Corporate Governance - Satyam Case

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Liberalisation of Indian economy since 1991 has seen rise in economic scandals and crimes involving huge sums of money invested by Public. Harshad Mehta Case, Satyam, Ketan Parikh and UTI on national level and Lehman Brothers on international level are some of the examples resulting in topics on corporate Governance and Business Ethics being included by many universities and autonomous institutions in their curriculum post liberalization. January 7, 2009 will be etched in the annals of India's corporate history as it brought to light one of the biggest scams in India. It was on this day that chairman B Ramalinga Raju of Satyam Computer Services considered to be one of the torchbearers of India's new economy, confessed to a corporate fraud amounting to Rs 7,800 crore (Rs 78 billion).In a letter to the board, confessing his misdeed, Raju said: "Every attempt to eliminate the (balance sheet) gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. It amounted to riding a tiger without knowing how to get off and not yet eaten by the tiger. While the existing board was subsequently dissolved, and Raju and his brother Rama Raju, and the company's chief financial officer Srinivas Vadlamani were remanded to judicial custody, the future of 53,000 employees looked uncertain. Then government formed a new board with HDFC chairman Deepak Parekh, former president of Nasscom Kiran Karnik and former Sebi member C Achuthan as the members untill it was taken over by Tech Mahindra (owned by the $6.3 billion Mahindra Group) in an open auction in April. Two months after taking over scam-tainted Satyam Computer Services, Tech Mahindra Sunday renamed the IT major as Mahindra Satyam. The logo was adopted from the Mahindra Group. Ever since the Tech Mahindra group took over the company and brought the cash inflow, Mahindra Satyam has come up with flying colors. It is soaring high on profits and as the share market results show, Mahindra Satyam is among the most active share in the exchanges. As has been revealed by company sources, much of the cash which Tech Mahindra brought is still unused. The company sources also revealed that Mahindra Satyam has been able to pay back the loans it had incurred from HDFC bank (69 Crore), Citibank(100 crore), IDBI bank (150 crore) and Bank Of Baroda (150 crore). These debts were incurred when the government selected committee was running the company. These loans were taken to pay the employees and the vendors. Part of the BNP Paribas loans of 225 Crores, which was taken for the Satyam BPO has been repaid and this unit too is registering profits. It is true that Satyam has been infused with new life by Mahindra group but entire episode has left many lesions for regulators to avoid any such incidents in future. Before we analyse the fallout of this episode, let us understand the concept of corporate governance.

Corporate Governance:
Corporate Governance is defined by Wikipedia as set of processes, customs, policies, laws, and institutions affecting the way a corporation or company 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 employees, customers, creditors, suppliers, regulators, and the community at large. Greater disclosure, better accountability of independent directors, separation of internal audit from statutory audit, third parties check, screening of customers and vendors and clearly defined policies for whistle blowing and gender difference are some of the important principles of Corporate Governance. India’s report card on corporate Governance is dismal with survey in 2008 indicating that 54 % of companies have non executive chairman as compared...
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