The Satyam Fiasco
Submitted to: Prof. Dr. Syed Abdul Hamid AlJunaid
Submission Deadline: July 18th, 2014
This Project Paper is a Second partial fulfillment of Module IE-2002 of part II of Chartered Islamic Finance Professional (CIFP) INCEIF – The Global University of Islamic Finance - January 2014
Case Study: Satyam Fiasco
Describe India’s environment that investors should consider while investing in companies like Satyam? Investors play an important role in detecting financial position of a company. They must ensure that the share value which is listed is genuine and as per its financial status and must ensure that the due diligence should be done properly to ensure that the company accounts and books are not manipulated. As far as Institutional investors are concerned, since they are representing the members of their institution, they must be very prudent and must counter check the integrity of the company through various reliable resources to ensure that the stakeholders interest shall be protected at all times and they should take more responsibility. Information about the company should be latest, from trusted source, easily accessible and correct. Discuss the areas of company’s culture and structure that could have raised some red flags about the company’s situation?
Regarding the culture of the company, Satyam was influenced by the culture of Hinduism and there was no freedom of expression to the juniors. They just obey what their seniors asked them to do and in case someone says “No” to the senior was considered ethically and morally impolite and offensive act. Thus this culture would have been certainly ending up in the “follow the trail” approach and in a way, juniors were required to follow the steps of a Hindu Leader who said “Pretend as if you didn’t hear it, you didn’t see it, and you can’t speak”. The key red flag areas of the company structure is the CEO and the chairman were the same person as well as compartmentalization of the units with different accounts and only the key personnel of each business unit reports to CFO and even among them, some professionals were his family members which highlights the clear conflict of interest as they were so loyal to CEO that they could never be the whistle blowers for the company and the segregation among the units were very individualistic approach so that none of the units were aware about the performance of the other unit.
Satyam had a whistleblower policy in place and an employee had written to one of the directors claiming that the accounts had been manipulated. What are the challenges of effective implementation of a whistleblower policy in a company such as Satyam? How should directors react to whistleblower complaints?
A whistleblower to the chairman and members of the audit committee could serve as an SOS to the company, as whistle blowing requires confidentiality but, they chose to keep silent and did not report the matter to the Ethics and Governance – Case Study on Satyam Fiasco
shareholders or the regulatory authorities. The Board members on audit committee who failed to perform their duties alertly be therefore tried out under the provisions of the Securities Contracts. The challenges in effective implementation of the whistle blowing policy in a company where the structure and culture both are somewhat on the dictatorship and dominance, the one who is willing to whistle blow might lose their job or position. The risk of unemployment as well as bad reputation can also become a challenge if the directors are so called independent but in actual they are not like in the case of Satyam. The whistleblower policy must have proper escalation matrix and should be addressed directly to the key person of Audit or Risk management committee which may then escalate the case further. The directors are the watchdogs of the company which should deliberate their concerns on every single matter...
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