BUSINESS ETHICS AT SATHYAM
ASSIGNMENT II
ABSTRACTMahindra Satyam formerly Satyam Computer Services, is an
Indian IT services company based in Hyderabad, India.
In June 2009, the company unveiled its new brand identity
Mahindra Satyam subsequent to its takeover by the Mahindra Groups
IT arm, Tech Mahindra on April 13, 2009.
Even though the company got 245 crores profit in Q4 for 2010
2011, but due to outside payments nearly 570 crores for SEK,UPAID
and Class Action Suit in Q4 ,the company had reported a
consolidated net loss of Rs 327 crore for the January March quarter
of 2010-2011.IT firm Mahindra Satyam posted a consolidated net
profit of Rs 225.2 crore for the quarter ended June 30, 2011.
Competition Commission of India approved the proposed merger of
Mahindra Satyam and other companies with Tech Mahindra.
It is mandatory for the firm to get the AGM nod to go ahead with
the merger The shareholders of both Tech Mahindra and Mahindra
Satyam have unanimously approved the scheme of amalgamation and
merger of Satyam Computer Services Ltd, Venturbay Consultants,
C&S System Technologies, Canvas M Technologies and Mahindra
Logisoft Business Solutions with Tech Mahindra.WHAT IS BUSINESS
ETHICS ?
Business ethics (also corporate ethics) is a form of applied
ethics or professional ethics that examines ethical principles and
moral or ethical problems that arise in a business environment. It
applies to all aspects of business conduct and is relevant to the
conduct of individuals and entire organizationsThe term 'business
ethics' came into common use in the United States in the early
1970s. By the mid-1980s at least 500 courses in business ethics
reached 40,000 students, using some twenty textbooks and at least
ten casebooks along supported by professional societies, centers
and journals of business ethics.
UNDERSTANDING SATHYAM
Mahindra Satyam formerly Satyam Computer Services, is an Indian
IT services company based in Hyderabad, India. It was founded in
1987 by B Ramalinga Raju. Mahindra Satyam is a part of the Mahindra
Group which is one of the top 10 industrial firms based in India.
The company offers consulting and information technology (IT)
services spanning various sectors, and is listed on the Pink
Sheets, the National Stock Exchange (India) and Bombay Stock
Exchange (India). In June 2009, the company unveiled its new brand
identity Mahindra Satyam subsequent to its takeover by the Mahindra
Groups IT arm, Tech Mahindra on April 13, 2009.
CONTROVERSIES AT SATHYAM
MAYTAS ACQUISITIONIn 2008, Satyam attempted to acquire Maytas
Infrastructure and Maytas Properties, founded by family relations
of company founder Ramalinga Raju (Maytas is "Satyam" reversed) for
$1.6 billion, despite concerns raised by independent board
directors.\ Both companies are owned by Raju's sons. This
eventually led to a review of the deal by the government a veiled
criticism by the vice president of India and Satyam's clients
re-evaluating their relationship with the company. Satyam's
investors lost about crore INCLUDEPICTURE
"http://upload.wikimedia.org/wikipedia/commons/thumb/e/ee/Indian_Rupee_symbol.svg/7px-Indian_Rupee_symbol.svg.png"
\* MERGEFORMATINET
3,400 in the related panic selling. The USD $1.6 billion ( 8,000
crore) acquisition was met with skepticism as Satyam's shares fell
55% on the New York Stock Exchange. Three members of the board of
directors resigned on 29 December 2008. ACCOUNTING SCANDAL OF
2009Main article: Satyam accounting scandalIn addition to other
controversies involving Satyam, on January 7, 2009, Chairman Raju
resigned after publicly announcing his involvement in a massive
accounting fraud.
TURN AROUNDS AT SATHYAM
The company had reported a consolidated net loss of Rs 233.3
crore for the JulySeptember quarter of 2010. Speaking at a press
conference, Vineet Nayyar, chairman of the company said the
consolidate cash and cash equivalents at Rs 30 crore compared to Rs
26 crore. We will take three [years] for a turnaround, he informed.
