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Key Facts
Satyam was one of the most highly praised and awarded Indian IT companies to reach the US $1 billion in annual revenues. However, after years of international success, Satyam’s performance and reputation deteriorated when evidence of falsified accounts came to light. In 2008, the company was blacklisted by the World Bank on the grounds of theft and bribery. The following year, the price of corporate shares dropped from 178.95% to 39.95% in just one day after it became clear that the organization’s excellent governance and outstanding financial performance had only been a myth. As a result, the company suffered losses in multiple areas.
Key Issues
The identified problems in performance primarily stemmed from managerial and overall organizational factors that were largely associated with the failure to implement different principles of corporate governance and ethical conduct. In addition, the company failed to practice fair HR activities, for example, those related to the succession of executives. However, it is valid to say that the primary issue was a lack of transparency in communication. According to Parris, Dapko, Arnold, and Arnold (2016), the term “transparency” refers to the way an organization communicates with stakeholders, and transparent communication implies the revelation of data and information as they are, without whitewashing or trying to cover up any illegal and immoral activities or falsely boost credentials. Parris et al. (2016) assert that a lack of transparency leads to “dysfunctional relationships that result in moral dilemmas” (p. 223). This was one of the negative outcomes in the case of Satyam.
Another issue the company faced was associated with the responsibilities, roles, and appointment of independent directors in the organization. The case study mentioned how in many Indian companies, directors were nominated rather thoughtlessly and based on the candidates’ relation to their nominators instead of their professional eligibility and necessary qualifications. As a result, the board of directors at Satyam lacked diversity.
Researchers distinguish several dimensions of diversity: for example, demographic (age, gender, and more), task-related (such as educational background and professional experience), and psychological (attitudes, personal values, etc.; Bond & Haynes, 2014). Differences that result from personal styles and areas of expertise are easier to manage than those from demographic characteristics, and thus, they can be associated with more positive organizational dynamics as these factors do not directly relate to socio-demographic stereotypes (Bond & Haynes, 2014). However, demographic diversification of the workplace may be perceived positively by stakeholders and the global community as such, signifying that the firm is seeking to take the necessary measures to eliminate barriers to professional growth for members of specific social groups and improve job satisfaction. For example, it is possible to say that selecting independent directors from different backgrounds (genders and age groups, in particular) could help Satyam resolve performance issues more efficiently as well as foster innovation. Nevertheless, this approach can only work if Raju practices transparent communication and involves the directors in the current course of actual events in a timely manner.
This company’s case made a negative impact on the attitude of the global community toward the Indian outsourcing sector in general. Nevertheless, it is more important than after the company founder, Ramalinga Raju, made his confession, the perception of Satyam by stakeholders and the public became negative. As a consequence, the enterprise could no longer sustain partnerships nor retain clients. The incident negatively affected the company’s internal organizational environment, as well. Employee morale decreased, and as a result, the workers’ motivation and productivity declined. Furthermore, due to impaired image and reputation, the company may find it difficult to retain talent and a skilled workforce. It is apparent that without the ability to maintain relationships with both clients and employees, Satyam will fail to sustain its business, much less grow.
Alternative Courses of Action
Ethical Leadership Strategy
Leaders may be considered major contributors to the dissemination and incorporation of ethical values in organizational culture. Thus, it is vitally important to implement an ethical leadership strategy. Furthermore, professional behaviors practiced by superior management may determine the extent to which subordinates accept and comply with ethical principles in the workplace. Ethical leadership is defined as the “demonstration of normatively appropriate conduct through personal actions and interpersonal relationships and the promotion of such conduct to followers through two-way communication, reinforcement and decision making” (Waheed et al., 2018, p. 3). This means that in order to encourage staff members in an organization to maintain ethical standards, leaders should practice fairness in decision-making and develop trustful relationships with stakeholders.
The major constraints to implementing the identified course of action include a lack of well-developed communication and knowledge management systems as well as an excessively formalized organizational structure. For example, in large or growing enterprises, organizational processing, and work structures are usually conservative and overly formalized, allowing them to help control internal operations more efficiently. However, in environments associated with traditional hierarchies, reporting systems, and levels of subordination, opportunities for mutual leader-employee communication may be limited. To execute ethical leadership and foster positive changes in this context, it may be recommended for Satyam to use a knowledge management model that allows the dissemination of relevant and essential information through technologies and efficient governance of intellectual capital, which includes personnel, organization structure, and customers.
Workplace Diversification
Many obstacles to greater workplace diversification may be present at higher managerial levels in the organization. For example, representatives of minority groups can be exposed to discrimination and stereotyping. They can also feel insecure about applying for better jobs because of inefficiency in corporate training and skill preparation programs. Lastly, the company may simply ignore the practice of internal recruitment and employee promotion.
To deal with these constraints and effectively diversify the board of directors as well as the overall workplace environment, Satyam needs to implement adequate HR practices and design and enact new diversification policies. Moreover, the company should initiate training programs to address the problems of stereotyping, perceptional biases among coworkers and managers, and the isolation of representatives of minority groups. Additionally, Bond and Haynes (2014) suggest implementing accountability mechanisms to promote the establishment of “clear organizational structures and functional units responsible for tracking and achieving diverse representation,” such as diversity committees (p. 183). The creation of a unit responsible for policy-making and control of compliance can serve to show that the company welcomes diverse individuals at all organizational levels. It is possible to say that such a course of action can help resolve the problem involving the appointment of promoters’ friends and close associates as Satyam directors.
