Corporate Accounting Scandal
CORPORATE ACCOUNTING SCANDAL AT SATYAM COMPUTER SERVICES LIMITED
BACKGROUND
Ironically, Satyam means “truth” in the ancient Indian language “Sanskrit” (Basilico et al., 2012). Satyam won the “Golden Peacock Award” for the best-governed company in 2007 and in 2009. From being India’s IT “crown jewel” and the country’s “fourth largest” company with high- profile customers, the outsourcing firm Satyam Computers has become embroiled in the nation’s biggest corporate scam in living memory (Ahmad, et al., 2010). Mr. Ramalinga Raju (Chairman and Founder of Satyam; henceforth called ‘Raju’), who has been arrested and has confessed to a $1.47 billion (or Rs. 7,800 crore) fraud, admitted that he had made up profits for years. According to reports, Raju and his brother, B. Rama Raju, who was the Managing Director, “hid the deception from the company’s board, senior managers, and auditors.” The case of Satyam’s accounting fraud has been dubbed as “India’s Enron”. In order to evaluate and understand the severity of Satyam’s fraud, it is important to understand factors that contributed to the ‘unethical’ decisions made by the company’s executives. First, it is necessary to detail the rise of Satyam as a competitor within the global IT services market place. Second, it is helpful to evaluate the driving-forces behind Satyam’s decisions: Ramalinga Raju. Finally, attempt to learn some ‘lessons’ from Satyam fraud for the future.
THE FACTS
The loss of respect and confidence started at the end of 2008. On December 16, 2008, Ramalinga Raju, COB of Satyam, announced the purchasing of Maytas Infrastructure and Maytas Properties for $1.6 billion. The two Maytas companies were owned by the two sons of Raju and their businesses were unrelated to the core competencies of Satyam. Raju justified the decision by emphasizing the need of diversification at times of uncertainty and economic turbulence. On the following day, Satyam shares plunged as domestic and international investors
BACKGROUND
Ironically, Satyam means “truth” in the ancient Indian language “Sanskrit” (Basilico et al., 2012). Satyam won the “Golden Peacock Award” for the best-governed company in 2007 and in 2009. From being India’s IT “crown jewel” and the country’s “fourth largest” company with high- profile customers, the outsourcing firm Satyam Computers has become embroiled in the nation’s biggest corporate scam in living memory (Ahmad, et al., 2010). Mr. Ramalinga Raju (Chairman and Founder of Satyam; henceforth called ‘Raju’), who has been arrested and has confessed to a $1.47 billion (or Rs. 7,800 crore) fraud, admitted that he had made up profits for years. According to reports, Raju and his brother, B. Rama Raju, who was the Managing Director, “hid the deception from the company’s board, senior managers, and auditors.” The case of Satyam’s accounting fraud has been dubbed as “India’s Enron”. In order to evaluate and understand the severity of Satyam’s fraud, it is important to understand factors that contributed to the ‘unethical’ decisions made by the company’s executives. First, it is necessary to detail the rise of Satyam as a competitor within the global IT services market place. Second, it is helpful to evaluate the driving-forces behind Satyam’s decisions: Ramalinga Raju. Finally, attempt to learn some ‘lessons’ from Satyam fraud for the future.
THE FACTS
The loss of respect and confidence started at the end of 2008. On December 16, 2008, Ramalinga Raju, COB of Satyam, announced the purchasing of Maytas Infrastructure and Maytas Properties for $1.6 billion. The two Maytas companies were owned by the two sons of Raju and their businesses were unrelated to the core competencies of Satyam. Raju justified the decision by emphasizing the need of diversification at times of uncertainty and economic turbulence. On the following day, Satyam shares plunged as domestic and international investors