed false revenue and operation margins. Satyam¶s employees have lost money due to vested
interests in the company and lost wages due to the cancellation of many of Satyam¶s projects.

The employees also have a permanent stigma attached to them for their connection to Satyam,
even if they were not involved in scandal. This will make it difficult for them to seek employment
elsewhere. This scandal put the ~ndian government in a bad position and made them look
unreliable to the rest of the world causing ~ndian companies to lose international credibility,
experience a decline in stock prices, and cause outsiders to question investing in ~ndian companies.

The Satyam scandal forced the world economy to question the moral ethics of ~ndian corporations
and the SEC~¶s ability to manage firms. The ÿorld Bank¶s decision to ban Satyam for 8 years
brought even more attention of the depths of this scandal to the world economy, which hurt ~ndian
as well. The credibility of Satyam¶s auditor, Price ÿaterhouse, was also hurt by this scandal, and
other companies connected to Price ÿaterhouse were put under scrutiny.

~t is important to consider what does not make sense in the case. ~n this case, Raju is aware of
falsified accounting. ~t appears as if Raju realizes that he needs to pay back the company and
balance Satyam¶s books. Due to the rapid growth of the company, Raju seems to have gotten in
over his head. He tried to correct his mistakes by acquiring Maytas, which was owned by his own

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family member. This action was a desperate attempt to fix Satyam¶s accounting, and puts Raju¶s
ethics into more question. Second, it is important to consider what is on Raju¶s mind. ~t is hard to
say for sure what a person thinks, but Raju seems to want to ³fix´ Satyam¶s accounting. He did not
personally benefit from the accounting fraud. Third, it is beneficial to consider what facts would be
important to those affected by Raju¶s actions. ~n this case, actual revenue and operating margins,
actual debtor¶s position, and actual liability would be important information. Fourth, it is important
to consider what facts are readily accessible.

~n this case, the accessible facts to consider include Raju¶s relation to Maytas and Saytam¶s
Directors approval of merging with Maytas. Finally, it is important to consider if Raju has a
legitimate secret. ~n this case, Raju¶s deception is not justified because he was lying about financial
standings. ~n this case, Raju most likely did not mean to get himself in so deep. ~ndia¶s fast
growing economy and Satyam¶s extraordinary growth rate made it hard for Raju to live up to
expectations. Satyam helped ~ndia to become a major player in the world economy, and Satyam¶s
stockholder¶s expected high returns on their investments. Raju reacted to these pressures by
falsifying Satyam¶s accounting until it got out of control. The consequences of taking on a moral
fight can often have negative personal and professional consequences. Raju¶s actions were first
questioned with his decision to acquire Maytas. Satyam¶s shareholders questioned this decision
and threatened management.

This action leads Raju to admit his actions. Raju resigned after ultimately blowing the whistle on
his own company and himself, but it is important to note that this was a direct response to
shareholders objections and suspicions regarding Raju¶s decision to acquire his family¶s company.
~f Raju did not admit to falsifying Satyam¶s accounts, he would have draw out the process of
uncovering his actions. There was no way to dig Satyam out of this situation. At this point, the
~ndian government could still salvage the company before it was completely destroyed. Raju had
expensed all of his options, and there was nothing to do except admit his actions.

The Utilitarian Theory states that ³moral actions are those that produce the greatest net pleasure
compared with net pain.´ One aspect of the Utilitarian Theory is the CostÀBenefit Analysis which
quantifies the benefits and the costs of the alternative in a given situation. ~n Raju¶s situations, the
benefit of falsifying Satyam¶s accounting was increasing Satyam¶s stock price and the appearance
of continued rapid growth. The alternative would be to report the company¶s correct finances. This
would lower stock value, reduce profits for Satyam and its shareholders, and lead to less buyÀins
from investors.

