Even as market regulator SEBI and the Bombay Stock Exchange sought clarifications from Infosys for not disclosing the whistleblower e-mail to the company alleging “unethical practices” by the CEO, Chief Executive Officer Salil Parekh and CFO Nilanjan Roy were questioned by the board about the charges.
While the two officers denied indulging in such practices, the board decided to probe the allegations and hired law firm Shardul Amarchand Mangaldas to carry out an independent inquiry. The probe will also cover past top management.
In a notice to Infosys, the BSE said the company has not made any disclosure under Regulation 30 of SEBI (LODR) Regulations, 2015, about the whistleblower, and sought clarification from the software major.
A whistleblower group, in a letter dated September 20, 2019 letter — first emailed to the Infosys board on September Sept 30 but with no response emailed to the US market regulator SEC on October 3 — charged the top brass with among other things 1. Boosting short-term profits and bypassing reviews and approvals for large deals; 2. Not fully recognising costs, including visa fees; 3. pressuring employees to not recognise reversals of upfront payment; 4. Hiding critical information from auditors and the board; 5. Not sharing full information with auditors and investors, and 6. Not following accounting standards in revenue recognition.
In a note to investors, Morgan Stanley said that the latest development will weigh on the stock. It said that over the last two years, since Salil Parekh took over as CEO, positive momentum has been building up again, but the latest development may put the stock’s performance at risk.
Podcast | Infosys whistleblower: What next for Salil Parekh?
“The stock has been the best performer YTD within the large-cap IT space primarily due to revenue growth rates being better than peers. However, the recent 2Q results were slightly disappointing as growth in BFSI and Retail (47 per cent of revenue) was soft and the company refrained from increasing the revenue growth guidance at the upper end. Hence, given the relative outperformance through this year and valuations above its historical average, we believe this new development could further weigh on the stock,” it said.
In its note, Jefferies said that as it awaits clarity from the management and more concrete evidence from the whistleblowers, the issue is likely to overhang on the stock in the near-term given that it raises questions about the credibility of the current management.
Timeline of internal corporate events impacting the stock price (Source Morgan Stanley):
Before the return of NR Narayan Murthy
March 2011: Jack Palmer files complaint against Infosys on visa irregularities
April: In leadership succession, S Gopalakrishnan named Co-Chairman of board and S D Shibulal CEO and Managing Director.
July: Reorganisation initiative completed with creation of four industry sector units and three service and innovation groups.
November: Infosys Technologies Limited Incorporated's motion in US court to complete arbitration is denied in the Jack Palmer case.
December: Jury trial set for August 20, 2012, before Judge Myron H.Thompson in the Jack Palmer case.
August 2012: Judgment favours Infosys Technologies Limited Incorporated and Infosys and against plaintiff Jack Palmer.
Key events from Jun-13 since NR Narayana Murthy took over as EC
June 2013: NR Narayana Murthy appointed Executive Chairman of board
October: Infosys reaches civil settlement with the US Government.
December: V Balakrishnan resigns and UB Pravin Rao is appointed as a full-time director
March 2014: Infosys issues a warning that FY14 revenue growth could be towards lower end of the guidance
March: Chandrashekhar Kakal, Senior Vice-President and Member of the Executive Council, resigns
March: Company decides to dissolve the Executive Council from April 1
June: Infosys names VishalSikka as the new CEO; decides to dissolve Executive Chairman's office
Key events during Vishal Sikka's tenure as CEO
February 2015: Infosys acquires Panaya
October: Rajiv Bansal resigns as CFO
May 2016: Proxy advisory firms and founders question severance pay, salary,and other benefits paid to Rajiv Bansal
February 2017: Whistleblower complains about Panaya acquisition
August: Vishal Sikka resigns as CEO
Key events during Salil Parikh's tenure as CEO
December 2017: Appointment of Salil Parekh as CEO
August 2018: MD Ranganath resigns as CFO
December: Appointment of Nilanjan Roy as CFO
October 2019: Jayesh Sanghrajka resigns as Deputy CFO.
October: Whistleblower complaint regarding Accounting Practices.