Satyam Scandal In India Accounting Essay


Recently, corruption has become an issue in political and economic significance in developing countries. Corruption is the abuse power of officials for private gain and it could be of many types, not only bribery (Campling et al. 2008), such as in the case of Satyam Scandal in India which will be discussed in this essay. First of all, this essay will discuss why this scandal happened and what make successful people become corrupt. Then the next part, the essay will explore what can be done to stop or prevent this scandal in the future.

First of all, this part will describe why this scandal happened and what make successful people, such as Mr. Raju in this case, become corrupt. There are many reasons why some millionaires and successful people become corrupt including they can, they want to take risk, nobody will find out and other reasons such as weak corporate governance. The first reason is that they can as they think that they own the business and if they corrupt, they can get away with it. They think they have a lot of money and those are their money so they are entitled to spend that money or do anything whatever they want even corrupt. They say it's not really illegal, which this expresses a belief that their behaviour is acceptable to use their own money. Also, many directors think they own the company that employ them so they think they can do whatever they wish with it. As a result they ignore their roles and tasks and create conditions in which bad things happen (Garratt 2003).

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The second reason is because rich and successful people have everything in their lives, they've got more then they want more. They run successful business, having millions of rupees or dollars in bank, well known and well-respected, they've got everything in their lives, so what's left in life they will and can do next. One if the answer is they are willing to do something risky and dangerous to give them a bit of a thrill and danger in life. For example, UK judge was caught to pick up a prostitute off the street and had sex in his car or Tiger Wood was accused to have group sex with prostitutes (Gardner 2009). They were successful people who have got everything in their lives, money, position, power, well-respected from people, so they did this because they wanted some thrill on the fact that they wanted to take a risk.

The third reason is no one will ever know about it. They believe that unethical behaviour is safe and will never be found out or made public. Once they corrupt, things can get bigger and it cannot be stopped because when stop, other people will find out what happened and it is big because keep covered too much for many years like Mr. Ruju covered his misconduct for a number of years. For instance, a waitress thinks that she can borrow $100 till from the restaurant where she works to pay for her phone bill today and when she got paid she put $100 back to the till. Next week she does the same thing again and nobody knows about this. Then, next two weeks she took till money again as she thinks that nobody will find out and she can put the till back again. However, something happen such as she needs to pay immediately for her kids school fee, so she has no money to return and keep carried forward until she owes $500 for till. This scandal shows that people become corrupt more and more because it is easy and they can get away with it and then things get bigger since they cannot afford to stop (Furrow 2005).

Apart from those three reasons discussed above, there are many other reasons why this scandal happened. For example, some people lack a strong and consistent set of personal ethics which they strive to maximise their self-interests. Moreover, they have pride, big ego, loss of faith, and lack of trust. Lack of trust, particularly when big egos are involved, leads to corporate uncertainty and ethical behaviour (Campling et al. 2008). Greed also makes them corrupt, as rich people want to be richer and gain more power. A weak form of corporate governance is also one of the causes of many problems that corporate management faces today. Lack of accountability, no pressures to perform, no crime was really committed and no one really cares enough to stop it can all reinforce such unethical behaviour thinking why rich people become corrupt (Furrow 2005).

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Having discussed why this scandal happened and what make successful people become corrupt, now this part will explore how such scandal can be prevented in the future. There are several ways that can be done to stop such scandal including punishment, criminal prosecution, making them suffer, good corporate governance, organisational culture, code of ethics, directors and auditors duties and other reasons. First is severe punishment and criminal prosecution such as corrupt managers can put in prison for many years or pay heavy fine and compensation. For example, chief executives who certify false accounts face prison terms of between ten and twenty years and fines of $1-5 million in US (Campling et al. 2008).

