After a complaint by whistleblowers accusing Infosys CEO Salil Parekh and CFO Nilanjan Roy of unethical accounting practices, shares of the IT major tanked by nearly 16% in early trade on Tuesday. This is the biggest single day fall that the stock has seen since April 12, 2013. Till Tuesday afternoon, the stock touched a low of Rs 645, a level that was last reached on December 26, 2018.
The company’s market capitalisation eroded by Rs 43,925 crore (over $6 billion) and as of 2:31 pm, was trading 14.78% down at Rs 654.40.
Allegations were made against CEO Salil Parekh and CFO Nilanjan Roy indulging in “unethical practices” to increase short-term revenues and profits.
Following this, Nandan Nilekani, the Chairman of Infosys said that one Board member received two anonymous complaints on September 30, 2019. One of them was dated on September 20, 2019, and a second one which was undated. He added that these complaints were placed before the Audit Committee on October 10, 2019, and before the non-executive members of the Board on October 11, 2019.
Nilekani added that the undated whistleblower complaint largely deals with allegations relating to the CEO’s international travel to the US and Mumbai and that the complaints are being dealt with objectively.
“On October 16, 2019 the Company was made aware of a letter dated October 3, 2019 which was purportedly written to the Office of Whistleblower protection program, Washington D.C. This letter refers to the September 20, 2019 complaint, and to emails and voice recordings in support of the allegations. Although we have not been provided any of the emails or voice recordings, we will ensure that the generalized allegations are investigated to the fullest extent. Additionally, to ensure independence in these investigations the CEO and CFO have been recused from this matter,” he said in a filing with the stock exchanges.
The Audit Committee has retained the law firm of Shardul Amarchand Mangaldas & Co as of October 21, 2019, to conduct an independent investigation.
“At the appropriate time we will provide a summary of the investigations results. The Board is committed to uphold highest standard of corporate governance and protect the interests of all stakeholders,” the statement further added.
The complaints, which were reported earlier this week, came from whistleblowers, who are allegedly employees of the company. The whistleblowers, who call themselves ‘Ethical Employees’ accused Salil Parekh and Nilanjan Roy of unethical practices for many quarters, and said that they had emails and voice recordings as proof.
The group then reportedly wrote a letter to the US Securities and Exchange Commission (SEC) regarding the allegations against Salil Parekh that he was indulging in “unethical practices” to increase short-term revenues and profits. It further added that critical information is hidden from auditors and the Board of Directors as well, including in large contracts.
The letter further alleged that the CEO bypassed reviews and made racist comments about others on the board.
In a statement, Infosys said: “The whistleblower complaint has been placed before the Audit Committee as per the Company’s practice and will be dealt with in accordance with the Company’s whistleblowers policy”.
This is the second time the company has been embroiled in a major corporate governance issue after the founders versus board spat in 2017.
The five founders of the IT conglomerate raised issues such as erosion in corporate governance, huge salaries to top executives, costly acquisition (Panaya) and a large severance package to an ex-CFO Rajiv Bansal.
This spat led to the resignation of Vishal Sikka in August 2017, and the resignation of the then Chairman of board R Seshasayee and vice chairman Ravi Venkatesan. Nandan Nilekani was then appointed Nandan Nilekani as non-Executive Chairman in August 2017. And after nearly four months of searching for a new CEO, Salil Parekh, who was earlier with Capgemini was brought on board as the MD and CEO of Infosys in December 2017.