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Satyam Scam Case Study Analysis

Role of Independent Directors in Satyam Scam

Background

Satyam is the company established in 1987, the company was the fastest growing information technology company in India ranked as 4th. There were 53,000 employees working for the company, Satyam had a 9 per cent market share and its revenue earned was around 2.1 billion dollars. Satyam is the first company of India that was listed in the top three international exchanges of the world i.e. EURONEXT, DOW, and NYSE and it had development centres around the world. Fortune 500 companies have served by Satyam which are 163 out of total 558 international companies.

Satyam Scandal

Chief Executive Officer, Ramalinga created 71.36 billion in the billing that was fake and cash accounts were missed by the cash PwC auditors. In the balance sheet of the company, there was a scam of 71.36 billion and this scam was the result of accounts manipulation that was actually done multiple years back. Board, accounting standards, government invention, investors, and ethics and code of conduct, everything in Satyam became questionable. It was the duty of the board to monitor the ethical policies of the company and the way how the company is maintaining those ethical policies. The board was accountable for the information regarding finance that was being projected.

Satyam Scam Case Study

Role of The Independent Directors

There are no any specific provisions in the Indian Law regarding the role of the independent director. Although listing agreement’s clause 49 have made some provisions about independent directors, any specific provisions cannot be found regarding the obligations and duties of the independent director. The independent director must act and perform honestly with the skill and diligence degree is one of the basic provisions. Broad obligations of the independent director involve: promote the company success; exercise the reasonable skill, diligence, and care; avoid the conflicts of interest, and declare interests in arrangements and proposed transactions with the company.

Role of Independent Directors In Satyam

The role of the independent directors has put in the spotlight after the Satyam scandal. Lack of commitment was shown by the independent directors in Satyam. Independent directors, as well as corporate governance, was failed to perform efficiently and effectively. It is observed in the Satyam incident that the company’s independent directors have relinquished the posts and responsibilities that were given to them thereby jeopardizing the independent director’s position and role. It was suggested in the report by Higgs that directors who are non-executives should debate constructively, question intelligently, challenges rigorously, and then ultimately decide dispassionately. These qualifications and quantities, unfortunately, are not specified in the Indian Companies Act regarding independent director. Board of Satyam was blamed by the shareholders and media for agreeing to a Maytas transaction. Such incidents can be avoided by specifying the roles and obligations of the independent board.

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