Case Analysis on Satyam Essay Example for Free

Case Analysis on Satyam Essay This case illustrates the downfall of Satyam, one of the biggest IT giants in India, because of the fraudulent activities carried out by its founder Mr. Ramalinga Raju and his associates. Business world at that point had garnered immense respect for Satyam in terms of risk management and corporate governance practices and Satyam was ranked as the fourth largest IT Company in India. This was the case before December 16, 2008, when Satyam promoter Mr. Ramalinga Raju proposed his intent to acquire Matyas Infra and Matyas Properties. When this announcement of acquisition reached to the public, investors had a tremendously negative reaction towards Satyam’s decision. Satyam founder eventually admitted fraud in a financial statement revealing that he had been cooking the books of Satyam for quite some time. Raju and his team manipulated cash balance, bank balance, accrued interest figures, overstated debtors and understated liability in order to manipulate the share prices of the company in the market by misleading its investors and the public. After admission of fraud, share prices of Satyam sharply fell down and Satyam was eventually removed from the New York stock exchange and the Bombay stock exchange. The US investors initiated several class action suits against Satyam for its fraudulent activities and top executives of Satyam were charged with violation of federal securities laws by issuing false and misleading financial statements. The Satyam scandal has shaken the roots of the Indian financial market and has put a big question mark on corporate governance and how far corporations (people) can go to enhance their own personal benefits. Major Issues in the Case Corporate governance Satyam failed to follow the corporate governance practices that every firm was meant to follow, it looked for loop hopes that could be tweaked to enhance the company’s profit and hide liabilities from the investors as well as the general public. The Satyam Board was composed of ‘chairman-friendly’ directors who failed to question managements strategy. They were also extremely slow to act when it was known that the company was in financial distress. The Board ignored critical information related to financial wrongdoings before the company ultimately collapsed. Agency problems The Chairman (Ramalinga Raju) and the CFO (Srinivas Vadlamani) worked together to defraud the stakeholders for their personal gain, while the investors thought that the company was generating revenues, and investing in different areas. Clearly, the Chairman and CFO had personal gain in mind rather than company benefit. There also seems to be conflicting interest of the management and the shareholders i. e. the management wanted to take over two construction companies Maytas properties and Maytas Infra which was against the interest of the shareholders. Arguments It’s hard to imagine a leading company like Satyam manipulating its financial statements but in this highly competitive industry it is necessary to remain profitable in order to survive in the long-run. This is perhaps the reason why Satyam resorted to manipulating its financial statement. We can see that there were large amount of manipulation in the income statement as well as in the balance sheet of Satyam’s financial statements. Manipulation in the Income Statement The income statement consisted of some inconsistencies that were made intentionally to maintain the level of profitability of the company. The amount of sales revenue has been overstated by Rs. 588 crore i. e. was recorded as Rs. 2700 crore instead of Rs. 2112 crore. The operating profit margin was recorded as Rs. 649 crore (i. e. 24 % of the sale revenue) when the actual operating profit margin was Rs. 61 crore (i. e. 3 % of the sales revenue). The number of employee was also manipulated i. e. it was recorded as 52000 employees when the actual number of employees was only 43622 employees. Manipulation in the Balance Sheet  The balance sheet also seemed to have some level of inconsistencies from the actual value that were done intentionally to show a strong liquidity position of the company. The cash balance that was recorded as Rs. 5361 crore consisted of non-existence amount of Rs. 5040 crore i. e. the actual cash balance was Rs. 321 crore. The assets side also consisted of accrued interest of Rs. 376 crore which was non-existent and the debtors amount was overstated by Rs. 490 crore i. e. the actual value of debtor was Rs. 2161 crore whereas the recorded value was Rs. 2651 crore. The liability side of he balance sheet was understated by Rs. 1230 crore which was the amount borrowed from the known sources by Mr. Raju to ensure the operations are running. Even after such manipulations the regulatory authorities, the independent executive and the external auditors were not able to raise the red flag which shows that there is a huge hole in the corporate governance. The company also seems to be having conflicting interest between the management and the shareholders. The company was looking to diversify its business by taking over the construction companies Maytas Properties and Maytas Infra at a cost of 1. billion dollars. Satyam was looking to enter the real-estate business but this was a surprising strategic decision for the shareholders. The shareholders wanted Satyam to expand in related businesses. The negative reaction of the shareholders toward the decision caused the share prices to fall by 70% in a just a few days of the decision. Managerial Implication Agency problem The problem of motivating one party to act on behalf of another can be called the principal-agent problem or agency problem for short. (Wikipedia, 2013) Agency problems arise in a variety of different contexts. The agency problem usually refers to a conflict of interest between a companys management and the companys stockholders. The manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximize shareholder wealth. However, the decision must be in the favor of all parties but it was not the case with Satyam. Satyam decided to acquire Maytas Properties and Maytas Infra. The shareholders resisted the decision claiming it to be unrelated business and acquisition should not take place with Maytas which became a finishing blow to the company. Corporate governance and business ethics Corporate governance refers to the system by which corporations are directed and controlled. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and specifies the rules and procedures for making decisions in corporate affairs. (Wikipedia, 2013) Governance is a mechanism for monitoring the actions, policies and decisions of corporations. On a quarterly basis, Satyam’s earnings grew. Mr. Raju admitted that the fraud which he committed amounted to nearly $276 million. In the process, Satyam violated all the rules of corporate governance. The Satyam scam has been an example for following poor governance practices. The issue of governance rose at Satyam because of non fulfillment of the obligation of the company towards its stakeholders like separating roles of board and management, and also the role of CEO and chairman. Business ethics reflects the philosophy of business, one of whose aims is to determine the fundamental purposes of a company. Business ethics are implemented in order to ensure that a certain required level of trust exists between consumers and various forms of market participants with businesses (Investopedia, 2013). The culture in Satyam, especially dominated by the board, symbolized such an unethical culture. Satyam as the smallest of the four players was under pressure to show good results in order to survive. Apart from this there was greed causing them to indulge in unethical behavior. On the one hand, Raju’s rise to stardom in the corporate world joined with immense pressure to impress investors made him a compelled leader to deliver outstanding results. On the contrary, Mr. Raju had to suppress his own morals and values in favor of the greater good of the company. The lure of big compensation to members further encouraged such behavior. In the end the fraud came to an end and the implications were great. Alternatives The failure of company like Satyam which had been awarded for its corporate governance and risk management creates a dilemma for the investors as to which company to believe and invest. Hence, investors, board, government intervention, accounting standards and ethics and Code of conduct must all work hand in hand to resolve the issue. Investors play an important role in detecting fraudulent activities of a company. They must ensure that information about the company is latest and from trustable source. Hence, they should take more care and compare the trend of the company with the industry before investing. Board must monitor the ethical policies and the way they are being maintained in the company. Transparency and effectiveness in auditing and regulatory checks through internal and external auditors and monitoring agencies should be maintained as it helps to build and maintain trust and loyalty from stakeholders, increase goodwill and investor’s confidence and establish long lasting credibility for the company. Government should play an active role in company’s affair, frequently checks of the company’s performance and take necessary steps to discourage malpractice and falsification. There is a need to create strong measures to prevent fraudulent activities from happening in future and the auditing firms also need to be brought under the regulatory umbrella. Moreover, all companies need to practice ethical behavior. Every company should also have its own fraud detection mechanism. It is also important for companies to establish an organizational culture, which supports ethical conduct through a code of conduct and properly laid out corporate governance policies and procedures.

