Question

Ethical Issues of Satyam Computer Services Scandal, India (recommended to be discussed in chronological order, wherever relevant).

Answer 1

Ethical framework

Satyam computer services scandal, was clearly the ethical malpratices case of Ramalinga Raju, Company chairman who admitted the misconducts. SFIO (Serious Fraud Investigation Office), investigated the case. The report states the falsification done deliberately by leaving the loopholes in the CAS (Computerized Accounting System, which uses the ERP modules.

1. Unethicalconduct by Ramalinga Raju

Ramalinga Raju is the chairman of the company and his method of doing the business is the example of unethical practice within the industry. He was solely in greed of money as well as acquiring the lands. He wanted to compete with the top 3 IT companies. He chooses the easiest way as well as most immoral way in order to accomplish the goals. He forged the books of accounts for 9 years, establish fake invoices, accounts and clients, avoid the taxes. He state the good financial health of the company and attract the shareholders to purchase the land. Ethical standard is that the company were poor.

2. Insider trading

Promoters were involved in the insider trading of the shares of the company in order to raise the money. The funds collected through the former Chaiman, their relatives and his brother were used to buy the lands in the names of 330companies. The promoters grounded on the inflated books and therefore, project was in very good financial position and also used the money of shareholders for their personal gains.

3. BOD (Board of Directors) Negligent

The Satyam Board directors did not questioned the Chairman actions. They did not even raised the objections when the management decide to invest money in order to acquire the 100% stake in the real estate firms promoted through sons of Raju and it was in violation of the Companies Act, 1956.

4. False Accountinh and Books

In accordance with the findings of SFIO, the balance sheet of the company carried the accrued interest of Rs 376 cr, which was non existent. It means that the company established false impression regarding its fixed deposits.

5. Questionable Bank role

Banks also did not raise any concern when sanctioning the short term loan to the company, which was supposed to be the cash rich company and the bank behavior is unethical.

6. Doubtful role of the rating agencies

Credit rating agencies grounded their ratings of the company grounded on falsified documents and never perform any due diligence in the assessment and coverage.

7. Unethical auditors role

The auditor named Prince Waterhouse for the company and have been auditing the accounts of the company. And the auditor compromised on the standards through not using the testing tools of PWC standard, instead of they relied on Satyam for that.