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Satyam Computers Corporate Governance Fiasco (C): CEO Confesses, Company Collapses


Code : GOV0035

Year :

Industry :Business Law, Governance and Ethics

Region : India

Teaching Note: Available

Structured Assignment : Available

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Unanimous decision by the board of directors (board) at Satyam Computer Services Ltd. (Satyam) on December 16th 2008 to invest in two Hyderabad-based Maytas (SAT YAM spelt in reverse) twins in the realty business – Maytas Properties Ltd. and Maytas Infra Ltd. The decision intended mainly to “de-risk the core business”3 faced severe criticism from the shareholders and mass media. Ramalinga Raju, CEO of Satyam, announced that the firm would continue to stick to its core business of Information Technology (IT) and Business Process Outsourcing (BPO) services, while simultaneously taking up real-estate companies, in which the CEO’s family held majority stock. However, Ramalinga Raju could not foresee that the decision would trigger a crisis that would engulf Satyam and reverse its prospects (Annexure I).With a number of suspicions and uncertainties over the company and its transparency, the irked investors questioned the idea of investing in the family business of Satyam’s promoters from the accruals of Satyam, violating the promise they made in 1998. Facing the wrath of shareholder activism, Satyam management pulled back the acquisition deal within 9 hrs. of announcing the deal.

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With the media creating a ‘big hype’, the entire episode brought out the biggest ever corporate governance fiasco in India in memorable times, with the shareholders and institutional investors questioning the roles and responsibilities of the board and the integrity of independent directors. As a result, the value of Satyam’s shares and American Depository Receipts (ADRs) plunged. The rumours on Satyam’s takeover by one or the other company also proliferated. Despite the withdrawal of the board’s decision to acquire Maytas twins, the market capitalisation of Satyam reduced approximately by INR 4,700 crore on December 17th 2008 to stand at INR 10,600 crore, which was INR 15,270 crore – a day before the announcement of the Satyam-Maytas deal...

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