The Television Test asks if an individual would want his/her actions broadcasted on television.
Raju would most likely not want his actions broadcasted. He did not admit his accounting fraud
until he was cornered. Ethical Relativism says that ³actions must be judged by what individuals
subjectively feel is right or wrong for them.´ Situational Ethics is an aspect of the Ethical

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Relativism Theory that says ³one must judge a person's actions by first putting oneself in the
actor's situation.´ Raju chose to act in his best interest. He may have believed that he was
protecting Satyam¶s market shares, but this was short sighted. Raju received a lot of prestigious
awards that were based on Satyam¶s success. Raju was arrogant and believed he could fudge
Satyam¶s accounting and make up for it in the longÀrun. This was a vain and unethical decision
that was driven by Raju¶s greed and desire to be at the top.

Satyam¶s fraud spurred the government of ~ndia to tighten corporate norms to prevent recurrence
of similar frauds in future. The government took action to protect the interest of the investors and
safeguard the credibility of ~ndia and the nation¶s image across the world. ~t has forced the
government to reÀwrite corporate governance rules and tightens the norms for chartered
accountants. Some of the regulations include promotion of shareholders¶ democracy with
protection of rights of minority shareholders, responsible selfÀregulation with adequate disclosure
and accountability and lesser government control over internal corporate processes, voluntary
corporate governance code, certificate of independence for independent directors, an institution of
mechanism for whistle blowers, and a cap at 10 percent on the revenues coming from a single
client to an audit firm. Promoters should be prohibited from interfering in the recruitment of
independent directors. ~ndependent directors should have challenging, skilled ~D¶s, who have time
to devote to the business, rather than well known faces. Additional lessons include having an
effective µwhistle blower policy¶ in place, education on ethical values, criteria for remuneration to
key personnel, and strengthening of quality review.

D
    


    

   
' ~t is considered good practice to separate the roles of the Chairman of the
Board and that of the CEO. The Chairman is head of the Board and the CEO heads the
management. ~f the same individual occupies both the positions, there is too much concentration of
power, and the possibility of the board supervising the management gets diluted. How effective
independent directors can be is mainly a factor of the dynamics inside the board room once the
doors are closed. There is an attitude in some ~ndian companies that the board members actually
work for the people who have brought them onto the board. This is a completely misguided
attitude. ~t looks like this may have been a problem at Satyam«. The real strength of a healthy
board is when a consensus gets overturned by a dissenting view.

"   Boards work through sub-committees and the audit committee is one of the
most important. ~t not only oversees the work of the auditors but is also expected to independently
inquire into the workings of the Prganization and bring lapse to the attention of the full board.

  
    Good governance requires that outside directors maintain
their independence and do not benefit from their board membership other than remuneration.
Otherwise, it can create conflicts of interest by having a majority of outside directors on its Board.

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/
    : A board needs to be provided with important information in a timely
manner to enable it to perform its roles. A governance guideline of General Motors, for instance,
specifically allows directors to contact individuals in the management if they feel the need to know
more about operations than what they are being told.

   : Being a director of a company takes time and effort. Although a board
might meet only four or five times a year, the director needs to have the time to read and reflect
over all the material provided and make informed decisions. Good governance, therefore, suggests
that an individual sitting on too many boards looks upon it only as a sinecure for he or she will not
have the time to do a good job.

Lasting solutions can only be found by transforming human consciousness through an inner
discipline and higher moral reasoning. A company can build sustainable competitive advantage
through ethics, values, excellence, quality, social responsibility and human development. An
integrated, value based vision of leadership and governance will go along in creating corporate
governance.

