A corporate governance crisis at Infosys, again

Whatever else the whistleblower complaint in the case of Infosys tells us (or not), what one cannot miss is the strain between the management team and some senior, and probably key, managers and leaders who have taken the risk to stand against the manner and style of operation of CEO Salil Parekh and those close to him. The strain, even if only on style, are by themselves enough to break the backbone of Infosys, the bellwether company which was once a story of entrepreneurial agility and integrity as India moved from license-control Raj to liberalisation. The complainants have, of course, raised more serious issues of financial reporting standards, keeping information from the board and bypassing a system of reviews and approvals for large deals, many with allegedly “nil margins.” There are juicy details, like the CEO asking the whistleblowers to ignore the “madrasis” on the board, who make “silly points.”

In short, this is a crisis of governance alongside a possible clash of cultures that tells us that Infosys is being torn apart from the inside. Infosys’ Monday statement to the National Stock Exchange that it has “no prima facie evidence…to corroborate any of the allegations” does not change this. The company also clarified that it is “not in a position to determine the concreteness, credibility and materiality of the anonymous complaints” but the complaints are still under investigation.

This is the second consecutive CEO to drive straight into a governance-related crisis at a company that is known to have set new and high standards of integrity – a fall that will eventually exact a toll far beyond the immediate crisis. And yet, quite shockingly, these huge rumblings within the organisation this time stayed within as they boiled and cooked and were tossed around in a pressure cooker till the whistle blew. There was no means other than this extreme step to call out what the complainants feel were steps in the wrong direction while reports outside glowed about new deals and double-digit growth for the fourth consecutive quarter.

This gap between what is showcased on the outside versus what the people on the inside see, sense and feel is one marker of organisations that are headed in the wrong direction. Here, it is good to recall a remark made in another context by Julio Ribeiro, who served as the Director General of Police in Punjab at the height of militancy there. Ribeiro said, “even your orderly knows who you are”, meaning those working closely with you know what really is happening and how the affairs are being conducted. That is the true import of the whistleblowers’ complaint, and whatever the technical merits of the violations, there is something seriously going wrong at Infosys.

This is not to jump to a conclusion on the allegations made before the formal inquiry ordered by Infosys and mandated by law is complete. We don’t know how the board will look at the CEO after that report and which way the class action suit in the US will move. But it is eventually a reflection of our times that even Infosys could not keep up the high standards that have made it the company that a generation of professionals once cited as a model of integrity and transparency. The simple but powerful message of one of the seven founders, N R Narayana Murthy, “when in doubt, disclose”, apparently is not in fashion any more. The whistleblower complaint itself was reported to the outside world 21 days after it was made, not a violation of any legal timeline but equally not within the strict ambit of Murthy’s mantra on disclosures.

There is a view that the allegations are not of a serious nature and that Infosys, in fact, must be more aggressive to keep pace and grow in a difficult market. Some derogatory remarks, or payments for the CEO’s personal flights to Mumbai and the US, or the CEO-led pressure that some costs not be recognised in a given quarter are not big-ticket violations, or so runs the argument.

In this view, a CEO leading a company with annual revenues of $11.8 billion in FY 2019 (Rs 82,675 crore), can’t be detained by this trivia. Yet, while the alleged violations may appear small in the scheme of things, they can be indicative of larger concerns.

On the other side, and to be fair to the CEO, one does not know the pressures he faced to show revenues in an intensely competitive market which is also going through a difficult time just now. But then, isn’t a CEO supposed to be able to work with just these pressures, and if he cannot, then that might itself disqualify him from the job.

Further, the CEO has clearly been unable to take on board views that do not sync with his approaches and is therefore driving ahead unmindful of the flags that others have raised or were seeking to raise.

This is equally a governance issue, though it might not fall into the strict section of a particular law. It is not enough to know how to drive and have a driving licence. It is equally important to heed the signals being sent out by co-drivers if one is not to crash at the next turn. If this CEO (or CFO) is a fast racer on a track known for rather careful and conservative drivers, then the mismatch is a recipe for disaster.

In sum, the complaint raises important questions that will be difficult for Infosys to brush aside and carry on with business as usual. Even if the hump is crossed and the CEO stays, a lot will have to change within Infosys if it has to get back some of its sheen.

 

(The writer is a journalist and a faculty member at SPJIMR) (Through: The Billion Press)

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