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Satyam Computers Corporate Governance Fiasco (B): The Role of Independent Directors


Code : GOV0034

Year :

Industry : Business Law, Governance and Ethics

Region : India

Teaching Note: Available

Structured Assignment : Available

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Introduction: On December 16th 2008, Satyam Computer Services Ltd. (Satyam) board announced its unanimous decision to acquire management stake in two Hyderabad-based Maytas (S A T Y AM spelt in the reverse order) firms. The board decided to acquire 100% stake of Maytas Properties Ltd. (a real estate company) and 51% of its sister concern Maytas Infra Ltd. (carrying out infrastructural projects) – for $1.3 billion (INR 6,240 crore) and $300 million (INR 1,440 crore) respectively. Satyam board expected that the combined firm would achieve a growth of 33% by 2010–2011 and 50% by 2012, with Information Technology (IT) and Infrastructure sectors contributing 50% each to the resulting company’s revenue.3 Both these companies were floated and managed by the kin of B. Ramalinga Raju, founder and CEO of Satyam.

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The Maytas acquisition deal raised doubts over Satyam’s interest to enter into non-IT segments like – energy, transportation and infrastructure, particularly at a time when these segments were facing the wrath of global financial meltdown. Mass media has overreacted and published exaggerated stories and furious comments of investors against the board and its independent directors. Highlighting that the decision was not fair, either to the shareholders or to the employees, the media publicised that the deal could improve prospects for Maytas Infra at the cost of Satyam’s interests...

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