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    View: Don't jump the gun in Infosys governance row

    Synopsis

    It’s best to leave the determination of Infosys governance issue to the investigation that’s already underway. However, one point is clear. It is in the interest of all stakeholders that a company appropriately verifies any whistle-blower complaint, prior to making a disclosure. A premature disclosure goes against the principles of good corporate governance.

    ET CONTRIBUTORS
    By Rishikesha T Krishnan

    The first time I heard of Infosys was about 30 years ago. I was working in my father’s company at that time, and I attended a meeting organised by the Electronics and Computer Software Export Promotion Council at Bangalore to promote software exports. One of the key speakers was a bespectacled man with a professorial air who was relatively unknown at that time, but who would, in the course of time, become one of the icons of Indian business: N R Narayana Murthy.

    He spoke with a passionate air, was clearly enthused by what he saw as the prospects for India in an emerging industry, but was equally forthright about the policy constraints that at the time held back companies from achieving their full potential.

    Over the years, Infosys would become symbolic of a new India, earning its reputation and heft through the quality of the services it offered, rather than the wealth and privilege inherited by its owners. It prided itself on the quality of its disclosures and the standards it set for corporate governance. This endeared it to foreign investors. The typical Infosys annual report was twice as thick as that of other companies and filled with tables of data well beyond the requirements of law.

    With this background, it’s indeed a surprise to see Infosys in the news under a corporate governance cloud. While there was an earlier round of governance controversies that resulted in the exit of the first non-founder CEO of the company, and the return of one of the original founders in the nonexecutive chairman’s role, this time it is particularly surprising because, after the last round, it seemed clear that the company was committed to get back its mojo.

    Chairman Nandan Nilekani emphasised on a number of occasions that Infosys was keen to return to its prior status as an otherwise ‘dull and boring company’, where excitement was created by the quality of performance and results rather than managerial announcements or controversies. As one of the co-founders of Infosys, and the father of India’s universal digital identity system, Aadhaar, Nilekani is one of the most respected business leaders in India. How likely is it that egregious violations of basic corporate governance norms could happen under his watch?

    These thoughts made me give careful consideration to the present controversy. What I discovered was that those who have sought to paint Infosys in a bad light have jumped the gun.

    Infosys has had a whistle-blower policy in place for years. And it functions as it is designed to. As Nilekani told analysts during a recent meeting, Infosys has received whistle-blower complaints in the past as well, and all such complaints are considered by the board’s audit committee. Complaints of a specific nature are, in turn, subject to a preliminary investigation to check whether they really have substance. If they do, then a detailed investigation is undertaken and action taken against those who have violated governance policies. Necessary disclosures are made when a complaint warrants such disclosure.

    The key point is that a complaint does not imply wrongdoing. Governance violations can only be established after an investigation. Did Infosys consider the whistle-blower complaints promptly? It appears so. The complaints made in end-September were considered by the audit committee in its meeting on October 10. Did this happen suo motu, or did Infosys wait for external pressure to look into the complaints? By all evidence available in the public domain, Infosys acted on its own.

    Is there substance in the complaints themselves? It’s best to leave the determination of this to the investigation that’s already underway. However, one point is clear. It is in the interest of all stakeholders that a company appropriately verifies any whistle-blower complaint, prior to making a disclosure. A premature disclosure, without such a first-level verification, goes against the principles of good corporate governance. Policies for recognising revenue, or allocation of costs, are legitimate areas for discussion between management and auditors. It would be unfair to say that the company has indulged in governance violations just because such discussions took place.

    India’s software industry is one of our outstanding success stories. Building such engines of growth is very hard, but pulling them down is relatively easy. We must resist the temptation to get carried away by the cynicism of our times to undermine some of our brightest stars. We must give Nilekani and the board of Infosys a fair chance to have an objective investigation of the whistle-blower complaints undertaken before we pass judgement on the company.

    The writer is professor of strategy, Indian Institute of Management (IIM), Bangalore.
    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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    10 Comments on this Story

    Nielrathi381 days ago
    Very logical and fair points. Totally agree. Vested interest should not be allowed to dent Indian IT industry reputation.
    Nari Kannan381 days ago
    Ethics are what you do when no one is watching and especially when things are not so good. When the IT industry was growing by leaps and bounds disclosures in thick annual reports is a breeze. IT Services changing fast and slowing down is when you really show yourself for what you are.
    Kanakasabhai Natarajan381 days ago
    Quite fair but it is the media and funds that sell shares resulting in a crash to make money. Whistleblowers complaint shouldn’t be published unless investigation is complete.
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