Satyam Saga-sasikanta Tripathy

THE BATTLE OVER TRANSPARANCY: WITH SPECIAL REFERENCE TO SATYAM COMPUTER SERVICES LIMITED Prof. Janmejaya Das HOD (FINANCE), BRM INSTITUTE OF MANAGEMENT AND IT BHUBANESWAR, Mob: +919861415617, Email [email protected] Mr. Sasikanta Tripathy Lecturer- Accounting & Finance, DRIEMS Business School, Tangi, Cuttack- 754022, Ph: +91-0671- 2695061-65; Mob: +919337026846; Email: [email protected] Abstract An underlying principle of securities legislation is that the public should have the opportunity to decide whether to buy or sell securities on the basis of information equally available to all. Directors, officers and employees of a company sometimes acquire knowledge of material information concerning the business and affairs of the company (or a related company) which has not yet been disclosed to the public. If that is the case, they have an unfair advantage in purchasing or selling securities because the person on the other side of the transaction may have made a different investment decision had they also been aware of the information. Similarly, if such a person informs another person of undisclosed material information, and such other person purchases or sells securities on the basis of that undisclosed information, the seller or purchaser on the other side of that transaction is, once again, at a disadvantage. The authors enlighten the pre-history,

organization profile, Challenges inherited by Satyam Computer Services Limited in the context of FINANCIAL TSUNAMI in this paper.

INTRODUCTION Society and business are totally interdependent for their growth and sustainability. It is the corporate world which contributes significantly for a robust economic growth. So the prosperity and dynamic growth of corporate world is indispensable for the wellbeing of society as well as business world. Interestingly enough all the corporate particularly listed companies , they run by the share holder’s democracy .So it is the share holder’s money corporate capital . Thus

which

provides fund to the

it is both moral obligation and legal binding which calls upon

the top management to look after

the interests of Shareholders. In no way it should be

detrimental, cause any harm for the shareholder interest . Since the stakeholders remain far away from the corporate , they could not get all the facts of the business ,most of the vital information cannot reach to them in time. Finally operating the business functions, controlling, monitoring, regulating, dealing with

all

the helm of affairs

rests over top

management. They must be held responsible for all affairs of the company. There should not be any fact or material

evidence which would be harmful ,detrimental for the interest of

shareholders, or for the general public ,and society at large . So corporate disclosure is a must

for wellbeing of business as well as society . So it is the corporate disclosure

which ensure transparency by providing all the necessary information ,facts to the right person at right time. There are various legal provisions in companies act as well as SEBI’s frame work regarding corporate disclosure. Most of them are mandatory.

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OBJECTIVES: •

To find out how the corporate are not really and extensively used the facts.

•

To find out how they fail to extensive use of corporate disclosure.

METHODOLOGY In this paper we have taken the theoretical study of Satyam Computer Services Limited. The data based on secondary, it has been obtained from website, articles, newspaper and magazine.

Organization Profile Most listed companies claim they adhere to high standards of corporate governance. However, a sample of the information provided by companies in their annual reports under the head Management Discussion and Analysis (MD&A) suggests few actually do, and this applies to highly respected companies as well. Annual reports provide investors with financial statements and data. But even sophisticated readers of annual reports have difficulty in understanding the language of financial statements and the underlying rules and conventions. Here are some examples of corporate disclosures enshrined in Accounting standard -Accounting standard 18 speaks about related party disclosure and is mandatory in nature. The objective of this standard is to establish requirements for disclosure of related party relationship and transactions between a reporting enterprise and its related parties. Related parties include holding company, subsidiaries, associates, joint ventures, key management personnel and relatives of such personnel and individual having substantial voting power of the reporting enterprises. Related party disclosure ensures no conflict and confidentialities of the organization.

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Disclosure on subsidiary performance - Most companies now a days are willing to share details of their “CORE OPERATIONS”. We are giving here a case study of recently happening phenomenon. SATYAM COMPUTER the India’s fourth largest infosys system now a days in the lime light. Because there were a lot of controversies, trouble and turmoil simmering around the company, since the first day it starts to acquire “Mayatas Properties” and “Mayatas Infra”. Satyam Computer Services proposed to spend $ 1.6 billion (around 7,680 crore) to acquire two companies Mayatas Infra and Mayatas Properties.

