Con­cerns Emerge Over Dis­clo­sure Norms at Infy

Any spe­cial treat­ment to founders would be a ‘vi­o­la­tion’ of norms, say gov­er­nance ex­perts; Sebi keep­ing ‘watch’

The Economic Times - - The Infosys Saga -

Jochelle Men­donca, Megha Man­davia & Reena Zachariah

Ben­galuru | Mum­bai: In­fosys’ trou­bles are rais­ing con­cerns that it is vi­o­lat­ing fair dis­clo­sure norms and could face an in­ves­ti­ga­tion by the Se­cu­ri­ties and Ex­change Board of In­dia (Sebi) about sev­er­ance pay be­ing used as hush money, say gov­er­nance ex­perts, a steep climb-down for a com­pany that used to pride it­self for its cor­po­rate gov­er­nance.

In­fosys’ iconic founder Narayana Murthy has said the amount of money paid to the out­go­ing CFO has given rise to con­cerns about whether it is used as ‘hush money’. And even more worrying is the sug­ges­tion of spe­cial chan­nels be­ing cre­ated for con­ver­sa­tions be­tween the man­age­ment, the board and the founders.

Last week, In­fosys said it had ap­pointed Cyril Amarc­hand Man­gal­das to for­mal­ize a process to re­ceive com­ments from its pro­mot­ers and key stake­hold­ers. “The com­pany can­not state that Cyril Amarc­hand Man­gal­das has been ap­pointed to open (a chan­nel of) com­mu­ni­ca­tion with the founders. If there is any com­mu­ni­ca­tion, other share­hold­ers would also like to know about it. And they have as much right as the founders to know,” Shri­ram Subra­ma­nian, founder of share­holder ad­vi­sory firm InGovern, told ET. He added that his was a con­cern un­der fair dis­clo­sure norms. For­eign port­fo­lio in­vestors own over 39% of In­fosys. Mu­tual funds own an­other 7.5%. Insurance com­pa­nies own 11.26%. The pro­moter group owns un­der 13%.

“The en­tire fair dis­clo­sure norms are so nu­anced that peo­ple for­get to look into it and pay heed to it. The com­pany is ob­li­gated to make dis­clo­sures to all share­hold­ers and not just the founders,” Subra­ma­nian said.

Subra­ma­nian pointed out that Sebi could also take suo moto no­tice of Murthy’s ‘hush money’ state­ment.

“We are watch­ing what is hap­pen­ing at In­fosys very closely. We are watch­ing out for developments,” a source at Sebi told ET.

In­fosys’ founders have pub­licly stated that gov­er­nance stan­dards at the com­pany have dropped, that CEO Vishal Sikka’s salary is too high and that they want to add new mem­bers to the board, in­clud­ing a co-chair­man. For­mer In­fosys ex­ec­u­tives V Balakr­ish­nan and TV Mo­han­das Pai have said that board chair­man R Se­shasayee should step down.

But de­spite be­ing a founder with an out­sized in­flu­ence, Murthy’s rights are lim­ited.

“His rights are lim­ited to those of a share­holder. He has no right to ap­point the head of nom­i­na­tion and re­mu­ner­a­tion com­mit­tee (NRC) as that is the job of the board. As a men­tor, he can give ad­vice but it is not bind­ing. A fa­ther can give ad­vice but it’s up to the son and daugh­ter to fol­low or not,” said JN Gupta, man­ag­ing direc­tor at proxy ad­vi­sory firm SES.

The shar­ing of in­for­ma­tion with pro­mot­ers through spe­cial chan­nels could also give rise to wor­ries about in­sider trad­ing. “Murthy can­not be a power cen­tre be­hind the cur­tain. Rather than hav­ing an un­der the cover con­trol, let the re­la­tion­ship be­tween the pro­mot­ers and board be in­sti­tu­tion­alised. With an un­der­tak­ing from pro­mot­ers that they can­not trade in shares,” Gupta said.

Roopa Kudva, in­de­pen­dent direc­tor at In­fosys, said the com­pany was very con­scious of dis­clo­sure norms and that there was no se­lec­tive shar­ing of in­for­ma­tion. “Cyril Amarc­hand Man­gal­das has been ap­pointed to re­ceive in­puts not to share in­for­ma­tion. They have been ap­pointed to stream­line the process of share­holder com­mu­ni­ca­tion. In­fosys is very par­tic­u­lar about shar­ing in­for­ma­tion se­lec­tively so the ques­tion about ask­ing the founders to sign a non-trad­ing agree­ment does not arise,” Kudva told ET.

ET has re­ported that, so far, the board is back­ing Se­shasayee. ET was also the first to re­port that Op­pen­heimerFunds, one of In­fosys’ largest in­sti­tu­tional in­vestors, had asked the board to “con­tain in­ap­pro­pri­ate in­ter­ven­tions by non-ex­ec­u­tive pro­mot­ers”.

Should the board not ac­cede to the founders’ de­mands, or even bring in a co-chair­man, the sit­u­a­tion could get even more messy. “If they don’t lis­ten, I think this could go to an ex­tra-or­di­nary gen­eral body meet­ing,” for­mer In­fosys CFO Mo­han­das Pai told ET.

But getting the vote at the EGM will not be easy. Ex­perts pointed out that though Tata Sons owned 73% of Tata Con­sul­tancy Ser­vices, about 40% of in­sti­tu­tional share­hold­ers voted against the res­o­lu­tion to re­move Cyrus Mistry as chair­man of the com­pany. At­tempts to bring for­mer In­fosys ex­ec­u­tives, close to the founders, to the board may also not be looked at kindly.

“It may back­fire for the rea­sons set out by Op­pen­heimer – which were couched in un­usu­ally strong lan­guage. Infy’s sig­nif­i­cant for­eign port­fo­lio in­vestor share­hold­ing may look askance at this prac­tice,” said Ran­jit Prakash, chief ex­ec­u­tive part­ner at Archeus Law.

The shar­ing of in­for­ma­tion with pro­mot­ers through spe­cial chan­nels could also give rise to wor­ries about in­sider trad­ing

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