Governance Failure at Satyam

Analyzing the first outlook listed above, seems that Astray scandal originated, in first lace, due to a lack of moral and ethical standards from the alliance top management, as well as the board of directors, which put ace over worsened, rather than mitigate, agency conflicts between shareholders and managers. Many were the evidences In this sense, from the bribery charges, that led to a dislodge from the World Bank, to the unsuccessful attempt to acquire a construction and a real state unfalterings owned by the company promoters relatives, in a fade sign of conflict of interests, that was originally approved by the board.In fact, if was not for the whistlers, no en knows how far they would go with the sham. Someone could argue that an exacerbated focus on short performance, the competitive market environment, and consequent pressure from analysts to meet market projections and maintain the company share prices overvalued, motivated the directors to start the results embezzle ment process, pledging to do this to protect the firm from a potential hostile takeover.However, obviously none of these should be an excuse to neglect their duties towards various stakeholders. Besides this, it is difficult to believe that none of hose convolute in the fraud did not earn any personal financial benefit, as stated by Mr.. Raja on his letter. Even that they did not have sold their stocks position, most likely their compensation package was more generous than It should have been, once misrepresented results excelled market expectations through the years.In fact, analyzing the evolution of promoters stake in the company over the years indicates that they enriched at the cost of outside shareholders. Regarding the failures In control functions ? Internal Controls, External Audit and the Board of Directors ? we would analyze each take separately. The internal audit and other internal control functions, such as controllers and compliance, were clearly very ineffective bu t, despite their importance, I will focus the psychoanalysis on the other two levels.From the external auditors perspective, It Is difficult to understand how PWS did not raise any red flag with such an elementary fraud as cash balances misstatement. Any reasonable company would either invest this large cash in projects or distribute as dividends to the shareholders, instead of retaining it. Specifically this vizor could be easily validated through a reconciliation against a statement Independently received from the bank.This is a strong evidence, as the case suggests when set off the increment In audit fees, they were in collusion with company management in executing the fraud. A good practice that could mitigate the risk of this pass by is a mandatory external audit rotation, as determined by Serbians-Solely, Implemented In US after Enron scandal. Finally, the board of directors failed under any aspect of their fiduciary duties loyalty, care and supervision.There are several evidences they were 1 OFF ineffectiveness of the audit committee during the years the fraud took place is one of these evidences. Another one was the prompt approval of the merger proposal without further background check. To prevent these issues, some measures such as to have audit committee composed only with independent directors, and set in place proper channels to report misconduct by anyone in the company could be implemented. Besides, the role of independent directors whitethorn be revised on a regulatory level, expanding civil and criminal liability over those.