October 28, 2019 3:00:13 am
More than two years after N R Narayana Murthy, a founder of the software services firm Infosys, raised issues of transparency and disclosure and falling standards of governance which led to a conflict between him and the company’s board of directors and the exit of its then CEO, Vishal Sikka, fresh governance issues have cropped up. Early this month, the company disclosed that it had received two whistleblower complaints alleging disturbing malpractices, aggressive accounting policies and provision of selective information to the board by the CEO, Salil Parekh, and the CFO, Nilanjan Roy, aimed at boosting its bottomline in the near term. The company’s board has responded by bringing into play its internal and external auditors and also drafting in external legal support. That has not deterred a few US law firms from filing class-action suits in that country where Infosys American Depository Receipts or ADRs are listed and traded. The US Securities and Exchange Commission, too, plans to seek help from its Indian counterpart, Sebi, according to reports, highlighting the challenge ahead for what many investors perceive as a bellwether for a new India.
Although it is not yet clear how serious the complaints are, what is surprising is that the disclosure and a statement from the company came only some time after the whistleblower’s mail was first received on September 30. That raises more questions on the core issue of disclosure standards, especially when it comes to a company that has enjoyed a governance premium for the last couple of decades, something unique in the universe of listed Indian companies. This latest issue of corporate governance featuring a storied Indian firm comes at a time of economic downturn and unravelling of scams involving both promoters and senior managements in some other firms. That could lead to not just greater scrutiny of many corporate firms and value erosion but it could also potentially further undermine investor faith and trust with its impact on capital raising and investment. It is easy to revise corporate governance codes here too like in other jurisdictions and for policymakers and regulators to step in but as long as large institutional shareholders are found wanting, and in the absence of any major outrage on the part of shareholders, it may be futile to expect insiders or the entrenched set to change.
The famed global investor, Warren Buffet, believes that the best way to get fat cat corporations to change is to embarrass them. He may be right. But as Murthy said in an interview to this paper earlier, it is the responsibility of the rich, powerful and the elite, including corporate leaders, to keep hope alive and boost growth. Infosys and corporate India owe it to not just investors and other stakeholders but also the broader economy.
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