Whistleblower charge of Infosys boosting revenue truly serious: Shriram Subramanian, InGovern Research
It is not clear whether the management in the first place presented the right numbers to the board.
The whistleblower letter has raised multiple concerns about the Infosys management, the CEO as well as the CFO. How serious are these charges because the company has taken a very calm stance. They have said that they are looking into the matters, they have received something similar a couple of weeks ago as well in terms of a complaint that was filed. How are things now likely to play out and how serious are the concerns that have been raised?
If you look at the whistleblower letter there are three things, three categories. I would think one is trivial matters, two is margin hiding which is more of a business call and the third is hiding of revenues or rather boosting revenues and hiding of costs. That is more of a serious nature where even information was withheld from auditors.
The investors need to be assured and get the true picture of whether the numbers which are presented in the quarter were the true numbers or whether there was anything a miss out there. It is the third category of allegations which are truly serious because it is not clear whether the management in the first place presented the right numbers to the board.
The board in turn presented the right numbers to investors. From that perspective, investors need to be assured and the investigations that the company has started need to quickly come to a logical conclusion and investors need to be presented with the true picture of the numbers and told what steps the company has taken to ensure that such things do not happen in future.
One of the things which is completely missed out in the narrative is probably the entire 2019 stock ownership plan which is based more on performance, where there is what is known as relative total shareholder return. The the senior management is incentivised so much to ensure that Infosys performs much better than its peers and from that perspective, and since their individual investing is based largely on performance, there is too much pressure on the management to show or to probably get into this bad behaviour. One does not really know that.
This is not the first time there is a whistleblower complaint against Infosys. In the last six-seven years, there have been three-four complaints. Is this a matter of concern for investors? We have not seen any major outcome of any of the whistleblower complaint so far.
There are various issues. Whistleblowing itself is a welcome mechanism. If anything, we should welcome more such whistleblowing mechanisms in other companies too. In the past, whatever whistleblowing happened in Infosys, was a different issue altogether. We need to discern from that perspective.
Two years ago, Infosys was probably the most widely held stock in India. It has the highest management or employee ownership. From that perspective, whistleblowing is a good thing to have happened.
What should investors wait for? Does this become an uncertainty till you get any clarity on all these three issues?
Definitely. I think firstly the board needs to present results of the investigation within a month or so. If they are going to delay it further or if no information is put out, it is going to show the company in a bad light. Already, today’s or yesterday’s statements show whistle-blowing complaints should have been put out probably two weeks earlier, rather than some newspaper coming out with it. Infosys is guilty of hiding at least the fact that there was a whistleblower complaint.