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Cognizant bribery: The case that'll either tarnish L&T's name or burnish its fame

The reputation that L&T enjoys has ensured that there is no knee-jerk reaction. But that won't last forever.

, ET Bureau|
Updated: Mar 14, 2019, 11.21 AM IST
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The brand equity that L&T enjoys has ensured that there is no knee-jerk reaction to the Cognizant bribery charges.
MUMBAI: Larsen & Toubro’s image with customers hinges on a transparent probe into its alleged involvement in the Cognizant bribery case, as India’s biggest engineering group expands its business to cement its credentials as a global technology leader.

L&T has said that its audit committee would get an external expert to probe the bribery allegations that came to light after US-based Cognizant Technology Solutions Corp agreed to pay $25 million to the US Security and Exchange Commission (SEC) to settle such charges in India, where L&T is alleged to have helped the software company. L&T did not respond to ET’s query.

The Mumbai-based company had said earlier that the audit committee of the management-initiated investigation was conducted by leading law firms in the US and India, with the help of forensic experts from Hong Kong in 2017. L&T said that there was no evidence of the involvement of the company or any of its executives, but it would get an external expert on board to decide on the future course of action. Experts believe that transparency and accountability in this context could help the brand L&T in the long term.

Until then, the onus appears to be on L&T to re-establish its credentials, said brand and governance experts.

“If business leaders like L&T succumb to pressures and indulge in unethical practices, it means a loss of reputation for the company but there are other consequential impacts and financial risks too,” said Kavil Ramachandran, Executive Director, Thomas Schmidheiny Centre for Family Enterprise at the International School of Business, Hyderabad. “Business leaders have the responsibility of setting benchmarks and bringing about positive change. This is an unfortunate incident. If you get the reputation of paying bribes, even if it is for a customer, where does one draw the line? It gives the wrong signal to customers too that you are ready to do anything.”

Industry officials talk in hushed tones about the ‘known secret’ that international companies often get Indian partners to pay bribes to speed up approvals from local agencies, and that the amount is factored into the billing to the contractors. It’s a win-win for both because the international company doesn’t get its hand dirty, while the Indian partner can go ahead with the project.

The brand equity that L&T enjoys has ensured that there is no knee-jerk reaction to the Cognizant bribery charges. ET spoke to equity analysts who said they would not put this down as a risk factor just yet.

Shares of the company have remained unaffected. In fact, Larsen & Toubro has gained almost 11% on the bourses, compared with a 5% advance for the BSE Sensex, since the news broke last month.

L&T has, in the past, faced a few allegations of alleged transgressions.

“The L&T brand has an enormous equity as it is seen as a ‘nation builder’ and rightfully so, it doesn’t have any baggage and at this stage, it will get the benefit of doubt,” said Alpana Parida, managing director at brand consultant DY Works.
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