ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Reading the Satyam Scam

Will the truth ever come out? What is this sham of corporate governance?

In a confession that led to his arrest and turmoil in corporate India, B Ramalinga Raju, the former chairman of Satyam Computer Services, India’s fourth largest information techno­ logy company, stated that he had manipulated accounts to inflate revenues and profits. The result was a collapse in the value of the company’s stock and dissolution of its board. Raju’s confession essentially stated that having doctored the firm’s accounts for many years, he was left with hugely overstated cash reserves and understated liabilities that amounted to a shortfall of more than Rs 7,000 crore in the company’s balance sheet. This was impossible to fill without the infusion of resources from outside. When his effort to get Satyam to “takeover” two companies owned by his family – Maytas Properties and Maytas Infra – in order to fill this hole with real assets failed because of shareholder resistance, he decided to reveal the fraud.

There could be many explanations for why this high profile company in an industry that has reported consistently strong revenue growth, export expansion and profitability, and is sup­ ported by the State with special tax benefits, chose to inflate profits that must have already been favourable by overall indus­ try standards. One allegation that has surfaced is that this was part of an effort to inflate stock values and the wealth of the promoters. Another allegation that is reportedly being investi­ gated is that the manipulation of accounts followed the siphon­ ing of resources from the company to expand the wealth of pro­ moters, who had a relatively small and declining shareholding in Satyam. Speculation aside, the actual details of what tran­ spired at Satyam Computer Services prior to the confession will emerge only after much time, if at all they will.

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