Case Study 6.2 - India's Enron
1. Does Ramalinga Raju’s assertion that this fraud only “started as a marginal gap” change the ethical question here? Would the situation be different if there was evidence that there had been a deliberate intent to deceive investors from the beginning?
2. Why do you think Satyam’s board of directors refused to support the proposed purchase of the construction companies?
3. Outline the similarities between the Enron scandal and Satyam Computer Services’ situation.
4. PricewaterhouseCoopers (PWC) made a public commitment to cooperate with investigators. Did the Satyam situation represent the same threat for PWC as Enron did for Arthur Andersen? Why or why not?
5. Will the response of the Securities and Exchange Board of India be enough to prevent another scandal like Satyam? Explain.
6. What benefits do Tech Mahindra and Mahindra Satyam hope to achieve with the announced merger? Explain.
2. Why do you think Satyam’s board of directors refused to support the proposed purchase of the construction companies?
3. Outline the similarities between the Enron scandal and Satyam Computer Services’ situation.
4. PricewaterhouseCoopers (PWC) made a public commitment to cooperate with investigators. Did the Satyam situation represent the same threat for PWC as Enron did for Arthur Andersen? Why or why not?
5. Will the response of the Securities and Exchange Board of India be enough to prevent another scandal like Satyam? Explain.
6. What benefits do Tech Mahindra and Mahindra Satyam hope to achieve with the announced merger? Explain.
Answers
1. No, the fact that Ramalinga Raju’s said that this fraud only “started as a marginal gap” does not change the ethical question here. All though it may have started as a marginal gap, he continued to deceive the investors. It is hard to believe that a company such as Satyam would not notice that 1.6 billion dollars in assets was unaccounted for. If there was evidence that there had been a deliberate attempt to deceive the investors, Satyam would have received harsher sanctions.
2. I believe that Satyam’s board of directors refused to support the proposed purchase of the construction companies because it was a very large commitment to undertake considering three months prior they had received sanctions from the World Bank. Eventually the board of directors mad the right decision by refusing that proposal.
3. Enron and Satyam Computer Services have a lot in common. They were both highly regarded as leaders in their respective fields with claims of over 1 billion dollars in asset revenue. Both companies fell from grace when it was discovered that the company’s financial stability was falsified through accounting fraud.
4. Yes, the Satyam scandal did represent the same threat. Both auditing companies were in hot waters as they did not abide by the code of conduct and auditing standards. Therefore they were fined by the Securities Exchange Commission.
5. I do not believe that any response from the Securities and Exchange Board of India would be enough to prevent another scandal BUT it will be enough to discourage most companies from committing accounting fraud. The fine of Rs 1,850 and banning the owner from the market for 14 years is a heavy sanction from the SEBI, the magnitude of this punishment will set the bar for future scandals such as the one from Satyam Computer Services.
6. The merger between Tech Mahindra and Mahindra Satyam is an effort by Tech Mahindra to revitalize a once successful company with new direction and a new name. The merger could be successful because Tech Mahindra has a good reputation when it comes to ethical business practices; therefore Satyam’s bad reputation will not be too hard to shed.
2. I believe that Satyam’s board of directors refused to support the proposed purchase of the construction companies because it was a very large commitment to undertake considering three months prior they had received sanctions from the World Bank. Eventually the board of directors mad the right decision by refusing that proposal.
3. Enron and Satyam Computer Services have a lot in common. They were both highly regarded as leaders in their respective fields with claims of over 1 billion dollars in asset revenue. Both companies fell from grace when it was discovered that the company’s financial stability was falsified through accounting fraud.
4. Yes, the Satyam scandal did represent the same threat. Both auditing companies were in hot waters as they did not abide by the code of conduct and auditing standards. Therefore they were fined by the Securities Exchange Commission.
5. I do not believe that any response from the Securities and Exchange Board of India would be enough to prevent another scandal BUT it will be enough to discourage most companies from committing accounting fraud. The fine of Rs 1,850 and banning the owner from the market for 14 years is a heavy sanction from the SEBI, the magnitude of this punishment will set the bar for future scandals such as the one from Satyam Computer Services.
6. The merger between Tech Mahindra and Mahindra Satyam is an effort by Tech Mahindra to revitalize a once successful company with new direction and a new name. The merger could be successful because Tech Mahindra has a good reputation when it comes to ethical business practices; therefore Satyam’s bad reputation will not be too hard to shed.
Ghillyer, A. 2014. Business Ethics Now: Chapter 6, The Role Of Government. United States of America: McGraw-Hill Education