The Chairman and founder of Satyam Computer B RAMLINGAM RAJU wants to acquire Mayatas Properties and Mayatas Infra as a part of their diversification strategy. The day he declares it in Board Meeting the next day its share fell 30 percent. It attracts violent opposition from other investors (share holders). Let us have an analysis of share holding pattern percentage (%) wise in. SATYAM

Mayatas

PROMOTERS –

8.74 %

Public -

71.80 %

FIIs -

48.22%

Others -

19.46 %

Promoters

36.64 %

Public -

63.36 %

FIIs -

4.88 %

But the irony of the fact was that the decision taken by Mr Ramalinga Raju, the chairman and founder of Satyam computer was turned down by its investors. Investors strongly force Satyam

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to call off acquisitions. The decisions developed by management and board have eroded investors trust to them. Though Srinivash Vadalmani chief financial officer of Satyam declared it was a judgment call, they followed every thing under the spirit of law. They do not want that every. Thing go down to the drain. Faced with a virtual revolt from various stake holders including three independent directors who had cleared the controversial Mayata buyout proposal, the Rajus of Satyam Computer considering selling out their shares in the $2 billion IT company. On 17th Dec 2008 institutional holders had strongly objected to the fact that the decision, which the company conveyed to the Bombay Stock Exchange after trading hours, was not communicated to shareholders first and that the company did not choose to give the money earmarked for diversification to shareholders. Why were share holders angry and disgusted? 1) Satyam was investing Rs.7, 680.00 crore in two group companies, MayatsInfra (51%) a listed firm, and Mayatas Properties (100%). 2) Raju family owns around 36% in Mayatas Infra, Satyam Chairman Ramlinga Raju’s son B. Teja Raju is vice chairman. Second son Rama Raju Jr, is a key promoter of Mayatas Properties. Raju could have chosen other undervalued real estate properties. 3) Deal was not approved by shareholders. The harsh reality was that the share price of Satyam falls from Rs.226.50 on 16th Dec 2008 (closing) to Rs. 158.05 on 17th Dec 2008 (closing) resulting 30% fall in its price. The investors force Satyam to call off acquisitions. 4) The irony of fact that Satyam won the Golden Peacock Global Award for excellence in corporate Governance in 2008 . 5) World bank bars Satyam Computer Services form doing any business with it for next 8 years.

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6) Satyam Computer Services the cup of woes, worries again catches a series of back fire. First Mangalam Srinivasan an independent director resigns on December 25th owing moral responsibility. Again three more independent director named Krishna G Palepu, Vinod K Dham, M Rammohan Rao resigned on 30.12.2008. It reduced the board strength from 10 to 6. 7) Faced with a virtual revolt from various stake holders including the very same independent director the Rajus of Satyam Computer are actively considering selling out their shares in the $2 billion IT company, and considering inducting a strategic partner. 8) Facing with the threat of hostile takeover by a domestic or overseas company, including private equity firms, Satyam computer services management and some of its institutional investors are exploring a merger with another software company. The possible companies may be HCL, a Delhi based company, and Mind Tree a Bangalore based company. Finally it leads to a series of trouble to the India’s fourth largest IT giant. A bit wise professionalism may save the firm from its woes, if they inform the investors in due time, solicit every shareholder consent the present situation may not be happens. On January 7th the facts revealed like this. There is big fraud in Satyam Computer. Its founder, chairman B Ramlinga Raju confessed the fraud and quits. Raju confessed that he falsified the the earnings and assets of Satyam computer. It is the darkest days of India's computer history. It dragged down the sensex 78 percent. Its stake came down from Rs.179.10 to Rs.39.95 on 7th January. The SEBI chairman C.B.Bhave described as a horrifying scandal. The National Stock Exchange has excluded Satyam from the NIFTY 50 and S&P CNX 500 with effect from January 12. What Raju did not disclose to investors (not revealing the truth, the vital points, and material facts of business). Let us see

