I.

INSIGHTS

In a culture where truth is seen as a way of life, it is kind of sad that a person fooled not
just one person, but many for his personal gain. There is only one reason that people commit this
unethical behavior greed. Everyone is guilty of greed no matter of what position one holds. Some
say it is natural and others say it is a human trait, but the question does not only revolve there
because in this case, the question lies on how greed can fuel negative actions that leads to negative
events.

Satyam means truth in Sanskrit. Its kind of ironic to think that a company that holds the
name truth have done this wrongful act. The company was a sky rocket success that had known
clients. No one from the board of directors or from the companys external auditor found out about
it. When the news was put out in the open, it did not only shocked India, but even the World. This
scandal was even dubbed as Indias Enron.

The Satyam Scandal emphasized the damage one can acquire if the company has a horrid
corporate governance. This was the largest known accounting fraud in India and its fall had effects
and some were good and some were bad. But in this perspective, there is hope that people will see
this as a lesson and avoid perpetrating this kind of event.

This disgrace ruined reputations. It only look bad on Mr. Raju, his brother, employees,
investors, but more importantly, it looked bad on Indias industry and the country itself. They were
on newspapers and televisions and one might hope that it is for something theyve done well, but
it wasnt. This event tainted India and the IT industry that threatened future investment flows.

The Fraud scheme at Satyam started very small, eventually growing. Indeed, a lot of fraud
schemes initially start out small, with the perpetrator thinking that small changes here and there
would not make a big difference, and is less likely to be detected. In 1991, Satyam after being
listed in the Bombay Stock Exchange where its Initial Public Offering (IPO) was oversubscribed
by 17 times and was subscribed by fictitious persons. It started with a desire for power and it
continued to expand until the last days of the company.

The companys success in 2006 when they crossed the 1 billion dollar revenues and when
Raju becomes the chairman of industry body, The National Association of Software and Services
Companies represents the biggest business success ever while also spotlighting their company for
foreign investments. Its a grave reminder of the implications of being seduced by charismatic
leaders, or more specifically, those who sought excess at the expense of their communities and
their employees. In the end, those misplaced morals killed the company while it injured all of those
who had gone along for the ride.

Greed being the source of this scandal its audacity knows no bounds it extends to all kinds
of desires, one being the lust for power. After Raju was named Ernst and Young Enterpreneur of
the Year, Satyam secured their position to be the official IT services provider of the FIFA World
Cups from 2010 to 2014. Rajus rise to stardom in the corporate world, coupled with immense
pressure to impress investors, made Mr. Raju a slave compelled to appease stakeholders. 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 His hunger for power expanded and he decided to buy out
Maytas Infra the result of which is the start of their downfall.

Surely, if there are profits to be made, some type of scheme, evasion or avoidance that
attempts to by-pass the law or even cross it will occur. It's been that way throughout history. But
with each passing scandal, new rules and codes emerge that surpass those of the past. And while
Satyam won't be the last case of a corporate fraud scandal, its clamorous tale did initiate a new age
in business ethics.

A lot of people have suffered, not the least of whom are the shareholders, stakeholders and
pensioners who lost it all, shocked the government and regulators alike and led to questioning the
accounting practices of statutory auditors and Corporate Governance norms in India. It was a
disappointment to what had appeared to be a promising beginning to the New Economy in which
the Informations Technology age would spread wealth and create jobs throughout the social
spectrum. While Satyam may be the crown jewel of corporate prosecutions and the Enron of
India, it was preceded by guilty verdicts for top executives for money laundering and corporate
fraud.

The character of each of the key personnels must be built on integrity and trust as they
will set the standards for other employees to look above and it will let them know that the company
is established for the common interest and benefit of all. It will also clear and integrate the
companys vision, mission and goal for the prospects of the future.

Punishment serves as a deterrent. But a clear-cut mission and a corporate code of ethics is
crucial. It's the foundation to which boards, managers and workers rely when they reach a fork in
the road. It's the principles they use when deciding whether to emphasize short-term gain or long-
term stability.

Economist Milton Friedman has argued that it is the social responsibility of corporations
to increase profits thereby putting more people to work and paying more taxes to support programs
of the Government that will benefit the general public. But one cannot sacrifice ethics against an
aggressive pursuit toward earnings. The fraud triangle has 3 key indicators of fraud namely
rationalization, opportunity and pressure. The pressure companies set to their employees to meet
earnings expectations promotes temptation, the opportunity given to such key personnel because
of low safeguards has resulted in data theft and other schemes and the rationality to reason out
fraud.

