Satyam Computers Corporate Governance Fiasco (E): New CEO’s Known Problems, Unknown Solutions
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Code : GOV0039
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Region : India |
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Introduction: In 2009, India’s fourth largest Information Technology (IT) services provider, SatyamComputer Services Ltd. (Satyam – a Sanskrit word meaning Truth), ironically became the platform for the biggest ever corporate governance fiasco in the history of India Inc. On December 16th 2008, Satyam’s board of directors announced the management decision to buy two Hyderabad-based Maytas (SATYAMspelt reverse) firms operating in realty business and infrastructure development. However, this decision of Satyam created suspicions among stakeholders, which reflected in plummeting of share price. Following this, the Foreign Institutional Investors (FIIs) – who held the highest stakes in Satyam(Exhibit I) – turned furious and rejected the board’s decision.Themanagement of Satyam was compelled to withdraw its decision within 9 hrs. after announcing it. The investor backlash on the board’s decision ultimately led to the market value destruction of Satyam. |
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Furtherworsening the situation, in the lastweek ofDecember 2008, four out of the six independent directors – including the longest serving Mangalam Srinivasan; the father of Pentium, Vinod K. Dham; a Harvard professor of Business Administration, Krishna G. Palepu; and the dean of the Indian School of Business (ISB), Dr. M. Rammohan Rao – resigned from their positions. This escalated the confusion and chaos prevailing among investors, clients and employees...
