The ongoing crisis at the IT major, Infosys shows no signs of relenting even as the shares of the company slumped over 15 per cent. While stock markets were closed on Monday, the IT company witnessed a similar plunge of over 15 per cent in its American Depository Receipts (ADRs) listed at the New York Stock Exchange also. This is the biggest fall in the company’s shares at the stock market in over six years.
The stock market plunge was triggered by the an anonymous whistleblowers’ letter accusing the Chief Operating Officer (CEO) Salil Parekh and Chief Financial Officer (CFO) Nilanjan Roy of “unethical practices” at Infosys.
The catastrophic slump in the company’s shares at the stock market has panicked the Infosys shareholders and the crisis communication experts have recommended the IT firm to act immediately for effective damage control. Infosys Chairman Nandan Nilekani told the stock exchanges, in a statement, that presently the Infosys audit committee is looking into the letter sent by anonymous whistleblowers. He went into damage control mode and said that the company will provide a detailed summary of the investigation report at an appropriate time.
Nilekani’s statement read, “Because the investigation is ongoing, there will be no further comment so that investigation may be conducted in a thorough and objective manner. At the appropriate time, we will provide a summary of the investigation results. The Board is committed to uphold highest standard of corporate governance and protect the interests of all stakeholders.”
One of the Infosys board members received two anonymous letters dated September 30, 2019, and September 20, 2019. The letter dated September 20 has accused CEO Salil Parekh and CFO Nilanjan Roy of indulging in “unethical practices” for several quarters and also claimed that there is proof of such practices in the form of e-mails and voice recordings of their conversations.
The anonymous complaint has alleged Roy and Parekh of fudging financial data related to the company’s operations, including inflating profits in the recent quarters. The letter further alleged, “This quarter, there is a lot of pressure to not recognise reversals of $50 million upfront payment in FDR contract, which is against accounting practice.”
The anonymous complaint has also alleged that critical information has been withheld from the auditors and the board members. The letter stated, “In large contracts like Verizon, Intel and JVs in Japan, ABN Amro acquisition, revenue recognition matters are forced which are not as per accounting standards. We have emails and voice recordings and will share when investigators ask us. We are asked not to share large deal information with auditors.”
Both CFO and CEO allegedly asked the whistleblowers to “show more profits” in the treasury by taking up risks and changing policies. All this was done to increase short-term profits, they alleged.
The anonymous letter has also accused CEO Salil Parekh of passing racist and misogynistic remarks. The letter stated, “The CEO told us, ‘no one in the board understands these things. They are happy as long as the share price is up. These two Madrasis (Sundaram and Prahlad) and Diva (Kiran) make silly points. You just nod and ignore them.’ We have voice recordings of this.”
As per the directors’ profiles on the Infosys’ website, Prahlad has been associated with the IT major since its formative years and has played a key role in its rapid growth. Sundaram is the Vice Chairman & Managing Director of TVS Capital Funds Ltd. The Infosys website mentions that his experience spans corporate finance, business performance, monitoring operations, governance, mergers & acquisitions, talent/people management and strategy.
Kiran Mazumdar Shaw, Chairperson and Managing Director, Biocon Ltd. is also a prominent name associated with the Infosys. She is the lead independent director on the board of Infosys. She figured among the TIME magazine’s 100 most influential people in the world.
The shocking allegations of racism, sexism and profit inflation made by the latest anonymous whistleblower complaint has created a deep crisis within the Infosys, Asia’s second most valuable IT services firm. The company has been battling a series of whistleblower complaints over the last two years.
Trouble for Infosys is only mounting as the Securities and Exchange Board of India (SEBI) may soon seek a clarification from Infosys over the whistleblower complaint, and why the IT major did not share the whistleblower complaint dated September 30 with the stock exchanges.
Meanwhile, the company is now in damage control mode. CEO Salil Parekh and CFO Nilanjan Roy against whom accusations were made in the anonymous complaint have go on leave pending the ongoing investigations. Both the complaints have been placed before the audit committee and non-executive board members. Company Chairman Nilekani has assured that the investigations will be carried out in an objective manner.