Scandal of Satyam

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INTRODUCTION

Satyam Computer Services, Ltd. was a rising star in the Indian outsourced IT services industry. The company was formed in 1987 in Hyderbad, India by B. RamalingaRaju. The firm began with twenty employees and grew rapidly as a global business. It offers information technology (IT) and business process outsourcing (BPO) services spanning various sectors, including: aerospace and defense, banking and financial services, energy and utilities, life sciences and healthcare, manufacturing and diversified industrials, public services and education, retail, telecommunications and travel.

By 2003, Satyam‘s IT services businesses included 13,120 technical associates servicing over 300 customers worldwide. At that time, the worldwide IT services market was estimated at nearly $400 billion, with an estimated annual compound growth rate of 6.4%. The markets major drivers at that point in time were the increased importance of IT services to businesses worldwide; the impact of the internet on eBusiness; the emergence of a high‐quality IT services industry in India and their methodologies; and, the growing need of IT services providers who could provide a range of services. Satyam and its 52,000-employee workforce provide information technology services to more than 650 clients, including Fortune 500 firms such as Cisco System, Unilever, nestle, and General Electric.

From 2003 to 2008, in nearly all financial metrics of interest to investors, the company grew measurably. Satyam generated USD $467 million in total sales. By March 2008, the company had grown to USD $2.1 billion. The company demonstrated an annual compound growth rate of 35% over that period. Operating profits averaged 21%. Earnings per share similarly grew, from $0.12 to $0.62, at a compound annual growth rate of 40%. Over the same period (2003‐2009), the company was trading at an average trailing EBITDA multiple of 15.36. Finally, beginning in January 2003, at a share price of 138.08 INR, Satyam’s stock would peak at 526.25 INR – a 300% improvement in share price after nearly five years. Satyam clearly generated significant corporate growth and shareholder value.

The objectives of this report is to underlying issue from the Satyam’s falsifying an earning income report case, analyzing on the issues based on who involved, why did it happen, and the effects of this issue. If we were the Director of Human Resources at Satyam Computer Services, we also provide some recommendation as the HR practitioners to take the next step and become strategic partners with the organizational leadership in both contractor and client companies. In additional, we also provide some recommendation based on Islamic perspective in order to avoid and prevent problems in the future.

CASE SUMMARY

On 7 January 2009, company Chairman RamalingaRaju resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyam's accounts had been falsified.

Raju confessed that Satyam's balance sheet of 30 September 2008 contained: * Inflated figures for cash and bank balances of Rs 5,040 crore (US$1.09 billion) as against Rs 5,361 crore (US$1.16 billion) reflected in the books. * An accrued interest of Rs 376 crore (US$81.59 million) which was non-existent. * An understated liability of Rs 1,230 crore (US$266.91 million) on account of funds was arranged by himself. * An understated debtors' position of Rs 490 crore (US$106.33 million) (as against Rs 2,651 crore (US$575.27 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.

TIME LINE

The events of the Satyam scam unfolded in a matter of few days, however, the impact is felt even today. * Dec 16, 2008: Satyam Computers announces it is buying a 100 percent...
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