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1) Inflated cash and bank balances of Rs.5040.00 crore 2) Non existent accrued interest of Rs.376.00 crore. 3) Under stated liabilities of Rs.1,230.00 crore on account of funds arranged by Raju. 4) Overstated debtor position of Rs.490.00 crore 5) 08-09 profit stated as Rs.2,700 crore & operating margin of 24% revenues, Actuals:Rs.2112 crore & 3% of revenues. 6) Aborted Mayatas deal was "an attempt to fill the fictitious assets within real ones. 7) Profit inflated over last several years, attained unmanageable level as company grew. CONCLUSION -1 Top management must not only disclose for which they are legally bound, and mandatory but also disclose facts which are some what hidden, frozen, latent and which may bear a significant impact upon the business at large. The promoters, chairman, CEOs, Vice Presidents, executive directors of company should not think that they are the only monarch of the corporate world, and all the decisions they made are beneficiary to them as well as company and would bring a good result. Suggestion Management must learn how to communicate bad news, what investors want to know in a bear market and what to say about your company's future. Should companies disclose more financial detail about their subsidiaries? They must pertinently, prudently, judiciously with morality care for the other investor who also supply fund to the capital. Autocratic attitude will never win in long run. As a result of globalization, owing to stiff competition only fittest will survive in long run. History is full of instances how family management (top management like CEO, Executive directors are from family members) ruined the bigger business units owing to lack of professionalism and selfishness. Satyam computer is also recently an example.

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Organisation Profile- 2 (Case – II) Disclosure in Corporate AMERICA After a series of scandals that have rocked the financial markets -- and shaken investor confidence in Corporate America -- investors may want to have an easy way to size up just how well a company disseminates critical information. That has prompted financial-information provider Standard & Poor's (like Business Week Online, a unit of The McGraw-Hill Companies) to launch a service aimed at giving investors rankings, evaluations, and customized research related to how companies disclose information. The new service can also help corporations benchmark and communicate their internal governance practices to the public. Credibility and high governance standards are essential factors in a company's efforts to attract and retain investors in global capital markets," said Leo C. O'Neill, president of standard & poor’s, in a press release announcing the governance services offering on Oct.15. Up to now, said S&P, investors have had no universal benchmark to evaluate levels of disclosure. So it launched a major study of the largest and most liquid companies in the world. These companies include members of the S&P Global 1200 index and an additional 400 that represent the leading companies in the Standard & Poor's/IFCI emeS&P evaluates transparency and disclosure by searching company annual reports and standard regulatory filings (both English and local-language versions) for the presence of 98 possible items of information, or attributes. The 98 attributes were selected by examining the annual report and accounts of leading companies around the world to identify the most common disclosure items. S&P grouped these

attributes

into

three

Ownership structure and investor relations (28 attributes) Financial transparency and information disclosure (35 attributes)

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subcategories:

Board and management structure and process (35 attributes rigging markets index)

Conclusion -2 Ultimately corporate disclosure could be taken as a panacea for a sustained growth in long run.

Suggestion -2 All time corporate disclosure act just as stimulant factor to the shareholders /investors because they may react unanimously to the facts ,challenges they are likely to face in the market .Thus it is the most significant factors in business track which is to be viewed seriously from every aspect .

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REFERENCES: Articles: 1. Banerjee, B. ( 2005), “Corporate Environmental Accounting & Reporting Practices in India,” Indian Accounting Review, December: 25 – 46 2. Deloitte Touche (1996), “Environmental Reporting in Annual Reporting,” Deloitte Touche Tohmatsu International, Copenhagen, Danish Environmental Ministry 1995 Green Reporting Danish Environmental Ministry 3. Pramanik, A. K (2004), Corporate Environmental Accounting and Reporting : Global Scenario - XXVI All India Accounting Conference and International Seminar, Indian Accounting Association, December, 2004. Web site: www.indiaplaza.com, www.financeindia.org, www.google.co.in

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