The Rise and Fall of Ramalinga Raju

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Case Details:

Case Code : LDEN059
Case Length : 19 Pages
Period : 2008-09
Pub Date : 2009
Teaching Note :Not Available
Organization : Satyam Computer Services Ltd.
Area: Ethics in Leadership
Industry : Information Technology / Software Services
Countries : INDIA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Satyam, for all its glitter, was a firm whose owner ran his software company in the manner his forefathers did land deals. It failed to make the jump between the two centuries." ¹

- Far Eastern Economic Review, in January 2009.

"In many ways, the Satyam scandal is having the same effect in India that the Madoff scandal is having here (in the USA). Mr. Madoff was an important, highly respected figure on Wall Street, just as Mr. Raju was an important, highly respected figure in the Indian business world." ²

- Joe Nocera,³ New York Times, in January 2009.

Fall From Grace

On January 07, 2009, B. Ramalinga Raju (Raju), Founder and Chairman of India's fourth largest IT services company, Satyam Computer Services Limited (Satyam), claimed that the company had been inflating the revenue and profit figures for several years. He confessed to an accounting fraud that amounted to Rs.70 billion.⁴ In a letter addressed to the board of directors of the company, he declared that the Rs. 50 billion of cash balances reported by Satyam for the quarter ending September 30, 2008, did not exist, that the revenues were Rs. 21.12 billion as against Rs. 27 billion reported earlier, and the operating margins were only 3% as against the 24% declared by the company earlier.

He wrote that the gap arose due to the difference between actual profits and the profits reported, which kept on growing over the years. In his confession, Raju wrote, "Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in the takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten."⁵

Raju was one of the pioneers in the Indian IT industry. He started Satyam with 20 employees in 1987, when the industry was still at a nascent stage. At that time, Satyam's main objective was to provide software services to large companies based mainly in the US. Over the next two decades, Satyam grew to become the fourth largest IT services company in India with operations in 63 countries and revenues of over US$ 2 billion for the year ending March 31, 2008.

Though the company had been declaring healthy profits and dividends year after year, it found itself unable to maintain the pace of growth in revenues that it had achieved in the early 2000s.

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1] Pramit Pal Chaudhuri, "Surviving 'India's Enron'," www.feer.com, January 14, 2009.
2] Joe Nocera, "In India, Crisis Pairs with Fraud," www.nytimes.com, January 09, 2009.
3] Joe Noecra is a staff writer for New York Times.
4] As of March 20, 2009, 1 US$ = INR 50.56.
5] "Satyam Fraud: Full Text of Raju's Letter to Board," www.financialexpress.com, January 07, 2009.


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