Infosys lost $7 billion in share value due to $50 million whistleblower complaint-- showing that governance is bigger than money
The share price of Infosys fell by 16.2% a day after whistleblowers complaint on its top management turned public, on Tuesday (October 22). That’s a wealth erosion of about ₹53,000 crore (about $7 billion). It also hit a lower circuit and closed at ₹643 per share.
This is due to a whistleblower complaint which alleged that the CEO and CFO top management put pressure on them to not recognise the reversal of $50 million on FDR contracts as it will slash profits.
Two anonymous whistleblowers accused the CEO Salil Parekh and CFO Nilanjan Roy of concealing information from auditors and keeping large deal information from the board. But, investors seem to fear that this may only be the tip of the iceberg.
And, this is not the first time that Infosys has been accused of ‘corporate governance’’ issues. In fact, the founder of the company and the promoter group has been vocal of possible irregularities, especially during the acquisition of Panaya for $200 million.
This was of course, two years back. Ever since, the CEO Vishal Sikka and the CFO R Seshasayee have quit after blaming the founder Naranya Murthy of ‘personal attacks’ on them. The board too had been scrubbed clean and changed by one of its founders Nandan Nilekani but as it seems to be, the troubles are far from over.
The severity of the fall in the share price today shows that investors are more worried about the standard of governance at one of India’s most famous home-grown companies that was once touted to be a benchmark in corporate governance.
As per he whistleblower complaints, millions in reversals were not added into the accounts, to make profits ‘look good’. Amongst other things, whistleblowers said that Even without a possibly fake facelift, Infosys has been losing out to its competitors.
A research report by Nomura has maintained its ‘neutral’ rating on the company preferring TCS over it. “We expect calendar year growth momentum to moderate in the second half below double digits as it should be seasonally weak with furloughs in the third quarter. Incrementally, outlook is weak in retail, and BFSI remains soft which is 50% of revenues combined), though performance and outlook on other verticals is strong,” the report said after Infosys declared its quarterly results.
For a company which is growing slow, investigation and accusations will not help. Not during times of slowdown which it already has a lot of ground to cover. If more troubles come out of the Pandora’s box, Infosys will risk comparison to the likes of Satyam Computers which went down in 2009 after the promoter Ramalinga Raju tried to merge it with another infrastructure company he runs, failed and declared his role in a scandal that hit the credibility of entire India Inc.