A transformed organizational culture which pays highest attention to ethical conduct and moral
values will strengthen sustainable roots of the company. Transparency and effective auditing and
regulatory checks through internal and external auditors and monitoring agencies will help
establish long lasting credibility for any company. Companies should gather feedback, measure
effectiveness, and continually improve their code of conduct. They always distinguish between
opportunities and temptations. No matter what heights a person may reach, character must be
maintained at any cost. Companies must take a step back when presented with challenging
decisions and individuals must listen to ³the little voice in their head´ in complying with law and
to their heart in dealing with people. ÿhen making corporate decisions, it is important to not lose
sight of the individual¶s ethical reasoning.

d  
  , 
À 
,    
      
      

 $ Some of the advantages of these elements include avoiding unethical behavior,
performing fiduciary duties, and resolving ethical dilemmas. But such personal ethics may put a
person in direct conflict with existing corrupt bureaucratic systems, increased ethical dilemmas,
and exposure to stress and intense emotional pressure. Transparency in financial reporting as a
moral duty and ethical conduct is also very important for companies to adhere to in order to uphold
ethical standards. Benefits from such engagement include higher trust and loyalty from
stakeholders, increased goodwill, and higher investor confidence. Absolute transparency may lead
to revelation of favorable and unfavorable performance which in turn may result in loss of investor
confidence and inability to attract new capital. ~t is also important for companies to establish an
organizational culture which supports ethical conduct through a code of conduct and properly laid
out corporate governance policies and procedures. Advantages of this approach include fostering
ethical behavior from employees, increased inner discipline, and providing value based corporate

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vision. However, such a culture will add new conflicts of interest, strict compliance with rules and
regulations and extra supervision.

Corporate governance framework needs to be implemented in letter as well as spirit. The

increasing rates of white collar crimes demands stiff penalties and punishment. The small
distortions created by few immoral executives lad far reaching negative consequences. Hopefully,
creating an awareness of the large consequences of small lies may help some to avoid this trap.
The Satyam case is just another example supporting the need for stronger corporate governance.
Companies must be careful when selecting executives and top level managers. These are the
people who set the tone for the company- if there¶s corruption at the top, it¶s bound to trickle
down. Each employee must be accountable for their actions, regardless of the role they play in the
company. Separate the role of CEO and Chairman of the Board. ÿhen the same person takes on
both roles, who¶s left to check up on the CEO? Splitting up the roles helps avoid situations like the
one at Satyam. Perhaps, it just became a habit. There was a statement in the Satyam letter to the
SEB~ that gives a clue ± it talks about µriding the tiger, not knowing how to get off without being
eaten.¶ Apparently once the books began to be falsified, the company embarked on a slippery slope
wherein it could not right matters without things falling apart.

©
 ! 

       is the set of processes, customs, policies, laws, and institutions affecting
the way a corporation is directed, administered or controlled. Corporate governance also includes
the relationships among the many stakeholders involved and the goals for which the corporation is
governed. The principal stakeholders are the shareholders, management, and the board of directors.
Other stakeholders include labor(employees), customers, creditors (e.g., banks, bond holders),
suppliers, regulators, and the community at large.

~t is one of Corporate ~ndia's worst unfolding chapters, what could be the reason behind such a
huge collapse? The top level management failed to estimate the intensity of the gangrene in the
organization. Questions also arise on the role of the auditors, and how such a magnitude of
financial fraud could have gone unnoticed. Corporate governance is a field which constantly
investigates how to secure and motivate efficient management of corporations. ~t has began as a
corporate governance issue back in December has now turned into a major financial scandal for the
ages in ~ndia. The shares of Satyam Computer Services has plummeted more than 90% in trading
at the NYSE today, a stark reminder that investors must always cover their backs or else get racked
even by the big names in the industry. NYSE today halted trading in Satyam Computer at its
bourses in the US as well as in Europe after the Chairman disclosed financial bungling at the
~ndian ~T major.

A business will always have two sides, it¶s not necessary to gain profits every time, but to sustain
in the market the integrity is vital. Every day in some or the other place there is a merger or an

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acquisition happening, but due to the projected image the co-players in the market are dropping out
their plans of taking over Satyam.

Undoubtedly there will be intense focus directed at the other ~ndian ~T Services companies as well.
The Satyam corporate governance failure may also make its competitors bolder in terms of
acquiring market share created by its fallout provided the industry can regain the trust of the same
investors that Satyam has deceived.

