Question

Your consulting services have been requested by the CEO of a large international corporation. The CEO is concerned about ethical issues surrounding corporate governance from a global perspective. A common example may be where a corporate board of directors breached one or more duties, such as the duty of loyalty, to its shareholders—although there are many other areas where business ethics are at the center of a case that originated at the governance level of an organization.

You are asked to conduct research and analyze a case involving ethical issues surrounding corporate governance from a global position. Briefly describe the facts of the case, the legal issue, and the decision of the court. In addition, discuss the effect of the case from a global business perspective, on society in general, and how the corporation could prevent such issues in the future.

Answer 1

• 1. Describe the facts of the case briefly

  In 2009, Ramalinga Raju, the Chairman of Satyam Computer Services, a Global IT Services Provider, headquartered in India confessed to have manipulated the company accounts by US$1.47 Billion. This created a major furore in the Indian IT industry and send shockwaves all over. In February 2009, the Central Board of Investigation in India took over the investigation and filed three charged sheets. In April 2015, Ramalinga Raju, along with 10 other members were convicted. PricewaterhouseCoopers affiliates, who served as independent auditrs of Satyam Computer Services were also found guilty of making accounting fruads. As a result PwC was fined $6 million by the US Securities and Exchange Commission.

  Raju had been inflating the profits and doctoring the SCS accounts for years, which the help of other accused.

  Inflating profits made the balance sheet look healthier thereby increasing its stock prices.

  Since all the profits came from exports, they were non-taxable account to Govt. of India rules.

  After the 2008 meltdown, when the IT industry suffered a huge blow, Satyam started making losses, however, it had earlier declared huge cash reserves. It however started to borrow funds, which raised several eyebrows.

  When it actually became unbearable for Satyam, Raju made a plan.

  He decided to falsely invest in his son's infrastructure firm called Maytas. Maytas was to undertake a huge government project in Hyderabad India and offered to do it at a much cheaper price as a priviege to the state goverment.

  Raju proposed that Satyam would use its reserves to buy Maytas. The problem of missing SCS reserves would be resolved which that money (which did not exist) would be shown as "paid" to the Raju family.

  However the institutional investors objected to the deal, and as a result the share price of Satyam plummeted. This exposed all the mis-doings of several years and hence Raju had to make the confession.

  
  2. Describe the legal issue

  Ramalingam Raju along with other accused were convicted under various sections of the Indian Penal Code (IPC), such as the following

  (a) Sec 120B (criminal conspiracy)
  (b) Sec 409 (criminal breach of trust)
  (c) Sec 420 (cheating)
  (d) Sec 467 (forgery of valuable security)
  (e) Sec 468 (forgery for cheating)
  (f) Sec 471 (using forged documents as genuine)
  (g) Sec 477-A (falsification of acconts)

  As a result Raju was sentencesd to seven years in prison.

  3. Discuss the effect of the case from global business perspective and on society in general

  The impact of this fiasco was huge, particularly on the Indian IT industry. Satyam stocks plunged over 82%. The benchmark Sensex index came down 7.3%. The timing of the scandal was really bad. This was post the 2008 aftermath and the Foriegn Institutional Investors (FIIs) were anyway pulling funds out of India and other emerging markets. The sentiments of even the domestic investors were shaken. The entire world started to question the standards of corporate governance in India. The India IT industry had to deal with a lot of pressure and wrath of the world market as every India IT company was started to being looked at using the same lens. This led to the IT Industry standing up and appealing to the world that the Satyam case was an isolated case. The social effects of this scandal were also huge. Over 40% of Satyam's staff got laid off. Thousands of people lost their jobs overnight, which led to many suicides and general social unrest. The IT industry had to step-up and accommodate the laid-off employees to control the situation