Infosys under ethical lens
Infosys Technologies is considered by many as the bellwether for India's burgeoning IT sector.
Infosys Technologies is considered by many as the bellwether for India's burgeoning IT sector. The software major has been given this honour not because it's India's biggest information technology company.
Diversified conglomerate Tata Group's cash cow Tata Consultancy Services (TCS) is the country's largest IT company while Infosys stands at second place. But Infosys has its own aura. There is a valid reason for that.
This Bengaluru-based IT major has been founded by seven people with modest financial background nearly 38 years ago. In those days, entrepreneurial space was the sole preserve of rich and wealthy.
The seven founders led by N R Narayana Murthy, the popular face of Infosys, established it with a modest investment and nurtured it into a world-class software company.
It is no exaggeration to say that Murthy and other co-founders of Infosys are among the few who sowed the seeds of entrepreneurship in the country.
And they pride on the ethical values that they had inculcated into Infosys. But these values seem to be under threat now with Infosys landing in one crisis after another in recent times.
Nearly two years ago, Infosys landed in crisis after some of founders found fault with the then CEO Vishal Sikka for offering high severance package to some employees and for increasing his salary. There was also a controversy over acquisition of an Israeli company. As result, Vishal Sikka resigned in August 2017.
The software major plunged into yet another crisis on Monday when a whistleblower letter that levelled allegations of unethical practices against the company's Chief Executive Officer Salil Parekh and Chief Financial Officer Nilanjan Roy, surfaced. The impact was immediate.
Infosys stock nosedived 16.21 per cent to Rs 643.30 on the BSE. The scrip witnessed such a sharp fall for the first time after 2013. In the process, the company's market capitalisation was down by a whopping Rs 53,451 crore.
However, the allegations against Infosys management are as severe as the drastic fall in scrip price. The whistleblower letter dated September 30 and signed by those who dubbed themselves as ethical employees claimed that the CEO-CFO duo indulged in unethical practices to shore up revenues and profits of the company through irregular accounting.
It was further alleged that the duo engaged in forced revenue recognition from large contracts and were responsible for the signing of several contracts by the company, which would not offer any margins.
Inflating performance numbers is not new to Indian corporate world. Classic example is Hyderabad-based Satyam Computers whose founder B Ramalinga Raju inflated the company's reserves and fudged accounts.
This eventually turned out to be India's biggest corporate scam, now popular as Satyam scam. It is too early to say whether allegations levelled by whistleblowers against Infosys management are true.
It is good that Infosys has ordered a probe into the issue. However, the software major will land in a big crisis if these allegations come true.
That will leave a huge impact on India's corporate sector. It's time the Indian government takes measures to keep constant vigil on listed corporates and the financial results they announce.
Otherwise, all stakeholders including stock market investors will stand to lose heavily. And India's image will also take a beating.