Infosys shares tank as Nilekani pledges probe

Mumbai: Infosys shares tanked to a 10-month low and dragged the Sensex down with it on Tuesday after whistle-blowers accused Chief Executive Officer Salil Parekh of attempting to shore up profits through irregular accounting.

The IT services major, which is yet to fully recover from the internal turmoil that rocked it two years ago, promptly began fire-fighting, with Chairman Nandan Nilekani pledging a full probe, with Parekh and Chief Financial Officer Nilanjan Roy being kept out of the investigation process. Nilekani said the complaint had been placed before the audit committee on October 10 and before the non-executive members of the board the next day.

Infosys shareholders were stunned as a whistleblower group’s complaint to the company and the US Securities Exchange Commission about its unethical accounting practices knocked off 16.21 per cent of its share price value on Tuesday.

The company’s 9.19 lakh shareholders lost Rs 52,922.18 crore of their accumulated share price value in a day, as the stock opened 10 per cent lower, tracking the 12 per cent decline overnight in Infosys ADRs listed on US bourses, and later plunged 16.86 per cent to Rs 638.30 intra-day before closing at Rs 643.30 on the BSE.

A group of employees describing themselves as ‘ethical’ employees wrote to the Infosys Board of Directors and the US SEC alleging unethical practices by its CEO Parekh and CFO Roy in recent quarters.

The letter accused Parekh of bypassing reviews and approvals for large deals for fear of reduced profits having a negative impact on its shares and instructing sales team not to send mails for approval and directing them to make wrong assumptions to show margins. Also, Roy prevents employees from highlighting issues around large deals in presentations to the company’s board, the whistleblowers alleged.

Infosys in a statement to the stock exchanges said that its audit committee was examining the allegations, in line with its policy on whistleblowers.

Referring to the whistleblower issue, Nilekani  said, “These complaints are being dealt with in an objective manner. The undated whistleblower complaint largely deals with allegations relating to the CEO’s international travel to the US and Mumbai.”

“We will ensure that the generalised allegations are investigated to the fullest extent. Additionally, to ensure independence in these investigations the CEO and CFO have been recused from this matter,” Nilekani said.

“Because the investigation is ongoing, there will be no further comment so that investigation may be conducted in a thorough and objective manner. 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,” Nilekani added.

Analyst at Emkay Global Financial Services said, “While we are not in a position to ascertain the truth of the allegations, the news flow around this may dominate investor attention in the near term and could continue to support the shift toward TCS, especially after September 2019 quarter results, despite Infosys's results being a tad better than TCS versus street expectations.”

On who could be behind the so-called ethical’ employees, Emkay Global said, “From its language and types of claims made, the letter seems to have come from employees of the finance department who are privy to the financials, accounting standards and the information prepared for board meetings/presentation. Certain sections of the street are inclined to link it to the recent resignation of deputy CFO Jayesh Sanghrajka.”

In 2017, Infosys had witnessed a protracted stand-off between its high profile founders and the previous management over allegations of governance lapses and issues relating to severance package doled out to former executives, including ex-CFO Rajiv Bansal.