Web Advertising :: essays papers

Web Advertising Web advertising, not to mention the Internet itself, finds itself in a stage of relative infancy and therefore provides marketers with novel challenges and situations which need to be dealt with caution . The realm of Web advertising is unchartered terri tory! In terms of South Africa, the country finds itsef somewhat behind technologically. However, this may not prove to be a disadvantage as the uncertain nature of Web advertising may make a policy of 'watching and learning' most viable. What implications will this new technology have for marketing? What is the nature of Web advertising? How can a business use the medium effectively ? Where is all this going ? These questions appear to be most pertinent in the process of understanding interact ive marketing on the Internet. The qualified opinion of John Matthee, a Web site designer employed by Adept Internet (an Internet service provider), was sought in accumulation of a large sum of the following data. This seems appropriate as the novelty of Web advertising at this stage h as led to generral lack of academic data in the practicalities of advertising via this medium. 2) THE INTERNET: AN INTRODUCTION 2.1) Original development of the Internet What was originally created by the US military to provide a secure means of communication in case of nuclear war, which has now become known as the Internet, has metamorphosed into the strategic global communications tool of our era. The end of the cold w ar left this massive installed structure - initially dubbed ARPANET- without much of a purpose. Soon universities, major corporations and governments began to piggyback on to the global framework, extending its reach and commercialising it. Known as the N et to aficionados, the Availability of cheap, accessible and easy-to-use Net access points throughout the world has seen the number of global Internet users increase dramatically each month. While the convenience of electronic mail was initial catalyst for Internet growth world wide, it's the emergence of the World Wide Web (WWW) multimedia interface that has captured the attention of prospective users across the globe. The resources available on the WWW are as varied as they are extensive. There hundreds of thousands of sites which can be broadly categorised under topics such as sport, entertainment, finance and many more (Perlman, 1996). 2.2) Development of Internet in South Africa Perlman (1996, p 29) ventured that 'South Africa is major global Internet player. It currently rates in the top 15 in the world terms of Internet growth rates.' Local user numbers are certainly fueled by universities, companies and schools.

