Satyam Fiasco

Raju Raju
Yes Baba,
Cheating us
No Baba,
Telling Lies,
No Baba,
Open the Balance sheet
HA ! HA ! HA !

By – Sandeep, Prateek, Pankaj, Lokesh, Pradeep.

 Satyam means Truth in Sanskrit.
• Roadmap to entire Episode.
Background or History,
How it Started,
Who Benefited the most from it.
It’s Consequences and effects.
Conclusions & Learning.
 Background / History
• Satyam Computer Services Limited is a leading global consulting
and IT services company spanning 55 countries. It was established
by Mr. B. Ramalinga Raju and B. Rama Raju on 24 June 1987.

In 1991 it was recognized as a public limited company and got its

first Fortune 500 client, Deere and Co. The 90s were a time of
growth for the company. It started Satyam Renaissance, Satyam
Infoway, Satyam Spark Solutions and Satyam Enterprise Solutions
and Infoway became the first Indian internet company to be listed on
the NASDAQ
 Background
• The company signed contracts with various international players like
Microsoft, Emirates, TRW, i2 Technologies and Ford. On the way the
company had had various achievements like becoming the first ISO
9001:2001 company in the world, certified by BVQI, winning the
Frost & Sullivan Award for Competitive Strategy in ASP in 2001etc

• In 2001 Satyam opened offices in Singapore, Dubai and Sydney.

Throughout the starting years of the new century Satyam expanded
its business to many countries and signed MoU with many
companies.
 History / Background
• Satyam Computer Services Ltd., has been selected by the
Switzerland-based World Economic Forum and World Link
magazine as one of India's most remarkable and rapidly growing
entrepreneurial companies.

• The Company has received the National HRD award - 2000 for
outstanding contributions to HRD

• Since It’s Inception – Satyam has shown way to other IT Industry

how to expand business across the Globe and how to be become a
very successful model of business in IT Sector.
 Day of Reckoning – 8th Jan 09.

Raju’s Letter to Board

• To the Board of Directors,
From: B. Ramalingam Raju
• Satyam Computer Services Ltd., Chairman, SCS Ltd.,
• Dear Board Members,
• It is with deep regret, and tremendous burden that I am carrying on my conscious, that I would
like to bring the following facts to your notice:
• The balance Sheet carries as of September, 30, 2008:
• Inflated ( non-existent) Cash and Bank balance of Rs. 5,040 Crores ( as against Rs. 5361 Crores
reflected in the books)
 Day of Reckoning – 8th Jan 09.
a) An accrued interest of Rs. 376 Crores which is non-existent.

c) An understated liability of Rs. 1,230 Crores on account of funds

arranged by me.

e) An over stated debtors position of Rs. 490 crores ( as against Rs. 2651
reflected in the books)

2) For the September Q2, we reported a revenue of Rs. 2700 Crores and
an operating margin of Rs. 649 Crores (24% of revenues) as against the
actual revenues of Rs. 2,112 Crores and an actual operating margin of
Rs.61 Crores ( 3% of revenues). This has resulted in artificial cash &
bank balances going up by Rs. 588 Crores in Q2 alone.
Day of Reckoning – 8th Jan 09.
Every attempt made to eliminate the gap failed. As the promoters held a
small percentage of equity, the concern was that poor performance would
result in a take-over, thereby exposing the gap. “It was like riding a
Tiger, not knowing how to get off”.

This was the heading in almost all the newspaper published on 9th
Jan 2009.
 Conclusion & Learning.
• First of all we have to admit that there was lack of Regulation on part of
Govt. as well as other bodies responsible for keeping in check such frauds.

• Corporate Non Governance – India Indeed need such blow so that

Corporate Governance can be properly adhere to in practice just not be
taught in Business School alone.

• Satyam is not the alone case that India have faced in last 15 to 20 years. It’s
time that we start addressing our problem with total conviction & more
stringent rules and regulations regarding compliance should be introduced
to check fraud like this.
 Conclusion & Learning.
• It’s easy to blame Price Waterhouse Coopers for this debacle as they did
not perform their duties as Auditor properly. May be some other Audit Firm
will be appointed and it can happen again with any organization.

• The main problem here is not Auditors but in my view it is the Compliance
and other regulatory body how turned completely blind in this entire episode
and not able to perform to check fraud to this kind and of this magnitude.
 Why Govt. Mediated
• India is No 1, when it comes to IT. It Contributes 5.7% to GDP. In Values
terms the figure stood at around $40 Billion for year 2007-08

• Govt. of India was very concerned about it’s Image in International

Market especially IT , as it is also main source of foreign exchange
for the country and drives economic growth of a country.

• It wants to give clear message to the International Clients that the

problem will be taken care-off , it will not be repeated in future and
you can continue your engagements with India.
 Why Govt. Mediated
• To safeguard the Interest of small investors, So that faith can be
restored in the market again.

• Small investors are the largest number of buyers in the Capital

Market. If they will go away it would be difficult for other companies
to raise money through Public Issues.

• To take care of the employees working in Satyam. As it was never

their fault for whatever happened. Their job has to be secured by the
Govt. that too in economic recession time.
 Why Govt. Mediated
• Elections were round the Corner.

• To Give message to the people and to investor

that you don’t have to worry about this we
will take care of everything.

Guilty will be punished and will not go Scott

free as it use to happen earlier.

That’s the only reason why Raju is still Behind

the bars till now and not able to secure a bail
till now.
 Steps Taken After Satyam Fraud
• Introduction of new rules by the stock market regulator, making it
compulsory for promoters of companies to disclose the percentage
of shares pledged by them to lenders

• Appointment of Independent Auditors and Company Secretary by

Company Law Board to conduct Audit of any private organization
and time.

• Set-up of 5 member Committee to suggest how to implement

effective compliance and Corporate Governance in private sector by
CLB.