Strategic and Planning management Case study – Satyam Case study & Management Issues

Questions Asked?

Write a description on case study for Satyam and also write about the lack of corporate governance??

Solution proposed::

Introduction:

Satyam computers were founded in 1987 by Ramalinga Raju and were recognized as a public limited company in 1991.

This scam was the biggest corporate scam in India and probably one of the biggest in the world and it could be categorized in three heads:

Phase 1: Since 1999 for the next three years Indian software company earned good profits as they had big orders.

Phase 2: began in 2001 were the actual altercation of the accounts took place so as to keep the profits at the higher end and to have a high share price. Since the prices were high the satyam promoters sold off their share and the money so accumulated was used to buy huge portions of land. This is when Raju set up many infrastructure and investment companies .This phase went off till 2004

Phase 3: Began in 2007 during which company showed huge cash balances and fixed deposits which were all fake as the company was actually deprived of funds to keep the company floating and this phase continued till Raju’s confession on 7 Jan 2009

Management issues:

The Satyam fraud is a perfect example of how lax attitude from some people can enable a person to reduce a booming empire to a shadow of its former glory. The major issues that the management faced in the Satyam scandal was that there was not a lot of clarity regarding the actions of the Company and its management and still people did not even once raise the question. And it was here that the shareholders and the various stakeholders of Satyam lost out to their own greed and complacency.

Another management issue was the lack of corporate governance in Satyam. Had a proper structure been formulated where Raju should have been accountable for each and every year rather than the scam which hit out in one single go. The balance sheets had been tempered with for years and it was only when Raju himself came forward with the information was the scam detected, this showed another lack of professionalism from the auditors of the firm. Another issue that can be pointed out is greed on part of both Raju and the stakeholders.

Lastly the most important management issue was the blind trust that the stakeholders of the organization did on Ramalinga Raju this along with Raju’s extremely low behaviorism depictions allowed such a large scam to take place.

Reasons for issues:

The first issue that attains importance is how the people at Satyam did not come forward since the time the Company was with Raju to take a look at how the organization was being run. The people at Satyam also displayed blind trust in Raju and his ways. They laid back and allowed Raju to go forward with his plans and conspiracies. According to Sartre (1956) this is how the existentialism nature of humans comes to fore. They molded themselves to trust each and every word that Raju said regarding the workings of the Company and how the organization was progressing. They did not challenge his decisions and his actions.

Another management issue that was faced in the Satyam scandal was the lack of a proper structure in the organization. This proved how humans can go against the thinking of Plato who said that humans act rationally at most times and reason each and every decision that they take before going ahead with anything. According to Plato humans are primarily a thinker capable of reasoning. However in this case all the traditionalist scholars were proven wrong as some of the best minds in the industry did not reason that they should have a proper corporate governance structure in place that does not allow a single man so much power that he is able to wreck havoc in the organization. They went ahead with their plans of growth as per Raju and did not utilize their rational nature and made wrong decisions.

The next point that was a major issue in this scam was the presence of plain and simple greed. Greed on part of Raju to increase the firm and the same greed on part of the stakeholders to be part of such a growing firm. This shows that the thinking of the modern philosophers including Freud and Hobbes that human beings are at the end of the day fueled by self interested desires. Their view is something that fits precisely on this scenario. It was the greed of one man supported by the greed of others that allowed such a huge scandal to take place.

The last point that has to be understood is the lack of professionalism that the auditors at Satyam showed. This depicts another form of the human nature according to Desmond Mores (1977), this shows the lack of selflessness among the auditors to allow the comfort of an audit without hassles to take over their sense of duty and this too allowed Raju to get continue his years long fraud with the organization.

Recommendations:

Lax attitude: 

Employee awareness is of utmost importance when we have to deal with lax attitude. Employees must be aware about the pros and cons of this attitude. Lax attitude can be bearable to some extent but when it come to reputation of organization then management should keep a strong check on the attitude of employees and should hold various review meetings so as to look in to the matter more effectively

Lack of corporate governance structure:

A strong corporate governance structure could help in keeping control and ownership. If the structure is strong there are less chances of company being hit by the scams because it would be governed by management, shareholders and stakeholders and also there would be fewer conflicts of interests.

Blind Trust in leadership.

Trust is always essential but blind trust is always fatal. Had the organization not trusted Raju blindly there could be a chance that such scam would not have taken place. To avoid this one must conduct Leadership audit surveys so as to keep a check on your leaders.

Auditors faults:

This is one point among two, the other being greed, that an organization cannot do a lot about. But yes they should be aware of the workings of the auditors and should perform dummy transactions to test the auditors every once in a while.

Thus it can be said that there a lot of ways by which human nature can affect the functioning of a fully capable organization

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