From this necessarily brief review of the evidence, and particularly of the sources of failure in
financial firms, draw some tentative conclusions. ~t is important to recognize, however, the
evidence base for firm recommendations on corporate governance in financial institutions is
thinner than one would like, and certainly not robust enough to offer a standardized set of
recommendations valid at all times and in all places.

d  
 
   

gY Firstly, that people are more important than processes. The failed firm Satyam had Boards
with the prescribed mix of executives and non-executives, with socially acceptable levels
of diversity, with directors appointed through impeccably independent processes, yet where
the individuals concerned were either not skilled enough for, or not temperamentally suited
to, the challenging role that came to be required when the business ran into difficulty.
gY Secondly, in spite of first conclusion, there are some good practice processes worth having.
Properly constituted audit committees, and Board risk committees can play an important
role, as long as they are prepared to listen carefully to sources of advice from outside the
firm.
gY Thirdly, a regulatory regime built on senior management responsibilities is absolutely
essential. ~n some of the cases we have wrestled with, senior management did not consider
themselves to be responsible. The regulation should be built on a carefully articulated set of
responsibilities up and down the business. ~t is important that they are not unrealistic. ÿe
do not expect the CEO to check in the bottom drawers of each of his traders for unbooked
deal tickets. But we do expect the CEO to ensure that there is a risk management structure
and a control framework throughout the business which ought to identify aberrant behavior,
or at least prevent it going on unchecked for any length of time.
gY One consequence of this senior management regime, fourth point, is that regulators must
focus attention on the top level of management in the firm. For the major firms we regulate
we insist that our supervisors have direct access to the Board, and that they present to the
Board their own unvarnished view of the risks the firm is running, and of how good the
control systems are by comparison with the best of breed in their sector. Unfortunately, we
find some resistance to this approach. A ÿell-structured Board, and a confident
management, should welcome an independent view, even expressed at the Board level,
which they may challenge and contest if they wish. And non-executive directors should

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find it helpful to see a knowledgeable view of the institution which does not come from or
through its own senior management.
gY Lastly, no corporate governance system will work well unless there is some engagement on
the part of shareholders. Boards are responsible to shareholders. That is the received
wisdom in Anglo-American capitalism, at least. But if those shareholders are not prepared
to vote their shares, and show little interest in business strategy, then that accountability is
somewhat notional, and unlikely to be effective. Certainly regulators cannot hope to
substitute for concerned and challenging shareholders, though in some senses they may
complement them.

!  #

 ©

 6   3

~ndia vowed to strengthen laws to prevent corporate fraud after Satyam Computers, the country's
fourth-largest software company, shocked investors by revealing profits had been falsely inflated
for years.
Chairman Ramalinga Raju resigned on ÿednesday after revealing ~ndia's biggest corporate
scandal in memory, sending the company's shares plunging nearly 80 percent.
The following is an overview of how the fraud escaped detection for so long and what compelled a
soft-spoken man born into a family of farmers to risk all.
 ©   3
A: On the face of it, New York-listed Satyam did everything by the rulebook, with an international
firm auditing its books, declaration of accounts in accordance with ~ndian and U.S. standards, and
the requisite number of independent directors with excellent credentials, including a Harvard
business school professor and a former federal cabinet secretary.
Raju, in his now famous 5-page letter outlining the deception, said no other board member -- past
or present -- was aware of the financial irregularities.
Regulators were blindsided, and analysts and experts say there are "systemic flaws" in accounting
and audit practices.
About $1 billion, or 94 percent of the cash, on the company's books was fictitious, Raju said, and
manipulation of the cash flow may be a reason why the fraud was undetected.
"Companies have manipulated P&L (profit and loss) accounts before, but cash flow is the Holy
Grail -- you don't tamper with it," said Saurabh Mukherjea, an analyst at UK-based research firm
Noble Group.
"Auditors generally assume if there is cash, things are OK. But there are plenty of accounting and
governance loopholes."

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~ndia also lacks a culture of dissent, with shareholders and independent directors reluctant to
question company founders.

"    ©  3

A: Most certainly, say analysts and industry experts.