Even though the company got 245 crores profit in Q4 for 20102011,
but due to outside payments nearly 570 crores for SEK,UPAID and
Class Action Suit in Q4 (Total 641 crores for the year 2010-2011
),the company had reported a consolidated net loss of Rs 327 crore
for the JanuaryMarch quarter of 2010-2011.IT firm Mahindra Satyam
posted a consolidated net profit of Rs 225.2 crore for the quarter
ended June 30, 2011. During the quarter, the company added 2,172
people (net), taking total headcount to 31,438 as of June 30, 2011.
The company added 36 new customers during the quarter. The total
headcount of the company stood at 32,092 as of the quarter ended
September 30, 2011 during which net addition of 654 personnel took
place. The company added 188 employees in quarter three ending
December 31, 2011 and recorded 29.4% quarter-on-quarter in its
consolidated net profit of 308 crore . Mahindra Satyam reported a
net profit of 534.21 crore for the fourth quarter ended March 31,
2012
PROBLEMS WITH THE INCOME TAX DEPARTMENT
The Income Tax Department had issued notices to the company
seeking 617 crore tax for the assessment years from 2003-04 to
2008-09, when the company was run by the founder B Ramalinga Raju
and his team. The Central Board of Direct Taxes has attached the
properties of Mahindra Satyam on February 3, 2012,stating the
attachment of properties was according to Section 281 B of the
Income Tax Act. Section 281 B refers to recovery of tax and allows
the tax department to issue provisional orders to the assessee to
safeguard revenues accrued to it.The Income Tax department had
slapped notice on the company after disallowing exemptions claimed
by the software firm. The company has received notices of demand
for 1,037 crore and 1,075 crore for assessment years 2002-03 and
200708, respectively. However, the Andhra Pradesh High Court
granted a breather to Mahindra Satyam, by staying the Income Tax
Department's provisional order to attach properties of the IT
firm.
RECENT NEWS AND DEVELOPMENTS
Mahindra Satyam will acquire a minority stake of 15% for 35
crore in Dion Global Solutions Limited, the Delhi-based firm owned
by billionaire brothers Malvinder Mohan Singh and Shivinder Mohan
Singh, that provides solutions for capital markets globally.
Mahindra Satyam acquired Delhi based BPO firm vCustomer's
International operations for US $27 million. This is the first 100%
acquisition by Mahindra Satyam since it became part of Mahindra
GroupPRESENT INDUSTRIES THAT SATHYAM PROVIDES SERVICES.
Mahindra Satyam provides services in the following areas:
Aerospace and Defence
Banking, Financial Services & Insurance
Energy and Utilities
Life Sciences & Healthcare
Manufacturing, Chemicals & Automotive
Public Services & Education
Retail
Consumer Packaged Goods
Travel, Transport, Logistics
Telecom, Infrastructure, Media and Entertainment &
Semiconductors
OFFICES OF SATHYAM ACROSS Mahindra Satyam headquartered in
Hyderabad, India has development centres and/or regional offices in
USA, Canada, Brazil, the United Kingdom, Hungary, Egypt, UAE,
India, China, Malaysia, Singapore, and Australia.PARTNERSHIPS
February 11, 2010, Mahindra Satyam, announced that it has
entered into a partnership with the Integr8 Group, Africas largest
privately owned ICT service and solutions provider. In June 2012,
Mahindra Satyam has tied up with Oxygen Finance, which is a UK
based firm to market its cloud-based payment systemTHE MERGER
Mahindra Satyam's proposed merger with Tech Mahindra may be
delayed all because of legal issues, and ambiguity over
jurisdiction between investigating agencies and the government. The
merger has been delayed due to two tax cases pending with the
Income Tax claiming over 2700 crore for both. Tech Mahindra
announced its merger with Mahindra Satyam on March 21, 2012,after
the board of two companies gave the approval. The two firms have
received the go-ahead for merger from the Bombay Stock Exchange and
the National Stock Exchange. Competition Commission of
India(CCI)approved the proposed merger of Mahindra Satyam and other
companies with Tech Mahindra. Mahindra Satyam will hold its annual
general meeting (AGM) on June 8,2012 to consider the proposal to
merge the company with Tech Mahindra. It is mandatory for the firm
to get the AGM nod to go ahead with the merger The shareholders of
both Tech Mahindra and Mahindra Satyam have unanimously approved
the scheme of amalgamation and merger of Satyam Computer Services
Ltd, Venturbay Consultants, C&S System Technologies, CanvasM
Technologies and Mahindra Logisoft Business Solutions with Tech
Mahindra. Mahindra Satyam Chairman, Vineet Nayyar said on 2 August
2012, that the merger with Tech Mahindra was at the final stage of
getting approval from the Andhra Pradesh and Maharashtra High
Courts.
