The largest corporate fraud in India: Satyam Computer Services Limited

Abstract

This paper examines the largest corporate fraud in India at Satyam Computer Services Ltd. This fiasco occurred in January 2009 when Mr. Ramalinga Raju, the Chairman, confessed to an extensive accounting fraud that was ongoing for at least seven years. Since then, a large number of articles have been written on this subject. Most of this research has blamed the board of directors and independent auditors of Satyam for this fraud. While this paper does not defend or blame the auditors as their role is being investigated at this point, we argued that independent directors were following their roles as they saw it. We provide evidence that the directors raised objections at the questionable transactions. However, they viewed their role as ‘strategic advisors’ and not as ‘watchdogs’. We recommend that Indian regulatory framework needs to be strengthened and the roles of independent directors need to be clearly defined to prevent such frauds. The early examinations suggest that auditors at Satyam colluded with Mr. Raju in this fraud. We provide the shortcomings of the Indian auditing industry and argued that this industry is fragmented and needs consolidation. We provide recommendations to improve the auditing infrastructure in India that will enhance the corporate governance mechanism. This paper contributes to the literature by documenting Satyam’s fraud and arguing for the independent directors.