Corporate Misgovernance at Infosys: Time to import good practices?
Infosys, Asia’s 2nd best software services firm, has long been viewed as a “poster boy” of corporate governance. But for the second time in two years, the Indian IT giant is facing accusations of impropriety. This is a double whammy for the firm, as troubles are mounting during an increasingly challenging environment in its core business and at a time when the US administration is actively looking for reasons to demonize Indian IT services companies. Shares of Infosys tanked over 16% to Rs. 643 last week when an anonymous whistleblowers group called “Ethical Employees” accused the management of malpractices.
The major accusations are:
Bypass of appropriate review & approval processes on large billion-dollar deals with negligible margins
Suppression of such critical information from reaching auditors & board members
Non-adherence of accounting standards to boost short-term profitability
Pressure on treasury to boost other income by taking higher risks to boost the bottom line
Market is the boss
Reputation is such a fragile thing and the market is very unforgiving of companies that have corporate governance issues. The brewing crisis around Infosys is far from the only one to hit corporate India of late. PNB’s disclosed fraud, Kochhar-Videocon Case, Yes bank’s regulatory issues, PMC bank crisis and Sun Pharma's dealing with its subsidiary are few examples of corporate misgovernance destroying shareholders' wealth.
Conclusion
Given the company’s visibility on NASDAQ as well as the Indian stock exchanges and given the changing and challenging business environment for IT companies, it would not be an exaggeration to say that the entire IT story depends now on how Infosys demonstrates responsiveness and transparency to this complaint.