The hullabaloo surrounding Infosys in the recent past may be a case of smoke without any fire, according to the proxy advisory Stakeholders Empowerment Services (SES).
In a report released on Monday, SES has said it disagrees with Infosys’ founders, particularly with NR Narayana Murthy, on corporate governance lapses at the IT major.
Last month, Murthy and two co-founders Nandan Nilekani and S Gopalakrishnan had raised concerns with Infosys’ board about the sharp hike in compensation to the company’s CEO Vishal Sikka and the large severance pay given to its former CFO Rajiv Bansal and Chief Compliance Officer David Kennedy.
However, SES believes the pay packages in themselves do not prove weak corporate governance at the firm. The report said that “SES does not find any issue as far as the quantum of remuneration is concerned due to the fact that the remuneration consists of low fixed components and large variable pay component, based on performance milestones. Such remuneration package which are deferred and performance-based are in fact good governance practice. Further shareholders approved this with majority, therefore concerns raised by founders at this stage have no meaning in corporate democracy.”
On the allegations that the former C-suite executives were paid “hush money” via their high severance pay, SES disagreed on this count as well. The agreement with the former executives contained a clause that “the person concerned was free to disclose any or all information to a regulatory authority, whether it is the SEC or SEBI.”
However, the board’s justification for the extremely high pay packages – ₹17.38 crore to Bansal and about ₹6 crore to Kennedy – that the it was on account of “non-compete fee and as discouragement to use unpublished price-sensitive information (UPSI)” did not hold water. SES argued that a payment for UPSI was not necessary since employees are anyway prohibited from trading on such information by SEBI’s insider trading regulations. Any breach of trust by the two former employees could have been proceeded against legally.
On every other count, SES has disagreed with the claims of the founders. Regarding mails by employees unhappy with the management at Infosys writing to Murthy, SES believes that Murthy, who does not hold a board position at the company, should have instead asked staff to approach the grievance or whistleblower committees. “Does it not weaken the leadership of CEO, when ex-directors, founders engage, actively or passively, in such acts of employees,” the report asked.
Regarding a supposed conflict of interest for Sikka in the acquisition of Israeli software company Panaya – one of the investors in Panaya was a former boss of Sikka’s at SAP – SES said that Sikka did not stand to gain personally from the deal. “Further, the valuations were checked by bankers from Deutsche Bank and an independent group as mentioned by Sikka in calls with analysts.”
Director appointmentOn the appointment of Punita Sinha as an independent director to Infosys’ board, SES found that that while her appointment itself was based entirely on her own merits, the fact that she was a politically-exposed person should have been disclosed to shareholders as good governance practice, even though it is not required by law. Sinha is the wife of Union Minister Jayant Sinha.