ÿhile there has been a plea from chief executives across the board against painting all of corporate
~ndia with the same brush, Noble Group estimates at least a fifth of the top 500 listed companies
practice "creative accounting."

"At its most innocent it is not illegal, but account manipulation is very pervasive," said Mukherji.

ÿ      ©3

A: Tighter rules for accounting and corporate governance, including appointment of independent
directors by selection committees, and greater oversight from regulatory and government
authorities.

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~t is imperative that organizations learn to handle corporate fraud cases with the utmost
seriousness, experts note. They say an effective compliance system that works to prevent potential
violations and misconduct is one of the basic keys to modern fraud prevention. HR needs to take
an active role in improving compliance and communicating the consequences of violation across
all levels.

Minimizing exposure to fraud, one expert shares, involves four separate disciplines: preventing,
detecting, investigating and recovering. ,´ Tapan Bhattacharya, General Manager (Projects), Globe
EL Projects says it¶s the first of these that tends to have the greatest long-term impact on an
organization. And prevention is also the one area that HR can be most actively involved in. ³The
rest are governed by the external forces and HR¶s role at best will be restricted to monitoring and
making changes in the system,´ he says. Further, HR is able to consider and often address the
ethical fabric of employees as they first enter the organization, Bhattacharya adds.

But not all fraud can be picked off so easily, and HR needs to work in partnership with senior
leaders to develop and maintain a fraud-free culture. ~n particular, both sides need to consider the
possibility of fraud committed in the organization¶s interest, not the individual¶s. ~n many recent
corporate scandals the perpetrators received very little personal reward for their misdeeds. ³This
second kind of non-conformance is neither known, nor controllable by HR,´ Bhattacharya says.

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Ultimately, the onus of protecting against fraud has to start from the top. Jim Burke, CEO, Global
Compliance, an organization that provides whistle-blower hotlines and anti-fraud software
solutions, says HR plays a very important role in this process, no matter how big the organization
is. ³ÿhere once outsourced compliance solutions were only required in the high-end financial
services sector, today all organizations need to address these issues to some extent,´ he says. ³ÿe
are seeing over time that compliance programmers are pushed down to privately-run companies
and smaller companies who participate in the supply chain of those large companies.´

Even family-run businesses that are so dominant in this particular region are not out of this loop.
They may not wish to have a compliance programmed but may be required to in order to maintain
supplier relationships and do business with various corporations, agencies and governments, Burke
points out.

Burke says an effective compliance programmer will have three important factors. Firstly,
employers need to accurately assess their risk. ³The first thing in a compliance programmer is to
understand were risk of having bad things happen,´ he says. Secondly, employers need to train
their staff on how to identify and avoid those risks. Beyond that is the issue of management
capability, which is where hotlines and case management software can intervene. ³Above all, as
employers, we should be able to benchmark were compliance function against the industry
standards. ÿe have to see where we measure up. HR plays a role in all this.´

©  


Communication is also a necessary component. Burke urges HR to create a culture of free and
open feedback across all functions of an organization, giving staff the power and means to report
fraud if and when they identify it. Bhattacharya says not having this kind of support can cost an
organization dearly over the long term. ³There was a case where heavy-duty equipment was
supplied by an overseas supplier with inferior fitments. ÿhen the equipment was put through the
rigorous installation procedure it failed to deliver the required output. An enquiry revealed that not
only were the company¶s rules flouted with impunity at the supplier¶s end, but this done with the
complete knowledge and concurrence of the senior management,´ he tells. ³However, what
actually shocked us was the fact that it was known to some persons in our organization as well and
they were waiting to blow the whistle after it was installed and paid for to settle some inter-
department scores.´

ÿ

  

ÿhen a fraud is identified in a company, what must HR do to strike a balance between

confidentiality and transparency? Bhattacharya says the rules should be simple. ³Rule number one
± the organization¶s interest come first, always and every time.´ He says HR will have to consider

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appointing previously unknown professionals such as forensic accountants and money-laundering
specialists, as well as lawyers to help them navigate the toxic spin-off effects.

