Will the al­le­ga­tions of mis­con­duct at In­fosys be like WMDS in Iraq?

Mint ST - - MARK TO MARKET - 80 30 Au4 2016 Mo­bis Phili­pose mo­bis.p@livemint.com 30 Au4 2017

In a long-awaited call with an­a­lysts and in­vestors, In­fosys Ltd’s founder N.R. Narayana Murthy said, “Now, we can all sleep bet­ter know­ing that, un­der his (Nan­dan Nilekani’s) lead­er­ship, cor­po­rate gov­er­nance at In­fosys will be on par with the global best stan­dard.”

Some in­vestors, how­ever, are still a bit rest­less, as the higher-than-usual vol­umes on the stock’s counter sug­gest. Be­sides, the com­pany’s shares are still 9% lower since for­mer chief ex­ec­u­tive Vishal Sikka an­nounced his sud­den res­ig­na­tion. While things have been calmer since Nilekani’s ap­point­ment, in­vestors still have con­cerns and ques­tions.

In the two con­fer­ence calls with Nilekani soon after his ap­point­ment, an­a­lysts kept com­ing back to the al­le­ga­tions of poor cor­po­rate gov­er­nance un­der the pre­vi­ous regime, and whether the newly con­sti­tuted board would re­lease the in­ves­ti­ga­tion re­ports Murthy has been ask­ing for. The new chair­man was non-com­mit­tal.

An analyst at a multi­na­tional bro­ker­age firm, who at­tended both Nilekani’s and Murthy’s calls, said their tone and choice of words sug­gested they want to move for­ward, rather than in­sist on pre­vi­ous de­mands such as the re­lease of the in­ves­ti­ga­tion re­ports. But con­sid­er­ing all the bad blood that has flowed be­tween Murthy and the pre­vi­ous board, these issues can’t just be brushed un­der the car­pet.

If the new board now stays com­pletely silent about the con­tents of the in­ves­ti­ga­tion re­ports, it will ac­cen­tu­ate con­cerns that the founders put the com­pany in a state of flux for no good rea­son. This will be akin to the strug­gle of the US in prov­ing that Iraq in­deed had weapons of mass de­struc­tion (WMDS) hid­den, in or­der to de­fend its de­ci­sion to in­vade the coun­try.

But un­like the US and its search for WMDS, In­fosys is in a far more pre­car­i­ous sit­u­a­tion, best de­scribed as “damned if you do, damned if you don’t”.

Ab­hi­ram Eleswarapu of BNP Paribas put it suc­cinctly in one of the calls with Nilekani: If the new chair­man doesn’t find any­thing un­to­ward after in­ves­ti­gat­ing the al­le­ga­tions against the pre­vi­ous board and man­age­ment, then it would mean that the dis­rup­tions by the founders had no good rea­sons to start with. But even if he does find merit in the al­le­ga­tions, it will just reaf­firm con­cerns that one set of share­hold­ers is more privy to in­for­ma­tion re­lated to the com­pany than oth­ers.

Need­less to say, an ad­mis­sion of wrong­do­ing will also bring with it re­lated le­gal and reg­u­la­tory con­se­quences. In short, In­fosys is not in a pretty place. Murthy might be able to sleep easy be­cause a co­founder is at the top again. But, iron­i­cally, that’s suf­fi­cient rea­son for in­vestors to be wor­ried (see bit.ly/2gpupfi). The fact that some in­vestors are still ner­vous is un­der­stand­able.

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