SATHYAM COMPUTERS BUSINESS ETHICS
The astounding confessions of B. Ramalinga Raju, ex-Chairman of
Satyam Computers, has not only hit investors and employees badly,
it has also tarnished the reputation of Indias IT sector. Amidst
fears that clients would do a rethink on business commitments, the
bigwigs of India Inc are desperately trying to paint the Satyam
case as an exception. While Indian corporations really need to do
everything possible to salvage the situation, they also must pay
heed to some lessons to be learnt from the scandal.
Satyam was indiscreet in its actions, but it will be unfair to
view the rest of India Inc in the same light. It would be equally
unwise, however, to think of the fraud as an isolated case. The IT
sector must understand that there might be other Satyams out there,
waiting to be discovered. A serious investigation needs to be
carried out into business ethics, or, more specifically, the lack
of it.
Why would Satyam have been tempted to break the law? Post 1990,
in what is known as the liberalization period, the corporate sector
has played a major role in the Indian economy.
There must have been times when the increasing competition
forced big corporations to seek unethical ways of conducting their
business.
Ramalinga Raju might have been tempted to spice up Satyams
account to show the companys performance in good light. Infosys,
Satyams competitor, has been recording tremendous growth over the
years. Even after the Satyam scandal became public news, Infosys
performance remained largely unaffected.
It could also have started off as an attempt to cover up the bad
performance in one quarter. As Raju admits in his letter, what was
initially a small gap between the actual and reported operating
profit, became unmanageable as the company expanded.
Overconfidence in his ability to turn things around before they
got out of hand could have been another compelling reason.
Raju could have sincerely believed that the minor adjustment was
in the general interest of everybody concerned, as it would retain
investors confidence in the company.
Experts refuse to believe that the operating profit of Satyam
could be as low as 3%. This leads to speculation that some of the
money could have been siphoned off.
Should Satyam be saved at all costs?
Yes: Satyam is a flagship of the Indian IT sector. Its downfall
will be an indelible mark on the reputation of the entire
industry.
The government needs to rally around and pull the company out of
its present state. Only this will reestablish the confidence of
clients and investors in the IT industry.
The jobs of nearly 53,000 employees are at stake. If you add to
this the number of people who have bought Satyam shares, you end up
with a significantly huge number of people whose lives could be
badly affected by the fall of this giant.
No: Satyam must pay for its actions. The government must not set
a precedent by bailing it out. They will have to do the same in all
cases where a company finds itself in a similar situation.
This is a clear case of market justice meting itself out. You
tamper with the rules, you face the consequences. Satyam should be
an example to all other players in the arena not to indulge in
nefarious tactics.
Satyam does not represent the entire Indian IT industry. Its
fall wont be the death knell of the sector. This needs to be made
clear to clients and investors.
If a tainted organization like Satyam is allowed to continue,
the IT sector stands to lose a lot more than it hopes to gain.
Any possibility of a loss of projects on the account of the fall
of Satyam is unfounded. There is a fairly high probability of the
se projects being redistributed among Satyams competitors in
India.
The same applies to the employees of Satyam. Trained
professionals like them are bound to be lapped up by other
companies to handle the redistributed projects.COPY OF LETTER FROM
SATHYAM's CHAIRMAN B. Ramalinga Raju TO CEO's
Satyam Computer Services, a leading Indian outsourcing company
that serves more than a third of the Fortune 500 companies,
significantly inflated its earnings and assets for years, the
chairman and co-founder said Wednesday, roiling Indian stock
markets and throwing the industry into turmoil.
The chairman, Ramalinga Raju, resigned after revealing that he
had systematically falsified accounts as the company expanded from
a handful of employees into a back-office giant with a work force
of 53,000 and operations in 66 countries.
