Corporate Governance at Satyam: The Satyam Scandal

733 Words3 Pages
Satyam Board’s was mainly comprised of ‘friendly’ directors who were not in the position to question the decisions adopted by the managers. Not only they were pro-management, but they were also incapable of acting when it was quite obvious that the company was facing some severe financial distress. Out of the nine board directors six were ‘independent’ directors. These independent directors clearly did not act on the interest of shareholders and other stakeholders, even when it was obvious that there were fraudulent acts within the company. Satyam’s scandal has pointed out the larger regulatory failure, which is closely related to audits. The role of the audit committee is to verify and certify the transparency of the disclosed financial information and statements and also that of monitoring to prevent fraud and irregularities within the company. Members of the auditing committee are required to be independent directors. It is also crucial to investigate not only the financial competency of the members of the audit committee, but also its capability to successfully fulfill their duties. In Satyam’s case the actual independency of these members was a fundamental for the development of the whole scandal. The members of the audit committee are asked to review the internal audit processes, ensure the diligence of the statutory auditors and ensure compliance with financial, accounting and stock exchange standards. In the case of Satyam it is evident that the committee failed to carry out its duties. Despite the whistleblower’s email regarding the financial irregularities, the committee decided to not report the issue neither to the shareholders nor to the regulatory authorities. Committee members either were not diligent enough to car... ... middle of paper ... ...ions and to provide a thorough analysis of the reports and statements prepared by the internal auditors before certifying their validity. Auditing in order to be an efficient form of corporate governance needs to be pro-active and watchful. Satyam’s case provides us with very useful practical lessons that can be applied to ensure efficient corporate governance. Useful practices to reduce the risk of poor auditing performance may include (a) periodic rotation of audit firms and audit firm partners, in order to avoid collusion between the to entities and reduce dependency; (b) regular peer review, to expose possible fraudulent activities or negligence; (c) evaluation of reports of audits, transparent corrective actions and clarity in reports, which can enhance and ensure trustworthiness in the auditing system as an efficient and effective form of corporate governance.

More about Corporate Governance at Satyam: The Satyam Scandal

Open Document