Through this pressures a vital issue arises and that is to remove remuneration to the board
of directors from the performance of the company by prohibiting payments of profit related
commissions, bonuses, stock options, Per Diem fees could be significantly enhanced to take
account of the opportunity costs of the time spent in rendering services as such directors, for
preparing and attending Board meetings, etc., at current price levels. While retaining the existing
scheme of rotational retirement of directors, there should be a cap on the maximum number of
terms that an independent director can hold as such. Subsequent appointments, if made, would be
as ordinary (non-independent) directors. There is a need for having a mandatory remuneration
committee to regularly fix remuneration and evaluate if such Per Diems are reasonable for the
directors performance

But the desire to satisfy shareholders must be balanced with the need to service all corporate
constituents or stakeholders, all of whom contribute to a companys worth. The company should
also take into consideration the observance of law, morals, good customs, public policy and public
order, being observant of these leads to a higher trust rating and appease in the community thus
leading to a increase in earnings without the need of fictitious corporate frauds. That structure must
be reinforced with values that build trust, as well as by more conscious oversight and notable
penalties for erroneous acts. The fact that more people are more closely scrutinizing board behavior
encourages directors to be more responsible

Certainly, ethical dilemmas are not always easy. The situations that can lead to hard choices
can be as complex as the options themselves. Some companies therefore struggle with how to
manage and measure ethics and particularly in cases where they have worldwide offices that
operate in diverse cultures. Those decisions have a direct bearing on their public identities and will
affect their share prices.

Unethical companies will eventually get exposed: Witness Enron and Satyam Companies
that with their potential, by contrast, will get recognized by both the retail and capital markets.
Stock values, of course, are a function of multiple factors. But solid principles are good for
business, and ultimately good for corporation standings and earnings.

When Enron fell, one of the reasons was because of corporate governance. This time
Satyam fell because of, again, corporate governance. This example showed that there is a need to
make this stronger. Owners or presidents must be wary in choosing the top level management
because they set the tone for the company. If top level management sets a tone that penetrates
fraud, then the company is bound to go down.

This fraud scandal encouraged Indias government to tighten the corporate standards to
prevent recurrence of this type of unethical event. The government stepped in to protect the interest
of the investors and also to look after the credibility and image of their country. In addition,
government have encouraged companies to establish a while blower policy.

PriceWaterhouse was Satyams external auditor for eight years. In those eight years, the
external auditors did not even notice any fraudulent actions. It is not impossible to think that in
those eight years, the auditors have developed a threat with Mr. Raju. The financial statements of
publicly traded corporations are required to be certified by an independent auditor.
PriceWaterhouse turned a blind eye to Mr. Rajus unethical accounting practices. In the process of
deception, they not only have manipulated Satyams investors, but also the public itself.
 Those who are willing to commit fraud do not categorize. Anyone and any entity is exposed

to fraud. It does not pick any size, it can happen in businesses that are small, medium or even large

across or within the same industries. In the past decades, companies have experienced fraud that
left them with great damage. To minimize this unethical behavior, the government have creates
laws and governing bodies. These laws and governing bodies have been regulating the business
world in order to create an environment that holds integrity.

In the United States, a law was signed on July 30, 2002 following the scandal of Enron.
Government officials were prompted to do this because of the effect of scandals, not only of Enron,
in the economy and also the public. This law was called the Sarbanes-Oxley Act of 2002 or SOX.
It was formed and established to provide increase in corporate governance and corporate
accountability.

The SOX act provided a board called the Public Company Accounting Oversight Board.
But the board has a special task and that is to oversee audit of all public companies because this
was created to protect the interest of investors. Members of the board have to ensure that financial
information of the listed companies are accurate and reliable regards to the companys true
situation.

In the Philippines, this board is similar to a non-profit institution called PICPA or

Philippines Institute of Certified Public Accountants. However they do not have that special
function because it is the Philippine Regulator Board of Accountancy or BOA that has that
function. Specifically, BOA is tasked with the supervision, control and regulation of the practice
of accountancy and has the power to oversee the quality of audits of all financial statements.

Independence is very important and is a control to ensure that fraud will not take place.
The Sarbanes-Oxley Act prohibits firm performing audits of listed companies from engaging in
other financial services for the same entity. This is prohibited to avoid audit firms create threats
that may tarnish the quality of their audit reports.

The Board of Accountancy have adopted the Code of Ethics for Professional Accountants
in the Philippines that is based on the International Code of Ethics for Professional Accountants
by IFAC. The Code of Ethics (Philippines) prohibits firms performing audits from acquiring other
engagements with the same entity that are directly related to the making of the financial statements.

Just as the saying goes, prevention is better than cure and this is accurate in terms of risk
of fraud. Although it is impossible to eliminate fraud, it is better to reduce the risk. The most
effective way is establish a strong internal control. Internal controls are designed to prevent, detect
and correct fraud behavior. To make this happen, top level management must support and follow
the rules and procedures set on the workplace. They will become an example or a role model to
their employees.
 The management must create a positive and ethical working environment. This will
encourage their employees to follow the rules and procedures without feeling like inside a cage.
By doing this, people in workplace will attentively respond positively. The organizational structure
will be more clear, communication between management and employees will be better and there
will be recognition among employees.

A policy manual must be at hand. It must be documented with an easy access so that
employee can acknowledged and understand the set of rules and guidelines a company has. This
manual must be continually reviewed. In case of breaches, there shall be zero tolerance. An
employee must know his consequence and