Infosys could be in the unenviable position of parting ways with Chief Executive Officer Salil Parekh and the finance chief Nilanjan Roy if the whistleblowers’ allegations of corporate misgovernance prove to be substantially true.
Current and former senior executives of Infosys as well as several analysts that Moneycontrol spoke to are convinced that the board headed by non-executive chairman Nandan Nilekani will not hesitate to replace Parekh if the evidence claimed by the whistleblowers' substantiates the allegations.
“If Salil and team are indeed found to have overlooked accounting practices for boosting short-term financial gains, then there will be no option but to set the example,” said a company insider who requested anonymity. “This company has taken tough decisions in the past as the departure of high-profile CEO Vishal Sikka showed.”
Sikka, a former SAP executive celebrated as a technology whiz, resigned from the Bengaluru-based IT services company in August 2017 after a public spat with cofounder N R Narayana Murthy over governance practices. Nilekani, who founded Infosys along with Murthy, was persuaded to return to the company and lend it a steadying hand, which he has done so far.
Infosys has appointed the law firm Shardul Amarchand Mangaldas to conduct an investigation, with Parekh and Roy being recused from the process. Separately, the US Securities and Exchange Commission has sought and obtained what the whistleblowers say are emails and recordings which prove their claims.
The whistleblower allegations were first reported by The Economic Times on Monday. Infosys’ share price on the National Stock Exchange has fallen by about 15.3% since Friday to Rs 650.35.
The whistleblowers say that the emails and voice recordings show that Parekh and Roy violated corporate governance norms and window-dressed accounts. In the main, these allegations include:
-Insistence that visa costs not be recognized. This move, apparently, was opposed by the auditors
-Instructions by the CEO and CFO not to share key information with the board and auditors
-Unauthorised personal claims by Parekh
-Pressure to change investment policy and accounting without informing the board or the auditors
Other than these, there are claims that billions of dollars in deals were signed with zero margins and that Parekh referred to two of the independent directors as ‘madrasis’ and one of them as a ‘diva.’
While loose talk or margin-dilutive contracts are not something that the board will worry too much about, deviations from the ethical norms that Infosys prides itself on will be fatal for Parekh.
“Infosys would do well to set the record straight and ask Parekh to move on if he’s indeed found guilty. That’s the Infosys I know,” said a former board member of Infosys requesting anonymity.
Company insiders said if at all there’s a top management shuffle, Infosys could look at the next generation leaders such as Mohit Joshi, who is currently the president of Infosys handling the key banking and financial services vertical in addition to other responsibilities.
“Mohit missed out during the last CEO transition because he was considered not ready for the job. That perception seems to have changed, and he’s looked at as the next in line,” said a company executive.
Some analysts raised concerns about the way the whistleblowers have gathered the evidence against Parekh and Roy. "This looks like a hatchet job, an elaborate setup. The larger question is how will the top brass trust anyone while having business as usual conversations," said an analyst at a Europe headquartered brokerage firm. "It's not unusual for any management to pushback the auditors and even the finance folks. But it's unfortunate that all this is on tape, making it difficult to live with," he added.
"I have no doubt the CEO and the CFO will have to go," added another executive requesting anonymity
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