Chapter 2 - SATYAM (ICT in India & Ownership Transparency)

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• The Case Study: Ownership (Transparency) In India

Agenda

Emerging Economy Enterprises Week 3 – Agenda

Date: Wednesday 13^th February

Time: 15:00

Leadership team roles:

Chair - Charles Dawson

Coaches – Anna Van Mourik & Fatma Chamkhi

Capture – Kaushil Shah

Times below are a general outline of the meeting:

15:00 – Meet & Greet

15:10 – Leadership team introduces meeting

15:20 – Investment team introduces their section

15:30 - Action teams (x 3) present via MICA case method

Order of action teams (group will be assigned in class):

·         Action Team Alpha

·         Action Team Bravo

·         Action Team Charlie

16:00 – Break for separate team evaluations and discuss next steps

16:20 – Chair requests missed research

16:25 – Action teams discuss missed research

(AT SAME TIME INVESTMENT TEAM IS ASSIGNING CREDITS)

16:45 – Leadership team presents postulates / reflections

17:00 – Meeting adjourned

LEAD Team Challenge Brief

Summary of case study

Main subject is corporate governance and fraudulent auditing practices allegedly in connivance with auditors and chartered accountants. The company misrepresented its accounts both to its board, stock exchanges, regulators, investors and all other stakeholders.

It is a fraud, which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health.

Who is to blame here?

The promoters are primary culprits, although it is almost impossible to misrepresent such facts without the connivance of the auditors and some executive board members. Independent directors, it seems, were kept in the dark about the actual books of accounts.

It is a company that started as a family business which made it difficult for its promoters to change their “private business mindset”. That made the company fall in the trap of fraud and scandals. The challenge here is for the promoters to choose whether to keep it a public corporation.

Question to action teams

The question to the action and investment teams is:

1.    How to keep on growing internationally as a public corporation?

2.    How to deal with scandals and rebuild it reputation Internationally?

Work within these frameworks and key concepts below:

Framework 1 - International trade frames

·         IT industry, what are the barriers to trade here?

·         PWC scandal (changed consultancy regulations across the world)

·         Understanding of fraud and measures to prevent it

Framework 2 - National Institutional frames

·         India as am IT Hub, population growth, currency volatility

·         Accounting fraud - ethics, feasibility of fraud in India, accounting standards

·         Corporate governance standards in India

·         Family business - feasibility of fraud, Nepotism/cronyism, tradition

·         Regulations - scandal resulted in regulation adjustments/creation

N.B. If there are other frameworks you would like to adapt to please let us know and we will add them to the above.

INVESTMENT Team Challenge brief 

State Frames

Government policies:

·         The Competition Act (2002) and the Limited Liability Act (2008) promote sustainable competition in markets, prohibit anti-competitive business practices and protect consumer interests while ensuring free trade.

·         The Companies Act (2013) features provisions regarding mergers and acquisitions, board room decision-making, related party transactions, corporate social responsibility, and shareholding. The act was further amended through the Companies Act (2015) which eliminated the procedural common seal, declarations for commencement of businesses and minimum paid-up capital requirements in India.

Industry regulation:

·         IT companies fall under the Shops and Commercial Establishments Act - All terms and conditions of the employee-employer relationship are governed by this Act. For example, to improve ease of doing business for IT companies in India, the  government has revised provisions in the Shops and Establishments Act, such as employability of women.

Sector Dynamism

·         IT industry is the 5th largest industry in India, contributing to 8% of the country’s overall GDP

·         In the year 2014/2015, the IT industry in India generated an annual revenue of $120 billion, a significant increase from around $60 billion in the year 2008/2009.

·         The majority was generated in exports while domestic revenue totaled more than $20 billion

·         As the IT industry in India continues to increase, end-user spending on the market is also forecast to rise

·         Some of the biggest IT service providers in India include IBM and HP, as well as local Indian companies like Wipro and Tata Consultancy Services

·         Overall, the IT industry in India provided direct employment to 3 million people and indirect employment to almost 10 million in the year 2013

• ACTION Team Response & Reports

CASE: SATYAM

RET – MICA METHOD

Group members (Action Team 1)

§  Malén Codiroli

§  Nahuel García

§  Matías Modugno

§  Jorge Gaytán

Solution: Curb corporate governance failure.

Integral System of decision making

To be solved by implementing an integral system of decision-making, which would consist in a manual of procedures to be followed by every member of the board and employees. This key tool should make clear the degree of authority and responsibility of everybody and establish a set of rules known in advanced to rule every aspect in company’s life.

Interest conflict constrains must be detailed, and set steps to follow in that case.

The purpose of the system is to achieve transparency and to give certainty about the behaviour of company in the future.

Supervise Corporate Governance

In order to achieve compliance with the aforementioned, the company should give priority to the creation (or intensification, in the case of previously existing) of the Internal Audit and Compliance departments with independent multidisciplinary members, mitigating risks of fraud or/and mistakes through different professional perspectives. Obviously this system should contemplate the inclusion of information channels, reporting and detection of irregular activities, especially in decisions of a transcendental nature for the company, and a pre-established punishment system.