Governance Failure at Satyam

Analyzing the first scene listed above, seems that Astray scandal originated, in first lace, due to a lack of moral and ethical standards from the order top management, as well as the board of directors, which take aim worsened, alternatively than mitigate, agency conflicts between shareholders and managers. Many were the evidences In this sense, from the bribery charges, that led to a ban from the World Bank, to the unsuccessful attempt to acquire a building and a real state firms owned by the gild promoters relatives, in a clear 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 struggle that an exacerbated focus on short-term performance, the competitive market environment, and consequent pressure sensation from analysts to meet market projections and maintain the company share prices overvalued, motivated the directors to cash in ones chips the resu lts embezzlement process, pledging to do this to protect the firm from a potential aggressive takeover.However, obviously none of these should be an excuse to neglect their duties towards various stakeholders. in any case this, it is delicate to believe that none of hose involved in the put-on did not earn any personal financial benefit, as verbalize by Mr.. Raja on his letter. Even that they did not have exchange 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 all(prenominal) level separately. The internal audit and other internal control functions, much(prenominal)(prenomin al) as controllers and compliance, were clearly very ineffective but, despite their importance, I willing focus the analysis 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 dust as dividends to the shareholders, instead of retaining it. Specifically this point could be easily authorise through a reconciliation against a statement Independently current from the bank.This is a strong evidence, as the case suggests when highlight the increment In audit fees, they were in collusion with company management in execute the fraud. A good practice that could mitigate the risk of this happen is a mandatory external audit rotation, as determined by Serbians-Solely, utilise In US after Enron scandal. Finally, the board of directors failed under any aspect of their fiduciary du ties loyalty, care and supervision.There are several evidences they were 1 OFF ineffectiveness of the audit committal during the years the fraud took place is one of these evidences. some other one was the prompt approval of the merger proposal without further setting check. To prevent these issues, some measures such as to have audit committee composed only with independent directors, and set in place worthy channels to report misconduct by anyone in the company could be implemented. Besides, the role of independent directors may be revised on a regulatory level, expanding civil and criminal liability over those.