Ethical Morality

Working with Ash on this project, enabled me to learn more about the Finance industry. This is my report on the importance of ethics. Always aim high and remember to be moral.

The organization Satyam was an Indian based IT firm that was involved in fraudulent activities and corporate failure at board level. The key ethical and corporate governance perspectives are analyzed to discuss the key failings in Satyam that lead to such an event occurring. The Indian and UK corporate governance policies are compared and contrasted with regard to Satyam. Also, the ethical analysis theories are analyzed to provide a better comprehension of the unethical behavior.

A brief on Satyam

Satyam is an IT firm that was established in 1987 in the city of Hyderabad, in India which was founded and chaired by B. Ramalinga Raju and became publicly listed in 1992 (Economic Times, 2018). According to Encyclopedia 2007, the company provides several IT services related to software, engineering solutions, infrastructure management, and enterprise business solutions. As per Economic Times (2018) Satyam was also listed in the Indian National Stock exchange, New York Stock Exchange and others as well. Satyam received many awards including the “Golden Peacock Global Award” for Excellence in Corporate Governance in 2008 (Agrawal, 2009). According to BBC News (2015) Satyam was one of the top 4 IT firms in the country.

What happened ?

According to Hindustan Times (2009) the chairman lied about the company’s accounts to the board, stock exchanges, shareholders and other stakeholders and falsely inflating the financial health with the help of the auditors. In order to keep up with this cover up, the chairman also created over 7000 fake invoices and bills to show false revenues (Hindustan Times, 2015). The Economic Times (2018) suggests that in order to make up for this massive gap and after making other attempts, the chairman’s last resort was to acquire two companies Maytas Infrastructure and Maytas Properties which in reality was under his family’s name ,which had real assets to balance the gap. The Hindustan Times (2008) also states that this decision being done without approval from shareholders caused an uproar in the market where the share value of the company dropped, which eventually pushed the company to call off the deal. According to the Financial Express (2018) the chairman felt at this point he was left with no option and ended up confessing and admitting to the accounting fraud in the beginning of 2009. From that day, it had officially become an accounting fraud of 7000 crore INR (over 700 million GBP) and the company was eventually taken over by Tech Mahindra to become Mahindra Satyam (Financial Express, 2018). The former chairman, B. Ramalinga Raju and 9 others were found guilty and sentenced to 7 years in prison and that B. Ramalinga Raju and his brother Rama Raju were fined 5.5 crores (over 600,000 GBP) each (Rahul, 2015).

India’s corporate governance

In order to assess Satyam’s corporate governance compliance, we will need to have a look at the nation’s corporate governance structured at least in terms of the division of the board on how it was followed back in 2008, the same year when the scandal was revealed.

India’s corporate governance requires approval by the Security Exchange Board of India (SEBI) to aim at developing business practices. They are one of the regulatory bodies of the security markets in India. (SEBI, 1992). As per India’s corporate governance according to SEBI (2000), there should be a combination of executive and non-executive directors. If the chairman is a non-executive, then at least half the board should be of independent directors. If the chairman is an executive, then at least one-third of the board should comprise of independent directors. There is no mention of chairman and CEO being separate people. It is the shareholders that appoint the directors. Satyam complied with the division of board of directors as per the annual report in 2008 to 2009 having 9 directors in the board with 6 independent directors and the rest of them being executive directors including the previous chairman Mr. B. Ramalinga Raj (Mahindra Satyam, 2010).

That would explain the company being awarded the ‘Golden Peacock Global Award’ for Excellence in Corporate governance (Agrawal, 2009). Despite following the country’s corporate governance code with independent directors outweighing the remaining on the board, the fiasco still occurred. This could suggest that the nation’s corporate governance was very much on the weaker end for the fraudulent activities to go on for this long until 2008. A few auditors were also convicted by the court, including external auditors S Gopalakrishnana and Srinivas Talluri from Price Water House Coopers, India and the chief of internal audit of Satyam V S Prabhakara Gupta (PTI, 2015).

Eventually and very recently, SEBI had barred Price Water House Coopers from auditing listed companies in the country for 2 years because according to the regulator, PwC grounded their audits on documents like bank statements and fixed deposits from Satyam without attempting to get a direct confirmation from the banks on the authenticity (Rukhaiyar, 2018). The regulator also felt that had the auditor pursued for this confirmation from the banks, this accounting scam could have been figured out much earlier.