Not only imprisonment and fine, but also the government or the company should seize all their assets, such as their big house, their luxury car, their wife and kids to make them really suffer from what they did. Since if they are charged and fined with corruption, these rich guys will think that is not a problem because what they need to do is just write a check. The best thing is to make sure that everyone knows that wrongdoings will be punished. Putting rich or famous people behind bars will make them look like a bad guy. If they lost everything even has no place to live, other people will learn from this scandal and say it is not worth to risk to corrupt.

Next way to prevent this scandal is to ensure to have strong and effective corporate governance in place. Corporate governance refers to the system by which companies are directed and controlled, including the roles of the board of directors, management, shareholders, and other stakeholders (Garratt 2003). Having good corporate governance will sets the right tone and proper stage for the company. It also ensures tighter accountability, honesty, transparency of board members and directors to their owners for their actions and counters corruption in the company and reinforces the movement to establish the rule of law. With an official position should not abuse their office and commit not to be self-serving. They should be paid sufficiently to do their job well without the temptation of bribery or greed. For example, Singapore has the highest-paid government officials in the world and some of the lowest bribery and corruption levels (Farrow 2005).

A concept for any board is trust: trust in each other and being trusted by the owners and stakeholders, so directors need to assurance that they are all telling the truth, not working to a hidden agenda, and not having illegal or undeclared interests (Campling et al. 2008). They can't steal money from ordinary people and they can't operate in the vacuum because it affects all stakeholders and everybody as directors have got responsibilities to handle. Directors have a duty to and responsibility to, act honesty, so we need to reaffirm and apply laws on the existing duties, liabilities, roles and tasks of boards of directors. The simple way of handling abuse of office is to make the issue explicit to highlight any corrupt acts. Recently, the media have been stepping up their campaigns against corrupt business people (Farrow 2005). The company should acknowledge that the existing civil and criminal laws should be better enforced. Not just making it a criminal offense for directors who corrupt, also reinforcing the role and powers of auditors and strengthening the role of independent directors as oversees of the board performance.

Among the many problems of the Satyam scandal has been the role of independent directors. Therefore, a selection committee to choose independent directors, mandatory training, performance assessments, limit on directorships and compulsory attendance of Board meetings, CEO/Board chair segregation and number of independent directors are the right step to need to be done to ensure that the independent directors have done their role properly and safeguard the interests of all stakeholders (Campling et al. 2008). For the board to work effectively, it is essential for the chairman to identify and optimize personal differences to be able to best deploy these personal power sources to achieve the company's purpose and to prevent the abuse of power by the achievement-greedy managing director or CEO (Garratt 2003). Chairman is technically neutral, therefore chairman need training for their role and at least annual assessment.

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For example, The UK is seen internationally as having led the field of corporate governance reform, director and board competence assessment and development. Also, UK government passed the legislation that bribery is illegal in UK now and it will become law this year 2010 (Macleod 2010). This legislation complies with the OECD anti-bribery commission and transparency website. As UK never have law that bribery is illegal before, so this law will be a strong message that UK will not tolerate bribery anymore. If you don't have a law, it means that you don't mind about bribery, that's why India has to have strong bribery law to raise more concern about this scandal.

With the legacy of the English legal system, India has one of the best corporate governance laws and investor protection, however, poor implementation together with soft enforcement is a major problem which has affected corporate governance (Chakrabarti et al. 2007). Ownership remains concentrated and family business groups continue to be the dominant business model. It is de facto norm that rich and powerful people must not be punished and even if they are charged the sentence should not be as hard as it will be for a not so rich person (Varun 2007). Boards of directors have frequently been silent and unable or unwilling to carry out their monitoring functions. A history of managing agency system and high level of corruption make corporate governance a big issue in India (Chakrabarti et al. 2007).