Foreign Study

Study Confirms Accuracy of UE Leak Detectors * Tags:  ultrasonic inspection UE Systems announces a major step in independently verifying the accuracy of its UE3000 leak detectors to estimate compressed air leak flows. Gary Mohr, President of UE Systems, explains, â€Å"We always felt that our leak detector did a good job estimating the size of air leaks by using our ultrasonic intensity measurement approach. â€Å"But to find out that Air Power USA, one of the most highly regarded and experienced compressed air consulting groups in the country, had taken it upon themselves to run head-to-head comparisons of air flow estimates made using our UE3000 system and Air Power’s own engineering- and experience-based approach was gratifying. Air Power’s study results concluded the two approaches came within 5 percent of each other in the aggregate estimate of air flows for five different air studies.Having the difference in the size estimate of any individual leak usually fal l within 2 cfm is truly amazing and great news for our customers. † Hank van Ormer, president of Air Power USA, explains the unusual effort by his company, â€Å"Over 70 percent of our business is ‘performance-based,’ which means we only get paid to the extent we deliver energy savings that can be verified by an independent evaluator. As such, we have greatly increased our measurement capabilities so we know which customer projects will produce the payback we need and whether the independent evaluation is on target. â€Å"We have always taken pride in our in-house training for our senior air auditors and air specialists to quantify leak flows. In a number of cases, Air Power has reviewed leak estimates made by our competitors, where we have found that our flow estimates were less than half for the very same leaks. We feel vindicated when the post-project flow measurements associated with those leaks confirm our original estimates. † â€Å"With the UE3000 system, we can now get that same level of accuracy faster and at a lower cost.In addition, the repeatability of the UE3000 flow estimates is an important bonus that provides credibility when we have independent evaluators checking our work. † Information about the UE3000 leak detection system can be obtained from UE Systems Inc. at  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  800-223-1325  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  or [email  protected] com. Information about Air Power’s study on Leak Flow Estimation or about its comprehensive consulting services to improve compressed air systems can be obtained from Keith Jenkins at  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  740-862-4112  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  or  [email  protected] com.

Benefits Of A Living Wage - 1781 Words

In order to achieve a more equal society those in the position of the least well off must have their standard of living improved. The inclusion of a living wage in our society would greatly benefit those in that position who are stricken by poverty. I will argue in favour of a living wage for those who would benefit most from it, the marginalized. The living wage project seeks to promote business’s paying their employees a living wage rather than a minimum wage in the hopes of giving families a decent standard of living. For Regina Saskatchewan the living wage for a family of four is projected to be $16.46 an hour for each parent. This allows for a family to participate in various recreational and community activities while keeping a modest amount of money for emergencies but doesn’t allow them to save for things like university education or retirement. (Gingrich, Banks, Enoch, 2014, p. 5-7) A living wage not only provides a solution to families living in poverty but r elieves many stresses associated with financial worries. Parents with more money could then take care of their family better as having more stable finances means a family can afford to eat more nutritious foods and afford medicine resulting in fewer days spent away from work due to illness (Gingrich, Banks, Enoch, 2014, p. 9-10). This then benefits employers as their employees are not only happier but healthier as well, this also improves employee loyalty while making the company or brand look better. InShow MoreRelatedThe Benefits Of Living Wage1974 Words   |  8 PagesINTRODUCTION: The living wage is based on the amount an individual needs to earn to cover the basic costs of living. Living costs changes from place to place in country so there is different living wage rate for London and rest of the country. 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