³HR never functions independent of the organization¶s interest and its moral watch dogs never
have functional ascendency over their financial or business bosses,´ he says. ³HR¶s role in this
environment is limited to fire fighting in the aftermath of the debacle or, worse still, face the wrath
of not having chosen the right person for the right job.´

ÿ 
  ©3

There are a number of lessons. For example, when a promoter has a very low holding in a
company and it keeps going down over a period of time, there is concern as to why is it happening.
Here (in Satyam), Raju¶s family holding in the company was very low and his sons were not on the
board of the company. ~t¶s a prestigious, family-run company but why were the boys not on the
board?

Every quarter, the accounts of Satyam were announced after the three companies, TCS (Tata
Consultancy Services Ltd), ~nfosys (Technologies Ltd) and ÿipro. Satyam was always the last of
the (top) four to announce quarterly results, so the growth rates and numbers were all manipulated,
to say that we are like them.

ÿhen the stock market collapsed in the financial sub-prime crisis, they borrowed money against
their own holding. This borrowed money had been used to start Maytas real estate and
infrastructure (businesses) and the boys were running it.

So as stock prices collapsed, after the financial crisis, banks wanted more shares and that time they
didn¶t have the shares, they had pledged all their holding and some banks sold (the pledged shares)
and that¶s the time when they decided to acquire Maytas ~nfra (Ltd) and Maytas Properties (Ltd).

          ©3

ÿe have to run business honestly and there has to be a conscience. ÿe can¶t cheat people. But if
attitude is that ~ want to make money illegally and that ~ want to cheat people, then it¶s going to
continue.

~t¶s not the first time and it¶s not the last time it has happened²either in ~ndia or abroad. ÿe
could¶ve learnt lessons from Enron, but how many people take that seriously?

The regulatory bodies, the outside agencies, be it the internal auditors or the external auditors,
should be more vigilant and even the employees of the company must come out and complain to
the regulators when they suspect something. They could¶ve gone to the independent directors.

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Satyam had very reputed independent directors on its board. Normally, such a thing (fraud) would
not happen because someone would squeal.

# 
 

1.Y http://www.sathyamurthy.com/2009/01/07/satyam-fraud-unravelling-the-mystery/
2.Y http://www.moneycontrol.com/company-facts/satyamcomputerservices/history/SCS
3.Y http://www.iloveindia.com/economy-of-india/top-50-companies/satyam-computers.html
4.Y http://rebirthofreason.com/Articles/Younkins/Toward_a_Paradigm_of_Human_Nature,_Hu
man_Action,_and_Human_Flourishing.shtml

5.Y #d ! 4245,!  ,2225% d ,ÿ

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6.Y http://www.bolender.com/Sociological%20Theory/Paradigms%20and%20Assumptions/par
adigm.htm
7.Y http://uk.reuters.com/article/2009/01/09/us-satyam-qa-sb-
idUKTRE5072EU20090109?pageNumber=2
http://www.andhranews.net/Business/2009/January/9-Satyam-corporate-fraud-
82947.asp#ixzz1GUUktteh
8.Y http://www.andhranews.net/Business/2009/January/9-Satyam-corporate-fraud-
82947.asp#ixzz1GUUqojaO
9.Y http://www3.wsws.org/articles/2009/jan2009/indi-j27.shtml
10.Yhttp://hbr.org/product/corporate-governance-failure-at-satyam/an/HKU889-PDF-ENG
11.Yhttp://en.wikipedia.org/wiki/Satyam_scandal
{ .Yhttp://www.moneycontrol.com/news/business/probe-into-satyam-scam-to-end6-months-
new-icai-chief_5
{{.html
{.Yhttp://www.reasonforliberty.com/current-affairs/satyam-scandal-the-mixed-economy-
scam.html
14.Yhttp://www.hrmasia.com/resources/employment-law/catching-fraudsters-early/46187/

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