Evaluation of Alternatives
Ethical Leadership
As the information provided in the case study demonstrates, the absence of ethical conduct on the part of the leadership was the primary cause of the company’s downfall. Raju exercised power yet did not consider another important aspect of leadership—the integration of ethical values into the decision-making process. As an unethical leader, he harmed the whole enterprise by striving for personal advantage at the expense of the company and its employees (Huhtala, Kangas, Lämsä, & Feldt, 2013). For this reason, the realization of an ethical leadership strategy is an appropriate remedy for restoring Satyam’s reputation.
The costs of the implementation of this strategy cannot compare to the losses and expenses induced due to the neglect of organizational ethics. As previously stated, after the confession letter was made public, the share price immediately dropped by 78%, some employees and board members resigned from the enterprise, and clients decided to terminate their relationships with the company. This situation compromised Satyam’s survival. Implementing ethical leadership may require investing some resources to develop an appropriate strategy and create a favorable environment along with tools for its realization (including the refinement of internal knowledge management systems). However, such a strategy can significantly benefit the company, leading to regaining a positive image and improving financial performance over time.
Additionally, as an outcome of the given course of action, the company’s overall corporate culture may improve, reducing employee turnover, which may help avoid the excess costs associated with recruiting a new workforce. This will mean that Satyam can gain multiple rewards after a shift toward more ethical leadership without facing any significant risks. Nevertheless, it is important to keep in mind the risk of resistance to change and the difficulties related to the scope of the problems the enterprise faces. It is possible to say that the feasibility of any plan for recovery will largely depend on the personal qualities of the newly appointed leader: the individual’s ability to communicate formulated objectives to employees and his or her unshakable adherence to such ethical principles as transparency and fairness. At the same time, it is important to avoid substantial barriers from technical, operational, and financial standpoints. The company may use its existing resources with only slight modifications to internal processes and regulations.
Workplace Diversification
The course of action under discussion mainly aims to tackle the problem of unspecified eligibility and qualification criteria for independent directors as per the Indian Companies Act and, as a consequence, the tendency of the enterprise’s management to prefer and appoint others similar to themselves. As stated by Jurevicius (2013), pursuing fair HR practices and workforce diversification policies allows developing and maintaining the organizational capacity for innovation and improvement. These practices may highly benefit Satyam through the creation of additional organizational values, demonstrating to the public that the company understands and employs the core principles of corporate social responsibility. An expected favorable outcome of this course of action is the enhancement of the company’s image, as well as its ability to attract customers, partners, and talents.
As in the case of an ethical leadership strategy, this solution does not necessarily require any massive investment except for time, personnel, and the funds needed to evaluate and reorganize internal processes and regulations. The investment can then be cemented by communicating the change and new values to subordinates. Therefore, this solution is feasible from multiple standpoints. However, if Satyam should decide to initiate a diversification training course for managers and other employees, it should consider the risk of counterproductive results; a poorly developed educational course may demotivate employees instead of encouraging them to change. For example, many present-day training programs may convey negative messages as Dobbin and Kalev (2016) warn against, saying, “discriminate, and the company will pay the price” (para. 2). As a result, some participants can resist education and develop an even more hostile attitude toward other population groups. To handle this potential problem, it may be recommended to offer education and training on a voluntary basis and foster interaction among diverse employees through different educational measures, including mentorship programs.
Recommendation
It is possible to conclude that implementing an ethical leadership strategy is the best solution for Satyam at the current stage because such a strategy serves to address the most urgent problem requiring immediate action. Moreover, this plan is more comprehensive than merely focusing on workplace diversification and may consequently expand to include this alternative course of action. In fact, leadership support and well-integrated ethical and human values are essential prerequisites for workplace diversity. As Bond and Haynes (2014) note, “There are more problems with harassment [and discrimination] when leaders are seen as indifferent, passive, or even encouraging of sexist or racist behavior” (p. 182). For this reason, it is pivotal to start the organizational change by appointing an appropriate leader having all the necessary qualities to bring the formulated values to life, one who is dedicated to addressing current issues at Satyam in an ethical and accountable manner. Overall, ethical leadership that practices transparency will naturally aim to demonstrate corporate integrity and goodwill. This implies an open discussion of issues that are usually left hidden. Therefore, ethical conduct and transparency may be regarded as an ideal approach to build stakeholder trust.
References
Bond, M. A., & Haynes, M. C. (2014). Workplace diversity: A social-ecological framework and policy implications. Social Issues & Policy Review, 8(1), 167-201.
Dobbin, F., & Kalev, A. (2016). Why diversity programs fail.Harvard Business Review. Web.
Huhtala, M., Kangas, M., Lämsä, A. M., & Feldt, T. (2013). Ethical managers in ethical organisations? The leadership-culture connection among Finnish managers. Leadership & Organization Development Journal, 34(3), 250-270.
Jurevicius, O. (2013). Value chain analysis.Strategic Management Insight. Web.
Parris, D. L., Dapko, J. L., Arnold, R. W., & Arnold, D. (2016). Exploring transparency: A new framework for responsible business management. Management Decision, 54(1), 222-247.
Waheed, Z., Hussin, S., Khan, M., Ghavifekr, S., & Bahadur, W. (2018). Ethical leadership and change: A qualitative comparative study in selected Malaysian transformed schools.Educational Management Administration & Leadership, 1-16. Web.
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