The IT major Infosys’ dramatic meltdown after a whistleblower alleged questionable accounting practices, laying the company open to a potentially damaging class action suit in the United States, couldn’t come at a worse time for the country’s second highest software exporter. Or, for that matter, the Indian economy, hit by an unprecedented slowdown, facing one financial crisis after another, with the latest corporate fraud disclosure coming from the Punjab and Maharashtra Co-operative (PMC) Bank.
Infy stocks have crashed, and its 9.19 lakh shareholders lost Rs 52,922.18 crore — that’s a wipeout of roughly US$ 7 billion — in one day, with market capitalisation dipping from Rs 3.28 lakh crore to Rs 2.75 lakh crore.
Infosys chairman and co-founder Nandan Nilekani has stepped in to institute an in-house inquiry into the matter, keeping both CEO Salil Parikh and Chief Financial Officer Nilanjan Roy, the two men accused of indulging in “unethical practices to boost short-term revenue and profits”, and whose conduct will be the primary focus of the inquiry, out of the investigation. And while that is the correct thing to do, IT insiders have raised questions on the ambit of the Infosys’ Audit Committee and whether it will go far enough.
Second, in a sign that the company may have been slow to tackle the issue head-on, it took Infosys a full month since the whistleblowers sent the letter to the company’s board on September 20 to institute an inquiry by an independent body, with some reporting it was not the first such complaint that the whistleblowers had made over the last two years. The company has also now admitted that it is in receipt of a further complaint dated October 3, which was written to the Office of the Whistleblower Protection Programme in the US.
If anything, this is an indication that in this reprise of 2017, few lessons had been learned from the setback two years ago when its then CEO Vishal Sikka stood accused of alleged irregularities in a $200 million acquisition that finally saw founder Narayana Murthy step in and ultimately force Mr Sikka to leave, albeit with no charges ever being proven.
Clearly, the whistleblowers’ accusations of impropriety against Mr Parekh and Mr Roy, for the second time in as many years, in a company that is synonymous with the IT boom in this southern tech hub could not have come at a worse time for Infosys, trying to keep one step ahead of younger and more nimble-footed rivals.
The whistleblowers’ allegations of impropriety against Mr Parekh, who allegedly insisted that employees inflate profits on large deals as well as his own travel bills — none of which Mr Parekh has responded to, and is unlikely to, given Mr Nilekani’s tampdown on comment on the matter — is a signal that Asia’s second biggest software exporter, should have acted faster on the many complaints sent to it, since Mr Parekh took over in January 2018.
Infosys founders, once a byword for financial probity, must clean house. Or go the way of outsourcing firm Satyam Computers, and its Rs 7,000 crore accounting scam of 2009.