Infosys …Why did Board Chose stock market hours to announce the break?…

In the recent controversy surrounding the resignation of Mr Vishal Sikka as the CEO of Infosys, there was one intriguing aspect of how the Board handled the disclosure of the resignation. This itself is a matter which needs to be debated to understand the motives of different persons involved.

Infosys is known to be a Stock market sensitive Company and therefore it was surprising to note that its Directors decided to announce the resignation of Mr Vishal Sikka right during the Stock market hours on Friday the 18th August 2017. As a result the Infy shares tumbled more than 12 % subsequently before recovering a few percentages before close. However, investors suffered a huge loss in the process. Hence on 18th August 2017, shareholders of Infy lost Rs 22,519.50 crore after the sell-off triggered by Sikka’s unexpected resignation. The Infosys stock closed 9.6% lower from the previous close.

In Stock markets, one person’s loss is another person’s gain. Hence there are some persons collectively who have gained 22000 crores during the day.

As any prudent person would easily make out, the Board of Infosys showed extreme lack of sensitivity to the share holders of the Company and investors in general in making the announcement during the morning hours of Friday. If they had waited for few hours until the Indian markets closed and before the US markets opened, or for one full day, there would be much lesser damage to the share holders as the intervening week-end would have softened the blow.

The very fact that the Board decided to announce the resignation in the manner they did  was an indication that they perhaps wanted investors to lose and high drama to be created around the incident.

It was also uncharacteristic for any mature Company or Board members to come out with a vitriolic 6 page letter attacking Mr Narayana Murthy personally who is not only the founder of the Company but also a highly respected individual.

This showed that the Board was acting with a vengeance to discredit Mr Narayana Murthy and wanted the stock markets to fall as much as it could to dramatize the exist of Mr Vishal Sikka and blame Mr NRN for the investor’s losses.

This actually demonstrated that the Board Members were immature in their approach and gave in to their personal ego more than showing expertise in “Corporate Governance”. In the process they vindicated the charge of Mr Narayana Murthy that there was “Corporate Governance deficit” in the Board.

I wish SEBI conducts an enquiry as to understand if some persons made excessive profits due to the 10% fall in Infy shares yesterday and whether there was any possibility of insider trading.

If on some future date, Mr Nandan Nilekani comes back in some form to the Company, the shares will perhaps gain all its losses of yesterday. We need to see how the announcement would be made at that time to know if the Board learns a lesson.

As an independent observer and share holder, I am sorry to observe how the Board is treating Mr Murthy with disrespect which is meant to hurt his reputation and in the process exposing the insecure feeling of the Board members.

NRN’s doubts were legitimate

Mr Murthy’s concerns were genuine and Infy Board has been unable to explain the several controversies that indicated the possibility of imprudent decisions that siphoned off the share holder’s money. The Rajiv Bansal severence package, the Panaya deal , the Resignation of Ritika Suri, .

Additionally, Sikka’s use of chartered flights, appointment of Jayant Sinha’s wife to the Board, salary hike granted to Sikka himself, left many questions in the minds of public and more so with people like Mr Narayana Murthy.

Instead of addressing the issues squarely by being transparent, because the incident reflected on the integrity of the members of the Board more than Mr Vishal Sikka himself, the Board compounded the problems by trying to hide the internal investigation report on the whistle blower’s complaint under technicalities.

Any independent Corporate Fraud examination expert would read these symptoms as indications of possible cover up operation and possibly some hidden agenda to protect other board members.

Though the management may try to justify their actions and try to project as if Mr Narayana Murthy is responsible for all the ills, this will not carry any credibility with informed corporate observers, though most of them will remain silent out of respect for the plight of share holders.

Presently Board members are only quoting the financial figures of the Company to say that Mr Sikka has done some a great job. It is possible that Mr Sikka is a talented executive but he belongs to the generation where ethics is the last priority of business. Mr Narayana Murthy belongs to the other end of the spectrum where ethics comes before everything else. In such a scenario, difference of opinion is natural and his moving away may be the only logical solution.

But the Board cannot escape its own responsibilities and if they have failed to protect the long term interest of the share holders and also taken specific imprudent decisions on August 18th that eroded the share holder’s value, they deserve to be subjected to an independent enquiry.

The only organization which is statutorily empowered to do so now is SEBI. If SEBI finds some issues in the Panaya Deal, then there could be more serious issues involving Criminal action against some of the members of the top management.

If action could be initiated against Satyam Promoters for fudging accounts, we should accept that Infosys Board should also be open to scrutiny. The argument that an internal enquiry was held by an “Internationally reputed” firm does not cut the ice. We know that even Satyam had been audited by an “internationally reputed” accounting firm before it was found that the report itself was fraudulent. Since the current report of Infosys has been given by a law firm, it is likely that there would be proper disclaimers from the firm which itself could reveal a lot. I am sure that they would not have given the report in a manner which could land themselves in trouble but in the process made some statements which could indicate the possibility of what may be called a fraud. Board’s refusal to make it public therefore indicates that there is some thing to hide.

In the past, we have seen Enron and several other firms being held guilty of fraud at the highest level. Infosys under Vishal Sikka, coming from the US culture of Corporate Management cannot claim to be immune to such possibilities. The doubts raised by Mr Narayana Murthy should not be brushed away  without an independent enquiry. Had Infosys been a public sector company, investigation would have happened under a Supreme Court monitored SIT. Here at least the Board should make public the investigation report so that public will understand what has gone wrong.

Considering however that the Board members are well connected individuals, the Government may take the classic delaying strategy and wait for next one year for everything to cool down before trying to make the pretense of making any move to address the Corporate Governance complaints floating around Infosys.

Naavi