Satyam Case Study - Management Issues
Introduction Satyam Computer Services is a global IT service company with clients including Telstra, Coca-Cola, Qantas, NAB and Suncorp - Satyam Case Study - Management Issues introduction. Satyam was once a leader in IT services in India until pressures to keep up with the growing outsourcing industry overwhelmed the company. This convinced company chairman Raju to falsify operation figures, embezzle funds and purchase lands resulting in fraud. Raju’s admission to fraud in 2009 caused Satyam share value to drop by 70% and the collapse of the Indian stock market with a dramatic 7% plummet in one day.
There are several management issues within this case including unethical behaviour of Raju, fraud, corporate governance, cultural relativism and corporate social responsibility. Ramalinga Raju, Chairman and founder of national Indian IT services company Satyam, admits to fraud in 2009 resulting in share value depletion, diminished public trust and loss of credibility. A massive rebuild of the company must be initiated by the appointment of new company directors, by regaining trust of public and investors, and re-establish the company image within the IT services industry. Management Issues
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Unethical acts of fraud committed by Satyam chairman Raju have resulted in loss of company image and loss of trust from customers, investors, stakeholders and the public. Raju had fabricated an estimated 94% of Satyams cash and assets, he was paying salaries of US$4 million to 13000 fictitious staff and using these company funds to purchase land in another family company’s name. Corporate governance was one of Satyam’s biggest management issues. Raju made decisions without consult from the board of directors and relevant stakeholders within the organisation, committing acts that were unlawful.
Satyam’s auditor PricewaterhouseCoopers must hold some accountability in this case as they did not discover the extensive fraudulent activities earlier. Current corporate governance, auditing and legal consequences are obviously not severe enough to deter white collar crimes such as these. With the growing Indian outsourcing industry growing, Satyam was under severe pressure to perform in order to remain at the top. These conditions prompted Raju to make unethical business decisions.
These decisions were made as Raju believed it was his corporate social responsibility to ensure the survival and success of the business to benefit company stakeholders. Analysis Raju was faced with an ethical dilemma, “when action must be taken but there is no clear ethically right’ option. ”( Schermerhorn, Davidson, Poole, Simon, Woods and Chau, 2011. ) Raju was pressured by the success of other industry leaders and placed in a dilemma to deliver profits and sustain their position in the market. Although personal greed was a major factor, Raju still demonstrates some morals by confessing to his actions in 2009.
Raju practised the individualism view of ethics, as he was pursuing his own interests by investing in land purchases, and embezzlement of company funds. “The individualism view considers ethical behaviour as that which advances long term self interests. ” (Schermerhorn, Davidson, Poole, Simon, Woods and Chau, 2011. ) These actions only benefited the short term for Raju and did not benefit the long term of the company as he believed it would. It seems through his actions and statements he believed showing profits and purchasing land would improve the company financial position.
Satyam’s Raju violated all rules regarding corporate governance as he did not fulfil any of his obligations to the company and stakeholders by acting immoral and unethical. “The aim of corporate governance should be to ensure that a certain moral standards are maintained. ” (Mandal 2010) Raju should have consulted his stakeholders before making individual decisions to avoid any ethical dilemmas. There are also questions regarding the role and responsibility of the auditor PricewaterhouseCoopers and how such extensive fictitious financials could possibly be overlooked. Mehta, Srivastavaare 2009) It can also be considered that Raju acted with cultural relativism by protecting his family interests with land purchases. This could be perceived as neither right or wrong ethically, as through Indian culture family is more important than western individualism views. “Cultural relativism suggests there is no one right way to behave; ethical behaviour is determined by cultural context. ” (Schermerhorn, Davidson, Poole, Simon, Woods and Chau, 2011. ) There could be many reasons Raju acted unethically. Through his actions and statements, it can be believed that Raju thought he was acting socially responsible. Corporate Social Responsibility is the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families, as well as the community and the society at large. ” (www. wbcsd. org/work-program/business) Although none of his actions benefited the company or stakeholders in the short or long term and did not serve anyone’s best interests, besides Raju. It is possible he performed these unethical acts because he believed he was serving the best interests of the company and stakeholders to keep up with the US$50 million Indian outsourcing industry. Schermerhorn, Davidson, Poole, Simon, Woods and Chau, 2011. ) Raju’s greed overtook his responsibility to the company and stakeholders, his immoral decisions were based on short term benefits and jeopardised the future of the company. “The Satyam scandal is a classic case of negligence fiduciary duties, total collapse of ethical standards, and lack of corporate social responsibility” (Caraballo, Cheerla, and Jarfari, 2010) Raju claimed he did not act for personal gain and purchased land to improve the company’s economic position, however what began as small gap in fictitious operating figures quickly grew and became unmanageable.
Although he claims his actions were in the best interest of the company and stakeholders for the future, his actions were not socially responsible and destroyed the company’s share value and reputation. Recommendations Corporate governance, was one of Satyams biggest management issues, this highlights the need for more severe punishments to regulate white collar crime.
Indian laws were not severe enough to deter Raju from committing severe fraud crimes, global legislation could control and regulate multinational companies, although this may be too difficult to enforce on a global level, it should be considered as we move towards a global economy. Building a business with a strong code of ethics and moral values, incorporated by good leadership can ensure strong corporate governance. Satyam must establish new internal policies to ensure a stabilised code of practice in order to rebuild their reputation and trust from stakeholders.
When faced with ethical dilemmas a decision cannot be made by one individual, as their views and values do not reflect the company as a whole. Ethical dilemmas must be resolved by the cooperative and relevant stakeholders to ensure individual or personal reasoning is avoided. References “Corporate Social Responsibility” World Business Council for Sustainable Development, www. wbcsd. org/work-program/business Caraballo, C. Cheerla, A. Jarfari, O. 2010 “Satyam: Brotherly Demise, The Rise and Fall of Ramalinga Raju” The George Washington University, www. managedecisions. com Mandal, S. K. 2010. Ethics in Business and Corporate Governance” Tata McGraw Hill, New Delhi, India. Mehta, S. Srivastavaare, R. 2009. “Reasons for Corporate Governance Failures” Skyline Institute of Engineering and Technology, Greater Nioda, www. indianmba. com/faculty-column Schermerhorn, Davidson, Poole, Simon, Woods and Chau, 2011. “Management Foundations & Applications, Management: Foundations and Applications” John Wiley & Sons Australia, Ltd. Milton, QLD. Sen, K. 2009. “In the Case of Satyam, Issue is Not Just About Money, But Biz Ethics” New Delhi, May 11. www. business-standard. com/india/news