Corporate Governance Review of Satyam Computer Services

Topics: Corporate governance, Board of directors, Corporation Pages: 13 (4021 words) Published: January 26, 2011

| Executive Summary| | | | | 3|
1| Introduction| | | | | | 4|
2| Corporate Governance-An Academic Review| | | 5|
| 2.1| Corporate Governance Mechanisms| | | 5|
| 2.2| Overview of the OECD Principles of Corporate Governance. | 6| | 2.3| Corporate Governance in India| | | | 7|
3| Satyam Computer Services Limited - Overview| | | 9| | 3.1| The Satyam Scandal| | | | | 10|
| 3.2| Satyam's Corporate Governance Issues| | | 12|
4| Corporate Governance Recommendations-Satyam Compute Services Ltd.| 14| 5| Management Control System| | | | 16|
| Conclusion| | | | | | 18|
| References| | | | | | 19|
| | | | | | | | |

Executive Summary

This report examines the key issues in the corporate governance and management control systems of Satyam Computer Services Limited, an India based IT service provider, as of January 2009. The report presents a detailed analysis of the company’s compliance with respect to its regulatory obligations and international corporate governance principles while reflecting on the scandal which questioned the company’s corporate integrity. Additionally, an overview of Satyam Management Control System and its need for restructuring is highlighted. Conclusively, proposed changes within the overall company structure, within the context of international good practice, are recommended.

1. Introduction
Over the past decade, general concerns about the functioning of the corporate systems have been echoed due to the unexpected collapse of major companies. Criticism was further heightened with regard to the lack of effective board accountability, management control and companies’ corporate governance structure as a whole. For these reason, and possible problems that could result from the separation of ownership and control, it was necessary for companies to intensify their corporate structures and mechanisms. Corporate governance requires the establishment and incorporation of the board of directors and committees, legal and regulatory framework, risk and performance management, business practices and ethics, disclosure and transparency, and communication to provide the linkage between all key elements. As we evaluate the key issues arising from the scandal of Satyam Computer Services Limited, we will evaluate the efficiency and/or deficiency of the company’s corporate governance structure and its management control systems.

2. Corporate Governance – An Academic Review
‘Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company’ (SEBI Committee, 2003, p.1). An effective corporate governance structure encourages transparency and efficiency within financial markets, consistency with legislative policies and conveys the unambiguous division of responsibilities among regulatory, supervisory and enforcement authorities (OECD, 2004, p.17).

2.1 Corporate Governance Mechanisms
The need for good corporate governance may be prominent because of existing doubts with respect to the effectiveness of companies’ accountability to its shareholders; because of the need for extending corporate responsibility to employees, creditors, consumers and to society; and because of society’s expectations and the complexities which exist between holding companies and their subsidiaries. Several internal and external mechanisms that could assist in achieving good corporate governance include: Internal Corporate Governance Mechanisms

* Board structure.
* Committees.
* Remuneration of directors.
* Code of conduct.
External Corporate Governance Mechanisms
* Regulatory Oversight...
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