Infosys to probe whistle-blower charges
To look into allegations that $200-million Panaya deal was significantly overvalued
Infosys will investigate a whistle-blower’s charges on the acquisition of Panaya, an Israeli company, even as the information technology major’s Chief Executive Officer (CEO) Vishal Sikka hit out at detractors for making “false and malicious” charges against him. He said they were designed to target him to “the point of harassment”.
In a strongly-worded email to employees, Sikka said reports questioning the company’s acquisition of Panaya were “orchestrated by people who are hell-bent on harming the reputation of the company and its employees”. He claimed there was “no wrongdoing” in the acquisition, and the company would defend the allegations. The company on Monday denied that the management benefited from the acquisition, saying they were “libellous and aimed at tarnishing the (company’s) image”. “Infosys has a strong, established internal process to evaluate acquisition targets and make investments. In the case of Panaya, all the requisite steps in this process were followed. The letter alleges Infosys acquired Panaya at a 25 per cent margin to the valuation of Series-E investor that came in on January 8, 2015. It should be noted that the Series-E investor was a minority shareholder (less than 15 per cent) and was towards preferred stock, whereas Infosys’ acquisition in Panaya is for 100 per cent stake,” the company stated.
“Regardless of the malicious intent of this anonymous letter, the company will pursue its normal course of action and investigate the charges made,” it added.
Two weeks ago, Infosys founders led by N R Narayana Murthy, had raised a red flag over severance pay to former chief financial officer Rajiv Bansal, saying that the company violated corporate governance norms. While Murthy and the board decided not to further discuss the issue in public, the Infosys co-founder maintained that his concerns remained.
Sikka reached out to Infosys’ employees for a third time on Monday, after the fresh allegations were made on illegalities in the Panaya acquisition, which Bansal had opposed. Sikka maintained he was being targeted because he was bringing changes to Infosys, adding these distractions were expensive, draining and time-consuming.
“Change is never easy, and change at the scale that we are undertaking may be unprecedented, and perhaps it is this change that has so inflamed some into trying to drag us all into the mud. And yet, change we must,” Sikka wrote. “There is no other way.”
The fresh statements came after an anonymous whistle-blower wrote to the Securities and Exchange Board of India, saying Infosys overpaid for the Panaya deal and that Bansal had walked out of a meeting called to approve the Israeli firm’s acquisition by the board.
The whistle-blower’s letter stated, “Infosys acquired Panaya on February 16, 2015, for $200 million and valued the company at 25 per cent premium against the valuation of $162 million by Series-E investors”, a month before the deal. Panaya was struggling to raise money and employees were leaving the company, the complainant wrote.
“As we’ve said publicly before, we take every whistle-blower’s complaint very seriously, and there is due process to investigate any complaint that comes to us. However, there is no doubt that these attacks are orchestrated by people who are hell-bent on harming the reputation of the company, and its employees. We cannot let these stand unchallenged,” wrote Sikka.
THE ALLEGATIONS ARE DESIGNED TO TARGET ME TO THE POINT OF HARASSMENT” VISHAL SIKKA CEO, Infosys
nfosys’ decision to probe the charges made by a whistleblower regarding the acquisition of Israeli technology company Panaya is welcome. In fact, doubts over governance ethics in Infosys have reached a point where stakeholders need the company’s board to provide convincing explanations on the controversies raised by the company’s founders a couple of weeks ago. The whistle-blower’s letter, sent over the weekend to the Securities and Exchange Board of India and selected newspapers, suggests that there is more to the acquisition of Panaya and Chief Financial Officer Rajiv Bansal’s departure than meets even the uninterested eye. The founders, led by former Chief Mentor N R Narayana Murthy, had initially flagged their suspicions of the unusually high severance packages to Mr Bansal and a former compliance officer David Kennedy, as well as Chief Executive Officer Vishal Sikka’s increased salary package. The question of Mr Sikka’s salary appears to have receded once it became clear that it contained a significant degree of variable, performance-linked pay, but the controversy surrounding Mr Bansal’s severance pay and its links to the Panaya deal, the IT major’s second-largest acquisition, has grown.
No explanations were provided by the board on why the company committed to pay Mr Bansal ~17.38 crore (so far, ~5.2 crore has been paid) when he stepped down inOctober2015,consideringhisannualearningsinthepreviousfinancialyearhadbeen ~4.72croreandwhenthecompanyhadnotpaidseverancepackagestopreviousdeparting finance heads. The fact that the company chose to report Mr Bansal’s resignation many months later, in the annual report, does not enhance its claims to transparency. The board, filled with corporate stalwarts, also chose to change the severance pay rules of its management team only after the issue came to light last week and ahead of Mr Sikka’s address to shareholders. Independent director Rupa Kudva merely spoke of “lessons learnt”. From the board chairman, R Seshasayee, there have been expostulations of innocence that encouraged two founders to call for his resignation. From Jeffrey Lehman, head of the remuneration and nominations committee, there has been no public explanation. Indeed, the role of the entire board comes into question if the reporting around the whistle-blowers’ revelations is to be believed. Mr Bansal’s purported walk-out from a board meeting in February 2015, when members were asked to approve the Panaya deal, appears to lend some weight to Mr Murthy’s suggestion that his severance package may have been “hush money”.
Certainly, explanations are required as to why Infosys paid $200 million for a company that had been valued at $162 million a month before by an investor who had bought a 12.3 per cent stake. Also, was any link between Hasso Plattner, cofounder of SAP and an 8.33 per cent shareholder in Panaya, and Mr Sikka, a former member of SAP’s executive board, disclosed and discussed? This is important, since the enhanced purchase price boosted Mr Plattner’s earnings by $17 million. Corporate boards in India have scarcely distinguished themselves in recent years, and Infosys seems to be hewing to that trend. Speaking to Infosys employees on Monday, Mr Sikka reiterated there were “no wrongdoings” in the acquisition of Panaya and the company would defend itself against the allegations. His performance so far suggests that he has been an asset for India’s second-largest IT services firm, which explains why the stock price has not suffered since the controversies erupted. But it will take more robust disclosures to convince clients and employees of the company’s governance norms. An inquiry is a good place to begin.