As in this Satyam case, one of the fallout is the issue of delays involved in enforcement of Indian corporate laws, therefore, the need is to enforce corporate laws in a transparent, accountability and action against corruption. Improvements are necessary in the enforcement of certain laws and regulations such as dealing with corruption as well as in dealing with violations of the Companies Act in India (Sahu 2009). The Sarbanes-Oxley legislation in the USA, the Cadbury Committee recommendations for European companies and the OECD principles of corporate governance are probably the best guidelines for India to improve corporate governance system to have adequate regulatory regime to ensure fairness, transparency and good practice. From this scandal, it is believed that corporate governance norms must be reformed ,for example, India has been reformed their directors' role and composition of the board, this can result in a well-balanced board of directors, proactive shareholders and fast action against wrongdoing could build up market confidence and stop corruption. However, while adopting the present model of corporate Governance, India should be careful that it is suitable for a country like India as problems in India are different and may require different solutions (Harikrishnan 2009).

Moreover, establishing minority shareholders' groups can also be the driver towards higher governance standards as individual shareholders can communicate and act collectively for taking up their concerns with the company's management. Also investors can take precautions before making investments by the criteria of consistent track record, transparency in dealings with stakeholders, disclosure of all relevant information and accountability (Farrow 2005).

Furthermore, company support is a great effort for maintaining high ethical standards in workplace which involve ethics training, whistleblower protection, formal codes of ethics and strong ethical cultures (Campling et al. 2008). Ethics training, in the form of structured programs to help people understand the ethical aspects of decision making, is designed to help people incorporate high ethical standards into their daily behaviour.

In addition, many workers become whistleblowers unintentionally when reporting workplace corruption. They face the risks of organisational retaliation and dismissal, therefore, there should have legal protection for them (Garratt 2003). For example, federal and state laws in countries such as Australia increasingly offer whistleblowers some defence against retaliatory discharge. Even with legal protection, potential whistleblowers may find it hard to expose unethical behaviour in the workplace, so some organisations have formally appointed staff members to serve as ethics advisers to help create shared commitments for people to work at their moral best (Campling et al. 2008).

Moreover, the organisation is another important influence on ethics in the workplace. The expectations and reinforcement provided by supervisors, peers and group norms affect an individual's decisions and actions. Formal policy statements and written rules are also very important in establishing an ethical climate for the organisation as a whole. Codes of ethics are written guidelines that state values and ethical standards intended to guide the behaviour of employees to avoid illegal or unethical acts in a person's work (Farrow 2005). They support and reinforce the organisational culture which can have a strong influence on member's ethical behaviours. Also, laws and regulations interpret social values to define appropriate behaviours and monitor and keep them within acceptable standards. The policy of 'zero tolerance' of corruption adopted by Commonwealth countries in 1999 is one example (Campling et al. 2008).

According to Satyam case, it gives a big question over the credibility of auditors so to prevent this scandal we can make sure by auditing or bringing auditor from somewhere else as these external auditors are not bias. External auditors owe a duty of due professional care when performing their work since they are accountable primarily to the stakeholders and secondarily to the company (Garratt 2003). External auditors need to establish credibility, honesty, ethical values, and integrity in delivering high-quality financial report. External auditors should act as gatekeepers in preventing or detecting their client organization's management wrongdoings. In order to certifying that the financial statements represent fairly the financial position of a company, the audit statement should also include an opinion on the way in which the financial statements have been prepared and presented (Campling et al. 2008). Also, auditors should be made accountable and consequences or punishment should follow if they ignore to perform their role properly.

In conclusion, this is a summary for this essay. No business can operate in vacuum; directors have responsibilities to all stakeholders. The main reason of people dishonest, especially why rich or successful people become corrupt including they can, they want to take risk, nobody will find out and other reasons such as greed and weak corporate governance. There are many ways that can be done to stop or prevent such scandal including severely punishment, criminal prosecution, making them really suffer, ensure to have good corporate governance, organisational culture, code of ethics, proactive roles of independent directors and shareholders, chairman, directors and auditors perform their duties honestly and other reasons. These all would help to keep a check on the internal processes of the company, make the company management more accountable and have potential to stop the unethical behaviour such as corruption in the future.

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