FORMER Sebi Director and an avid market watcher JN Gupta today raised questions whether the allegations of unethical practices against company CEO Salil Parekh and CFO Nilanjan Roy were genuine or orchestrated to target top executives.
“If you remember last time, NR Narayana Murthy was so much critical about the company board. After the assumption of Nandan Nilekani as company chairman, Murthy has neither criticised the board, nor pressed for its reconstitution as he did when he was at loggerheads with the then board chairman R Seshasayee.
If this is the case, it must be asked if the previous as well as the current lack of governance issues are orchestrated or genuine,” Gupta told NFAPost.com.
Murthy, in 2017, had a long battle with Seshasayee and was very critical about the functioning of the board and quite vocal about its reconstitution, which he felt was required to set matters right at the company he founded.
However, after Nilekani’s assumption, Murthy neither made public his ire against the board, nor demanded its reconstitution.
In a fresh bout of allegations, Parekh and Roy have been accused of unethical practices to boost profits after a whistleblower’s group, called Ethical Employees, reportedly sent a complaint letter to the US Securities and Exchange Commission and the Infosys board against them.
The employees alleged that Parekh and Roy were resorting to unethical practices for many quarters, as evident from the e-mails and voice recordings of their conversations.
They also said they were in possession of voice recordings of the conversations on they being asked not to fully recognise costs like visa costs to improve profits in the last quarter (July-September).
They also claimed that the management put immense pressure on them to not recognise reversals of $50 million upfront payment in the Fixed Depository Receipts contract in the quarter under review of fiscal 2020 because such a move would reduce profits for the quarter and negatively affect the company’s stock price.
The employees alleged that critical information was hidden from auditors as well as the board.
This also brings to the fore a relook into the issue of attaching earnings of top executives with quarter-on-quarter targets set by the management, which compels them to resort to such malpractises, Gupta said.
“Is this linking of top executives’ earnings with targets set by management good or bad? If it is leading to top executives indulging in unethical practises, then it is time to relook into the issue,” he said.
In a damage control move, Infosys has initiated a thorough probe into the allegations and has recused Parekh and to ensure impartial investigation.
In a statement, Nilekani said the company had taken appropriate actions after the complaints had surfaced in September.
He also said two complaints were made by the employees and placed before the Infosys audit committee and its non-executive members.
“One board member received two anonymous complaints on September 30, 2019, one dated September 20, 2019, titled ‘Disturbing unethical practices’ and the second updated with the title, ‘Whistleblower Complaint’,” he added.
As per the whistleblower practice, Infosys placed “both complaints before the audit committee on October 10, 2019, and before the non-executive members of the Board on October 11, 2019, Nilekani said.
Additionally, on October 16, Nilekani said the company was made aware of a letter dated October 3, which was purportedly written to the Office of Whistleblower protection program, Washington D.C.
“This letter refers to the September 20, 2019 complaint, and to emails and voice recordings in support of the allegations. Although we have not been provided any of the emails or voice recordings, we will ensure that the generalized allegations are investigated to the fullest extent,” he said.
Post the Board Meeting of October 11, 2019 the Audit Committee began consultation with the independent internal auditors (Ernst & Young) on terms of reference for their prima facie investigation, Nilekani said.
The Audit Committee has retained the law firm of Shardul Amarchand Mangaldas & Co (October 21, 2019), to conduct an independent investigation, he said.
“The Board, in consultation with the Audit Committee, will take such steps as may be appropriate based on the outcome of the investigation. Our statutory auditors, Deloitte, India have also been completely updated on this matter post the Board meeting of October 11, 2019,” he added.
The employees also alleged Parekh calling independent directors D Sundaram and DN Prahlad as Madrasis, a slur often used to mock those from southern states.
They also accused Parekh for referring to Biocon chairperson Kiran Mazumdar-Shaw, a lead independent director on the 10-member Infosys board, as a diva.
“The CEO told us, ‘No one on the board understands these things, they are happy as long as the share price is up. Those two Madrasis (Sundaram and Prahlad) and diva (Kiran Mazumdar-Shaw) make silly points, you just nod and ignore them’,” the employees recalled.
Earlier, Infosys share price had opened 16 per cent lower on BSE and NSE in the face of allegations against Parekh and Roy.