For an audit company to not verify the authenticity of the documents, is just basically auditors not auditing. With a mandatory audit rotation clause, audit companies would be far more competitive and alert to be the best at their job to attract more prospects as the clause would reduce their client portfolio after a certain point. The Corporate Governance code did not have a mandatory audit rotation clause only until mid of 2017 where they decided on it, which states that all public listed companies must change their auditors after every 10 years (Dave & Mahanta, 2016). Although this should have been mandated much before, 10 years still seems to be a very long time for the change to be in effect. However, there could be some progress with what has been put into effect.

UK corporate governance

We could try comparing the UK’s corporate governance with India’s of what was put into effect during the same year of 2008 to see if things would be any different. As per the Financial Reporting Council (2008) the UK’s corporate governance, half the board, excluding the chairman, should have non-executive directors determined by the board to be independent with the chairman being independent as well. All directors should be subject to re-election at regular intervals not longer than three years, subject to performance as well (Financial Reporting Council, 2008).

IssueUK ComparisonIndia Comparison
Board compositionHalf of the board of larger quoted companies must comprise of independent non-executive directors. Smaller quoted companies (below FTSE 350) must have at least two independent non-executive directors. – Same individual must not be the chairman and chief executive. – Requires formal, rigorous annual evaluation of board performance, performance of committees and directors. – The search for board candidates should be conducted and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender. – All directors of FTSE 350 companies must be annually elected by the shareholders.There is no distinction between large and small quoted companies. Half of the board of all quoted companies must comprise of non- executive directors. – If the chairman of the board is an independent director, 1/3rd of the non-executive directors must be independent and if the chairman is not independent, half of the non-executive directors must be independent. – Same individual can act as chairman and chief executive. – No requirement for a board evaluation process. – There is no requirement for annual re-election of all directors. Appointment and election of directors is governed by the Companies Act, 1956.

(Grant Thornton, 2010).

As per the above, UK’s standard of corporate governance, like India’s, it also mandates that half the board should consist of independent directors which Satyam’s board also happened to have (Mahindra Satyam, 2010). So far, the corporate governance standard of the UK is also being met as of 2008 by Satyam with the exclusion of the chairman being independent as B. Ramalinga Raju was an executive chairman (Mahindra Satyam, 2010). When it comes to annual re-election for all directors, India’s corporate governance did not seem to have one back then (Grant Thornton, 2010).

According to the US Securities and Exchange Commission (2008) one of the independent directors was appointed since 1991 and remained one until 2008. This could be a drawback as the independent directors could tend to grow leniency towards issues and the management when being a part of the board for this long and may not be fair in scrutinizing the performance of the management as they should and to look out for the interest of the shareholders. In Satyam’s case, 5 of the independent directors were fined 20,000 INR (220.56 GBP) and the sixth independent director was fined 26,000,000 INR (286,533 GBP) for providing additional services to the company and remaining on the board of Satyam as an independent director and for failing to get government’s approval for providing these services (Chatterjee, 2018). FRC (2008) also states that the board should not agree that an executive director should take on chairmanship of an FTSE 100 company.

Although the rule for an executive director to not be chairman of the company is specifically mentioned above for an FTSE 100 company, had this still been applied in Satyam’s case, B Ramalinga Raju, would not be the chairman and even if he did, it would not be for very long and would eventually have to take up his brother’s role of CEO and managing director or either one. His brother not being part of the board would reduce one fraudulent person in the organization. This would mean that it could have possibly been stopped, had B Ramalinga Raju try to attempt the same kind of fiasco because at some point the chairman’s role would have gone to an independent director instead, who would have far more responsibilities than the other independent directors to prevent this from occurring or from getting worse. 

Ethical analysis

Satyam did not follow several ethical theories. In any scenario, business or personal, ethics is the moral decision an individual makes between a right course of action or typically a wrong course of action (BBC, 2014).