Mr. Raju said Wednesday that 50.4 billion rupees, or $1.04
billion, of the 53.6 billion rupees in cash and bank loans the
company listed as assets for its second quarter, which ended in
September, were nonexistent.
Revenue for the quarter was 20 percent lower than the 27 billion
rupees reported, and the companys operating margin was a fraction
of what it declared, he said Wednesday in a letter to directors
that was distributed by the Bombay Stock Exchange.
Satyam serves as the back office for some of the largest banks,
manufacturers, health care and media companies in the world,
handling everything from computer systems to customer service.
Clients have included General Electric, General Motors, Nestl and
the United States government. In some cases, Satyam is even
responsible for clients finances and accounting.
The revelations could cause a major shake-up in Indias enormous
outsourcing industry, analysts said, and may force many large
companies to investigate and perhaps revamp their back offices.
This development is going to have a major impact on Satyams
business with its clients, said analysts with Religare Hichens
Harrison on Wednesday. In the short term we will see lot of Satyams
clients migrating to competition like Infosys, TCS and Wipro, they
said. Satyam is the fourth-largest outsourcing firm after the three
named.
In the four-and-a-half page letter distributed by the Bombay
stock exchange, Mr. Raju described a small discrepancy that grew
beyond his control. What started as a marginal gap between actual
operating profit and the one reflected in the books of accounts
continued to grow over the years. It has attained unmanageable
proportions as the size of company operations grew, he wrote. It
was like riding a tiger, not knowing how to get off without being
eaten.
Mr. Raju said he had tried and failed to bridge the gap,
including an effort in December to buy two construction firms in
which the companys founders held stakes. Speaking of a deep regret
and a tremendous burden, Mr. Raju said that neither he nor the
co-founder and managing director, B. Rama Raju, had taken one
rupee/dollar from the company. He said the board had no knowledge
of the situation, nor did his or the managing directors
families.
The size and scope of the fraud raises questions about
regulatory oversight in India and beyond. In addition to India,
Satyam has been listed on the New York Stock Exchange since 2001,
and on Euronext since January of 2008. The company has been audited
by PricewaterhouseCoopers since its listing on the New York Stock
exchange.
Satyam has been under close scrutiny in recent months, after an
October report that the company had been banned from World Bank
contracts for installing spy software on some World Bank computers.
Satyam denied the accusation but in December, the World Bank
confirmed without elaboration on the cause that Satyam had been
banned. Also in December, Satyams investors revolted after the
company proposed buying two firms with ties to Mr. Rajus sons.
On Dec. 30, analysts with Forrester Research warned that
corporations that rely on Satyam might ultimately need to stop
doing business with the company. Firms should take the initial
steps of reviewing the exit clauses in their current Satyam
contracts, in case management or direction of the company changed,
Forrester said.
The scandal raised questions over accounting standards in India
as a whole, as observers asked whether similar problems might lie
buried elsewhere. The risk premium for Indian companies will rise
in investors eyes, said Nilesh Jasani, India strategist at Credit
Suisse.
R. K. Gupta, managing director at Taurus Asset Management in New
Delhi, told Reuters: If a companys chairman himself says they built
fictitious assets, who do you believe here? The fraud has put a
question mark on the entire corporate governance system in India,
he said.
News of the scandal quickly compared with the collapse of Enron
sent jitters through the Indian stock market, and the benchmark
Sensex index fell more than 5 percent. Shares in Satyam fell more
than 70 percent.
Just a few months ago, Mr. Raju was trying to persuade investors
that the company was sound. In October, he surprised analysts with
better-than-expected results, saying he was pleased that the
company had achieved this in a challenging global macroeconomic
environment, and amidst the volatile currency scenario that became
reality.
But by late December, it seems he had little support from the
board or investors, and four of the companys directors resigned in
recent weeks. Satyam recently retained Merrill Lynch for strategic
advice, a move that is generally a precursor to a sale.
Mr. Raju said in his statement that he sincerely apologized to
shareholders and employees and asked them to stand by the
company.
Anwar. M. Quereshi
M.B.A. II