Relational ethical theory

According to Eggleston (2012) the utilitarian ethical approach is the greatest good for the greatest number and requires people to act in the way which will result in the maximization of overall well-being of others. In the case of Satyam this principle was not followed because the chairman opted to maximize his own personal gains, and did not consider the consequences of these actions on the entire community. The entire nation’s reputation was on the line when committing such fraudulent acts. According to Financial Express (2018) the shareholders of the company were heavily affected with their investment of approximately 1.25 billion GBP allegedly. Also, over thousands of jobs were at stake of the Satyam employees. Lastly, Price Waterhouse Cooper, the external audit company who have recently been banned from auditing listed companies in the country (Rukhaiyar, 2018).

Instead of focusing on the greater good for the greatest number, the chairman of Satyam chose to emphasize on unethical business practises, account manipulation, and flawed leadership, all of them being against the greatest number. 

Kant’s categorical Imperative 

Another theory to consider when analyzing Satyam’s dilemma is Kant’s theory’s first maxim, “always act in a way that you would be willing for it to become a law that everyone else should do the same in the same circumstance or situation”, which asks the questions, “what kind of world would it be if everyone behaved this way?” (BBC, 2014). When we analyze Satyam, this would lead to a chaotic atmosphere and a world where there will be trust issues. That would answer one of Kant’s maxim’s of not wanting to live in a world where the leadership is tainted and does not perform in an ethical manner. Consequently, Kant’s second Maxim Act is “treat humanity, both in your own person and in that of another, always as an end and never as a means” or in other word is treat others as you would want or have them treat you (BBC, 2014). Ramalinga Raju would not want to be in the shoes of the shareholders affected by his actions who did nothing against the company to be tricked, duped and to lose their investment. Hence, any business is expected to be ethical to its employees and it poses the questions would you want to work for such an unethical company or leader and companies must aim to set a good example if they expect to grow, or risk the fallout of stringent laws. 

New York Times rule 

New York Times rule states, “never do anything you wouldn’t want to see reported on the front page of the New York Times. This implication asks the question “how would you like your decision-making subject to that kind of scrutiny” (Macdonald). In the case of Satyam this is once again the country’s reputation being affected and the potential downfall of the nation’s economy, especially since the company was listed in the New York Stock Exchange along with the country’s national stock exchange and others as well. (India Today, 2009)

Self interest

According to the BBC (2014) virtue theory is concerned with answering the question of how to live a good life or how to be a good person. Harman (1999) suggests the focus on integrity, honesty, moral acts, ethical decisions or behavior, motivations, character and intentions considered to be aspect of virtue ethics theory. Do we see the effort and contribution from the chairman of Satyam to create and continue to live by this form of virtuous ethical behavior? The answer is no, as it seemed that his greed for power and to be on top mattered more than literally anything else. In the end, he exhibited characteristics that were not considered to be virtuous as the chairman committed this scam knowing it was wrong and unjust, hence it was kept a secret.

Upon reading about these failures, we can clearly state that Satyam chairman exhibited Machiavellian tendencies of unethical actions, which as per Jones & Paulhus (2009) include manipulative strategies like duplicitous motives, winning at any cost, lying, cheating, and unethical actions. In addition, he did not seem to consider the effect it would have on people, and proceeded to being deceptive, manipulative and seeking his own self-interest, no matter what the cost. The aspects of corporate ethics were ignored by the chairman, replaced by greed, lack of responsibility, ignoring ethical standards, tampering accurate data, and placing self-interest above all others. According to Jones & Paulhus (2009) Machiavellian tendencies give high priority to money, winning at any cost, power, competition and relatively low priority to community building. As per this, we can state that Satyam’s chairman exhibited Machiavellian attributes, a lack of consideration for people and the society at large.

As a chairman of a company, Satyam’s leader has a duty to focus on the right course of action for others but the actions of the chairman proved that he did not live up to the ethical standards. The chairman portrayed pure egoism by falsifying accounts to the point where he was no longer able to do so, anymore. Egoism is not to be confused with “ethical egoism” and his actions proved his ego was a priority in comparison to the ethical code of conduct.


Ethics should always be followed by any organization, no matter how irrelevant it can seem at times. Satyam should have followed ethical theories and from Satyam’s fiasco we can learn that nobody can hide forever. The country should take corporate governance very seriously. At times it may not make too much sense, but in the case of Satyam we can understand that a good corporate governance could have avoided many issues.

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